SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-KSB

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

For the fiscal year ended January 31, 1999
                          ----------------


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

For the Transition period from_________________to________________

                          Commission File Number 0-8513

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

            DELAWARE                               22-2058515
            --------                               ----------
  (State or other jurisdiction of                 (IRS Employer
   incorporation or organization)              Identification Number)

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

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

Securities registered pursuant to Section 12(b) of the 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 issuer [1] has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the preceding 12 months [or for such shorter period that the issuer was required
to file such reports],  and [2] has been subject to such filing requirements for
the past ninety days.
YES [X]   NO [ ]

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

The issuer's revenues for the year ended January 31, 1999 totalled $18,693,692.
On April 30, 1999, the aggregate  market value of the voting stock of the issuer
(consisting  of  Common  Stock,  $.01  par  value)  held by  non-affiliates  was
approximately $2,175,000 based upon the last sale price for such Common Stock on
said  date on the OTC  Bulletin  Board as  reported  by the  National  Quotation
Bureau,  Inc. On such date,  there were 4,488,369  shares of Common Stock of the
Issuer outstanding.

<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 eight restaurants on a year-round basis, seven of
which are  free-standing  seafood  restaurants  in New Jersey (four) 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.  Six 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
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.  (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 (732) 295-0350.

         Effective  November 22,  1996,  the Company  completed a  one-for-three
reverse stock split of its outstanding Common Stock in an effort to increase the
bid price of the Common  Stock to $1.00 or more so as to preserve the listing of
the Common  Stock on the NASDAQ  Stock  Market  Small Cap  System.  Despite  the
reverse stock split,  the Common Stock was delisted from the NASDAQ Stock Market
Small Cap System at the close of business on  December  16, 1998  because of the
failure of the Common  Stock to  maintain a closing  bid price at or above $1.00
per  share.  Unless  otherwise  indicated,  all share and per share  information
contained in this report gives effect to the said  one-for-three  reverse  stock
split. 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 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  period  would  have
approximated such adjusted prices if the  one-for-three  reverse stock split had
been effectuated at such time.

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<PAGE>

DEVELOPMENTS SINCE THE BEGINNING OF THE LAST FISCAL YEAR

         At the  conclusion of  competitive  bidding  conducted in Trenton,  New
Jersey on August 31, 1998 at the United States Bankruptcy Court for the District
of New  Jersey,  the  Court  ordered  the sale of the  1,766,557  shares  of the
Company's Common Stock (the "Brennan  Shares") owned by the Bankruptcy Estate of
Robert E. Brennan  (comprising  approximately  39% of the Company's  outstanding
Common  Stock)  to  the  highest  bidder,  JES  Management  Corp.  ("JES").  The
successful  bid  was  $2.5625  per  share  or  $4,526,802.30  in the  aggregate.
Subsequent  to the  auction,  JES  demanded  that the Trustee of the  Bankruptcy
Estate satisfy certain additional conditions before it would close the purchase.
The  Trustee  took  the  position  that  he was not  required  to  satisfy  such
conditions  and that by failing to close the purchase,  JES was in breach of its
contractual obligation.

         On  October  28,  1998,  the  Trustee  filed  an  application  with the
Bankruptcy  Court  for an order  declaring  that JES was in  breach of its stock
purchase  obligation  thereby  disqualifying JES as the purchaser of the Brennan
Shares and  declaring  that JES had  forfeited  its  $100,000  good faith escrow
deposit.  The Court  signed an order in November  1998  granting  the  Trustee's
application so that JES has been  disqualified as a purchaser.  Presumably,  the
Trustee  will  attempt  another  auction  although  the timing of same cannot be
predicted.

         Also on August 31, 1998, the Bankruptcy Court ordered acceptance of the
Company's bid of  $1,100,000  to purchase the Vero Beach,  Florida real property
where it has been operating a Lobster Shanty restaurant since 1979 pursuant to a
"month to month" lease with a  partnership  in which Robert E. Brennan had been,
and the Chapter 11 Trustee of his Bankruptcy  Estate was the principal  partner,
from the partnership. On October 30, 1998, the Company completed the purchase of
this  property for  $1,100,000.  To fund the purchase,  the Company  obtained an
$880,000  first  mortgage  loan from its  principal  lending  bank,  First Union
National Bank, and paid the balance of the purchase price from working  capital.
The  Company's  successful  bid was based upon an  independent  appraisal of the
property and was equal to the appraised value. See "Bank Loans" herein as to the
repayment terms of this loan.

         At  January  25,  1998  in  connection  with  its  sale  of  95% of the
outstanding  capital stock of its Mister Cookie Face, Inc. ("MCF") subsidiary to
a Company director,  Frank "Doc" Koenemund,  the Company held two MCF promissory
notes. One note with a principal  balance of $500,000  outstanding  (Note X) was
payable in monthly  principal  amounts,  commencing March 1, 1998, of $16,667 or
$33,333 in each month other than the months of January,  February  and  December
through July 2000 together  with  interest at the rate of 9 1/4% per annum.  The
second note (Note Y) in the  principal  amount of  $500,000 is payable  together
with interest at an annual rate of 8

                                       2

<PAGE>

1/4% on or before February 20, 2004 but is mandatorily prepayable quarterly from
30% of MCF's "cash flow" (if any) on a consolidated  basis. Both Note X and Note
Y are secured by a first lien on all of MCF's assets but are subordinated to any
liens granted by MCF to its senior lending bank or institutional  lender up to a
maximum of $1,750,000.  MCF was also obligated to pay certain monthly amounts to
the Company equal to the monthly rental payments being paid by the Company under
two Master Lease Finance  Schedules with respect to ice cream  manufacturing and
packaging equipment installed at MCF's Lakewood, New Jersey plant, 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.

         MCF  advised  the  Company  that  it was  unable  to make  the  $33,333
principal  payment  under Note X which was due on  September 1, 1998 due to cash
shortages and requested that the remaining  indebtedness  under Notes X and Y be
restructured.  At the same time,  MCF advised  that it was  obtaining a $450,000
working capital loan and requested that the Company  subordinate its lien to the
lien of MCF's  lending bank. In  consideration  for MCF applying  $54,068 of the
loan proceeds to prepay the remaining  balance  outstanding under the two Master
Lease Schedules thereby releasing it from any further liability thereunder,  the
Company agreed to so subordinate its lien.

         Since October 1998, MCF has been making monthly  payments of $10,000 to
the  Company  which the  Company  has  applied  to  interest  and to reduce  the
outstanding  principal  amount of Note X. At  January  31,  1999,  an  aggregate
$337,843  of  principal  was  outstanding  under Note X and the entire  $500,000
principal  amount  was  outstanding  under  Note  Y.  Management  believes  that
permitting  MCF to  continue to pay $10,000 per month under Note X, based on its
current  financial  condition,  maximizes  MCF's ability to pay the  outstanding
balance of the Note.  Because of MCF's lack of positive  cash flow,  no payments
were  required to be made by MCF in fiscal 1999 with respect to Note Y. See Note
5 of Notes to the Consolidated Financial Statements.

         At the end of the third quarter of fiscal 1999,  the Company closed its
Belmar,  New Jersey Lobster Shanty  restaurant due to  unsatisfactory  operating
results.  The  Company had been  leasing and  operating  this  restaurant  since
October 1994 and continued to make monthly lease payments  through February 1999
when the lease expired.

                                       3

<PAGE>

         Pursuant to a decision of a Nasdaq Listing  Qualifications  Panel,  the
Company's  Common Stock was delisted from The Nasdaq Stock Market,  effective at
the close of business on December 16, 1998. The cited cause of the delisting was
the  failure of the  Common  Stock to  maintain a closing  bid price at or above
$1.00 per share for a minimum of ten consecutive  days. Since December 17, 1998,
the Common  Stock has been  traded on the OTC  Bulletin  Board  under the symbol
"CHEF."

         On April 1, 1999, by mutual  agreement,  the Company and Moore Stephens
P.C.  ("Moore  Stephens")  agreed to the  replacement  of Moore  Stephens as the
Company's independent  accountants for the audit of its financial statements for
the fiscal year ended  January 31, 1999.  The  agreement  was reached  after the
Company was advised by the staff of the Securities and Exchange  Commission that
in the staff's  opinion,  the  existence of a  relationship  between a member of
Moore  Stephens  and an entity  which held a direct or indirect  interest in the
Company's  securities  adversely  impacted  Moore  Stephens'  independence  with
respect to the Company.  The staff  further  advised  that for this reason,  the
Company's  financial  statements  for the three  years  ended  January  25, 1998
contained in its annual  report on Form 10-K for the year ended January 25, 1998
are considered by the staff to be unaudited.  Moore Stephens has advised that it
disagrees  with the  staff's  position  and  believes  that it was at all  times
independent with respect to the Company's audits. Excluding the above issue, the
staff has not alleged any inaccuracies in the Company's financial statements.

         On April 1, 1999, the Company engaged the certified  public  accounting
firm of  Edward  Isaacs &  Company  LLP  ("Edward  Isaacs  LLP") to serve as its
principal  independent  accounting firm to audit its balance sheet as of January
31, 1999 and the related  statements of operations,  stockholders'  equity,  and
cash flows for each of the two  fiscal  years in the period  ended  January  31,
1999.  Prior to the engagement of Edward Isaacs LLP, the Company did not consult
with such firm on any accounting, auditing or financial reporting issue.

BANK LOANS

         At January  25,  1998,  the  Company's  principal  bank  financing  was
provided  pursuant to a $1,000,000 term loan ("Term Loan A") and a $525,000 term
loan ("Term Loan B") from First Union National Bank ("First Union") as well as a
$350,000  revolving line of credit ("L/C line") from First Union.  At said date,
approximately   $600,000  was   outstanding   under  Term  Loan  A,  payable  in
installments  of  principal  with  interest at an annual  rate of 7.51%  through
November 2000; an aggregate  $525,000 was outstanding  under Term Loan B payable
in monthly  installments  of principal with interest at an annual rate of 9 1/4%
through December 2002 and  approximately  $325,000 was outstanding under the L/C
line,  due June 30,  1998.  Term Loan A and the L/C line were  secured  by first
mortgages  on the

                                       4

<PAGE>

Company's two Point Pleasant Beach, New Jersey seafood restaurants and Term Loan
B was  secured  by a first  mortgage  on the  Toms  River,  New  Jersey  seafood
restaurant.

         During  fiscal  1999,  the Company  reduced the  outstanding  principal
balance of Term Loan A to  approximately  $400,000  and reduced the  outstanding
principal  balance of Term Loan B to approximately  $420,000.  At June 30, 1998,
the L/C line was renewed for the fifth  consecutive  year for an additional  one
year term and increased to $500,000,  repayable  with interest at an annual rate
of LIBOR plus 2 1/4%.  Approximately $225,000 was outstanding under the L/C line
at January 31, 1999.

         In May  1998,  the  Company  borrowed  $124,000  from  First  Union  to
partially  fund the purchase of property  adjoining  its Toms River,  New Jersey
seafood restaurant.  The loan is repayable in monthly  installments of principal
with  interest  at an annual  rate of LIBOR plus 2 1/4%  through May 2003 and is
secured by a first mortgage on the property. At January 31, 1999,  approximately
$107,500 was outstanding under this loan.

         In October 1998, the Company borrowed $880,000 from First Union to fund
the $1,100,000 purchase of its Vero Beach, Florida seafood restaurant. This loan
is repayable in monthly installments of principal and interest at an annual rate
of 7.82% through  November  2008 and is secured by a first  mortgage on the Vero
Beach  property.  At January 31, 1999,  approximately  $876,500 was  outstanding
under this loan (which  provides  for a $431,429  "balloon"  payment in November
2008).

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

         Pursuant to its principal Loan Agreements, the Company has made certain
affirmative and negative  covenants to First Union.  The covenants  contained in
the prior loan agreements were superseded by the covenants contained in the Vero
Beach Loan  Agreement.  Included in the Vero Beach Loan  Agreement are covenants
not to pay  dividends,  effect  stock  redemptions,  sell or issue shares of its
stock,  make a material  change of ownership that changes control of the Company
or its management  structure,  create certain liens or encumbrances,  enter into
sale-leaseback transactions, sell assets not in the ordinary course of business,
merge with or acquire another entity,  or enter into certain other  transactions
without First Union's written consent,  and to maintain on a consolidated basis,
tangible  net  worth of at  least  $11,650,000  increasing  by  $50,000  at each
subsequent  fiscal year-end  commencing with fiscal 1999; a debt to Tangible Net
Worth  ratio  of no  greater  than  .50:1.00;  a net  income,  depreciation  and
amortization   less   Maintenance   Capital   Expenditures   (defined  as  those
expenditures  required  on an  annual  basis  to  maintain  existing  restaurant

                                       5

<PAGE>

locations) to the current  portion of long term debt and capital leases ratio of
not less than 1.20:1.0; 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 First Union to accelerate  payment
of all outstanding indebtedness.

         At the end of fiscal  1998,  the  Company  was not in  compliance  with
certain of its  covenants  under its Loan  Agreements by failing to maintain the
requisite Debt Service Coverage Ratio.  However, the Company requested and First
Union  granted a waiver of its right to declare a default based on the Company's
failure to comply with this  covenant at January  25,  1998.  The Company was in
compliance with all applicable covenants at January 31, 1999.

         (B)  BUSINESS OF ISSUER - The Company is engaged in one  business;  the
operation of eight restaurants in New Jersey and Florida on a year-round basis.

                              RESTAURANT OPERATIONS

         The  Company  is   principally   engaged  in  the  operation  of  eight
restaurants  on a year-round  basis,  seven of which are  free-standing  seafood
restaurants  in New Jersey  (four)  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.  Six 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

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<PAGE>

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

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

Pt. Pleasant Beach, New Jersey                 October 1980

GARCIA'S RESTAURANT

Monmouth Mall, Eatontown,
  New Jersey                                   April 1996

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, and seats approximately
200. It opened in December,  1979  pursuant to a lease from  Gourmet  Associates
("Gourmet")  owned by  Robert  E.  Brennan,  the  principal  stockholder  of the
Company.  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.  During  fiscal  1998,  the Company  constructed  an
outdoor deck with a bar and dining  facilities  at this  restaurant at a cost of
approximately $125,000.

         See  "Developments  Since the  Beginning of the Last Fiscal Year" as to
the Company's purchase of this restaurant in October 1998.

         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

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<PAGE>

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  with a  waterfront
location  on the Toms River in Toms  River,  New Jersey and seats  approximately
375.  Municipal parking  facilities are available nearby.  The Company purchased
this restaurant and three others (including the land,  buildings,  improvements,
and businesses including personal property and fixtures, liquor licenses and all
of the outstanding stock of the four corporations  operating these  restaurants)
from 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.  During  fiscal  1998,  the  Company
commenced  an  interior  renovation  of this  restaurant,  the bulk of which was
completed in fiscal 1998 with the balance  completed  early in fiscal 1999.  The
total cost of this renovation was  approximately  $338,000.  In fiscal 1999, the
Company  constructed  an outdoor deck with a bar and dining  facilities  at this
restaurant adding approximately 125 seats at a cost of approximately $188,000.

         In May 1998,  the Company spent $166,000 to purchase a lot and building
with a  waterfront  location  adjacent  to the Toms River  Lobster  Shanty.  The
Company  partially  funded  the  purchase  price  with the bank loan  previously
described.  The Company is currently applying for the variances necessary for it
to develop an outdoor patio dining area with seating for 125 on this site. If it
is successful,  it estimates the total costs of  construction  and outfitting at
approximately $350,000 for an opening anticipated in fiscal 2001.

         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

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<PAGE>

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.

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

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<PAGE>

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 did not open a Garcia's  restaurant in each of the first
five 12-month periods (including the grace period),  the Agreement provided that
it would lose the right to develop additional  restaurants within the Territory.
The Company did not open an additional Garcia's restaurant within the prescribed
time period after the April 1996 opening of its initial Garcia's restaurant. The
Company  retains  the right to utilize  the marks,  goodwill  and recipes at its
Garcia's  restaurant  and  Garcimex  has  agreed  not to  open  another  Mexican
restaurant within an 18-mile radius of any Company operated Garcia's restaurant.

         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

                                       10

<PAGE>

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.

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.

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.  The Company's  Garcia's  restaurant has experienced its greatest
sales volume during the Thanksgiving through Christmas period.

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

                                       11

<PAGE>

supplies and its location.  The Company's seafood  restaurants compete primarily
with  other  local  seafood  restaurants  and to a  lesser  extent,  with  local
restaurants  serving a more general fare. The principal national  competition to
the Company's  seafood  restaurants is the Red Lobster  restaurant  chain.  This
chain has  substantially  greater  resources  than the  Company.  The  Company's
Florida  seafood   restaurants   also  face   competition  from  Shells  seafood
restaurants operating in their area. There are other restaurants in the 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,  Ruby  Tuesdays and TGI Fridays.  There can be no
assurance that the Company's units will be able to successfully compete with any
of such other restaurants.

GOVERNMENT REGULATION

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

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

EMPLOYEES

         The Company  maintains  its  administrative  employees at its executive
offices  including  its principal  officers (see "Item 9 - Directors,  Executive
Officers,  Promoters and Control  Persons;  Compliance with Section 16(a) of the
Exchange Act"),  secretarial and  bookkeeping  personnel.  Each of the Company's
seafood  restaurant units employs a general manager,  two assistant managers and
between 40 and 130 other  employees to serve as  waitresses,  waiters,  busboys,
bartenders, cooks, dishwashers,  kitchen help, hostesses and cashiers (some on a
part-time basis).  The Company's Garcia's  restaurant  employs  approximately 40
employees  serving similar

                                       12

<PAGE>

functions.  The Company also  presently  employs  three area  supervisors,  each
responsible for certain of the Company's restaurants.  Managerial candidates are
recruited for the Company's  restaurants  from hotel and  restaurant  management
schools,  restaurant  recruiting  agencies,  through  advertising  in restaurant
management   magazines   and  by  promotion   from  within  the   Company's  own
organization.  At January 31, 1999, the Company had a total of approximately 415
employees  (including  part-time  workers).  The  Company  is not a party to any
collective bargaining agreements and has enjoyed satisfactory employee relations
since inception.


ITEM 2.  DESCRIPTION OF PROPERTY

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

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


ITEM 3.  LEGAL PROCEEDINGS

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


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

         No matters were submitted to a vote of the Company's  security  holders
during the quarter ended January 31, 1999.

                                       13

<PAGE>

                            CHEFS INTERNATIONAL, INC.

                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND
                  RELATED STOCKHOLDER MATTERS 


         The Common Stock was listed on the NASDAQ Stock Market Small Cap System
under the symbol "CHEF" until the close of business on December 16, 1998 when it
was  delisted  because of the failure of the Common  Stock to maintain a closing
bid price at or above $1.00 per share.  Commencing December 17, 1998, the Common
Stock has been traded on the OTC Bulletin Board under the symbol "CHEF."

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

                  April 27, 1997            $ .65625    $  .5625
                  July 27, 1997             $   .625    $    .50
                  October 26, 1997          $   1.00    $  .5625
                  January 25, 1998          $ .90625    $ .53125

                  April 26, 1998            $  .9375    $ .46875
                  July 26, 1998             $   .875    $   .625
                  October 25, 1998          $   1.25    $   .625
                  October 26
                   through
                  December 16, 1998         $ .90625    $ .71875

                  OTC BULLETIN BOARD TRADING

                  December 17, 1998
                   through
                  January 31, 1999          $ .71875    $   .625

         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 April 30, 1999, the number of record holders of the Common Stock was
6,853.   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 Agreement with First Union National
Bank,  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.  MANAGEMENT'S DISCUSSION AND
         ANALYSIS OR PLAN OF OPERATION

OVERVIEW

         The Company  currently  operates  eight  restaurants in Florida and New
Jersey.  The three  Florida  restaurants  trade  under the name of Jack  Baker's
Lobster  Shanty  and offer a  predominantly  seafood  menu.  The five New Jersey
restaurants  include  three  Jack  Baker's  Lobster  Shantys  and  Jack  Baker's
Wharfside restaurant,  which feature a seafood menu and Garcia's,  the Company's
Mexican  restaurant.  At the end of the third  quarter,  the Company  closed its
Belmar, New Jersey restaurant because of unsatisfactory  operating results.  The
Company operated nine restaurants, including Belmar, for all of fiscal 1998. The
statement of operations for fiscal 1999 was comprised of 53 weeks as compared to
52 weeks for fiscal 1998.

RESULT OF OPERATIONS

         Sales for the 53 weeks  ended  January 31,  1999 were  $18,693,700,  an
increase of $596,600 or 3.3%, as compared to $18,097,100  for the 52 weeks ended
January 25, 1998. The extra week of sales accounted for  approximately  $260,000
of the  increase  and the Belmar  restaurant,  which did not operate  during the
fourth quarter of fiscal 1999,  had sales of $147,900  during the fourth quarter
of 1998. The increase in sales this year occurred in the New Jersey  restaurants
primarily as a result of good weather and a  successful  renovation  of the Toms
River  restaurant  which enjoyed a 16% sales  increase over last year.  Customer
counts for the chain were less than 1% higher in fiscal 1999 while the  customer
check average increased by approximately 2.8%.

         Gross profit was 67.1% of sales for fiscal 1999 as compared to 67.2% of
sales for fiscal 1998. The slight decrease can be attributed  entirely to higher
liquor costs.  Management  instituted a modest  liquor price  increase in August
1998 to offset  some of the higher  costs.  Overall  food  costs were  unchanged
versus the prior  year.  While some food  products  did  increase in cost during
fiscal 1999,  management was able to offset those increases by raising selective
menu item prices and adjusting the menu meal mix to highlight lower cost items.

         Payroll and related  expenses were 29.9% of gross sales for fiscal 1999
compared  to 30% for 1998.  The sales  increase  offset  the  effects  of higher
salaries and health and worker's  compensation  costs.  Other operating expenses
were 20.5% of sales for fiscal 1999 versus 21.7% in 1998. The primary components
of the  improvement  were the  increase  in sales,  the  closure  of the  Belmar
restaurant,   and  lower  miscellaneous  operating  expenses  resulting  from  a
reduction  in the  overhead  costs of  maintaining  the Company  corporate  food
freezers.

                                       15

<PAGE>

         Depreciation and amortization  expenses were $12,600 higher than fiscal
1998 due  primarily  to capital  expenditures  of  $650,000  at the Vero  Beach,
Florida  and  Toms  River,  New  Jersey  restaurants  offset  by a  decrease  in
depreciation  expense at the Wharfside  restaurant due to the expiration  (fully
depreciated)  of a large portion of the costs  associated  with  rebuilding  the
restaurant  after a 1987  fire.  The Vero Beach  restaurant  real  property  was
purchased during the fourth quarter of fiscal 1999 for $1,189,000,  inclusive of
closing costs of $89,000 from a partnership,  the principal  partner of which is
the Chapter 11 Trustee of the  Bankruptcy  Estate of Robert E.  Brennan.  During
fiscal  1999,  the Company  expended  approximately  $224,200  to  complete  the
renovation of the interior of the Toms River  restaurant and to build a seasonal
outdoor dining area.

         General and  administrative  expenses were $119,000 less in fiscal 1999
versus 1998  primarily  due to a reduction of $61,300 in legal  expenses,  lower
insurance  costs of $18,000 and a reduction  in annual  report costs of $28,500.
Legal  expenses  were higher in fiscal 1998  primarily  due to $100,000 in legal
costs  associated with a lawsuit  brought against the Company's  directors which
was dismissed in September 1997. The Company did not print annual reports during
fiscal 1999.

         The loss on the closing of the Belmar restaurant  consists primarily of
the loss associated  with the  abandonment of fixed assets totaling  $43,700 and
rent  payments of $25,900  which were  required to be paid through  February 28,
1999.

         Interest expense was $12,900 higher in fiscal 1999 primarily because of
the interest  expense  associated  with a May 1998  $124,000 five year term loan
used to  partially  fund the  purchase  of a  property  next to the  Toms  River
restaurant  and with a November 1998 $880,000  first  mortgage used to partially
fund the purchase of the Vero Beach property. Interest income was $20,000 higher
in fiscal 1999 due to interest  collected on notes  associated with the February
1997 sale of the Company's Mister Cookie Face ("MCF") ice cream subsidiary.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's ratio of current assets to current liabilities was 1.32:1
at January  31,  1999,  compared  to 1.20:1 at the end of fiscal  1998.  Working
capital was $653,200 at the end of fiscal 1999 versus $465,100 at the end of the
prior  year.  During the year ended  January 31,  1999,  net cash  decreased  by
$264,100.  Net cash provided  from  operating  activities  was  $1,217,200.  The
primary  changes in assets and  liabilities  were a  reduction  of  $287,700  in
accounts payable due to fiscal 1999's  profitability and an increase of $104,100
in accrued  liabilities  primarily due to a successful  holiday gift certificate
promotion.  Investing  activities  during  fiscal  1999  resulted  in a net cash
outflow of $1,070,400.  Capital

                                       16

<PAGE>

expenditures  totaled $2,079,400 with the major components  including $1,188,500
associated with the purchase of the Vero Beach restaurant property,  $166,000 to
purchase the Toms River  property,  approximately  $224,200 to complete the Toms
River restaurant  interior  renovation and build the outdoor dining area and the
balance of $500,000 spent on routine restaurant improvements.  Investing inflows
included  payments of $240,800 by MCF on notes and capital  leases  (leases paid
off during the third quarter) receivable from the February 1997 sale. During the
third quarter of fiscal 1999, MCF requested a restructuring  of the terms of the
notes it owes to the Company. Management has not yet agreed to new terms and MCF
was in arrears at January 31, 1999 in the  payment of  approximately  $37,800 of
its indebtedness to the Company.  MCF continues to make partial payments of such
indebtedness including months where the original terms called for interest only.
Financing  activities  netted a cash outflow of $410,800 as a result of new debt
proceeds totaling  $349,000 offset by debt repayments of $759,800.  The new debt
included the $124,000  bank loan incurred for the Toms River  property  purchase
and $225,000 in advances  under the  Company's  $500,000 bank line of credit for
inventory  purchases,  leaving an available balance of $275,000 at year end. The
line was renewed in June of 1998 and increased from $350,000 to $500,000.

         During  fiscal 1998,  net cash  increased by $98,700.  Fiscal 1998 cash
provided by operating  activities was $847,300 with the primary  component being
an increase in inventories of $113,700.  Investing  activities had a net outflow
of $303,000  resulting  primarily  from  capital  expenditures  of $790,700  for
restaurant  improvements including approximately $425,000 for the Vero Beach and
Toms River restaurants,  offset by $670,500 received from MCF. Net cash outflows
from  financing  activities  in fiscal 1998 were  $445,700  resulting  from debt
repayment of $1,295,600 offset by new debt proceeds of $850,000 which included a
December  1997  $525,000  five-year  term  loan,  a portion of which was used to
partially  finance the Toms River  renovation,  and $325,000 in borrowings under
the Company's $350,000 bank line of credit used for inventory purchases.

         At the end of fiscal 1999,  the Company was in  compliance  with all of
the covenants  under its Loan Agreement with its primary bank,  First Union.  At
the end of  fiscal  1998  the  Company  was not in  compliance  with  one of the
covenants  by failing to  maintain  the  requisite  funds Flow  Coverage  Ratio.
However,  First Union  granted a waiver of its right to declare a default  under
the Loan Agreement.

         Subsequent to the year ended January 31, 1999 the Company  entered into
a  contract  to sell the Belmar  liquor  license  to an  unaffiliated  buyer for
$150,000  cash  pending  approval by the Belmar,  New Jersey  municipal  and New
Jersey state liquor board authorities.

                                       17

<PAGE>

         Management  anticipates that funds from operations,  the liquor license
sale  proceeds,  and  the  bank  line  of  credit  will  be  sufficient  to meet
obligations  in  fiscal  2000,   including  projected  capital  expenditures  of
approximately $535,000. Those capital expenditures include approximately $80,000
for  Y2K  expenses  including  computers  and  phone  systems,  $55,000  for one
restaurant  point of sale system that may need to be replaced  and  $400,000 for
routine restaurant improvements. A majority of the capital expenses are expected
to occur during the second and third quarters.

YEAR 2000

         Commencing in 1997,  the Company began a review of its  restaurant  and
corporate  computer systems to identify  potential  problems with the "Year 2000
Issue"  ("Y2K").  As a result of that  review,  it was  determined  that certain
systems  would  require  remediation,  specifically,  the  corporate  main frame
computer,  various restaurant point of sale systems (POS) and personal computers
("PC"s) used throughout the Company.

         At January 31, 1999, the Company was at various stages of completion of
the remediation  process.  The main frame software programming changes have been
completed and final testing will occur in May 1999.  Mainframe Y2K  expenditures
to date  have  not been  material  and  have  been  expensed  as  incurred.  The
restaurant POS process,  including those systems not affected by Y2K issues,  is
63% compliant and vendors for the impacted systems indicate that fixes should be
available during the second quarter of calendar 1999. It is anticipated that the
cost of such fixes will not be material  and will be  expensed  as incurred  and
funded from operating cash flows.  The Company is in the final stages of the bid
process to replace  non-compliant  corporate PCs. It is anticipated that the new
PCs will be in place  sometime  during the third quarter ending October 31, 1999
and the cost is  estimated  to be  $50,000  which  will  also be  funded  out of
operating cash flows.

         Additionally,  the Company contacted its various suppliers of goods and
services  regarding their  compliance  with Y2K issues.  Although the Company is
unable to verify the Y2K  readiness  of all third  party  vendors,  the  Company
believes that there are multiple  vendors of goods and services it receives from
its suppliers and the risk of non-compliance with Y2K by any of its suppliers is
minimal.  To date, several key vendors such as payroll/human  resources,  credit
card processors, the major food and liquor suppliers, and various public utility
companies have indicated that they are or will be compliant. At least 50% of the
remaining  vendors  contacted  have  indicated  in writing that they will be Y2K
compliant or that they will not be affected.

                                       18

<PAGE>

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.


ITEM 7.  FINANCIAL STATEMENTS

         Attached.


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

         See Item 1, "Developments  Since the Beginning of the Last Fiscal Year"
as to the replacement of Moore Stephens P.C.  ("Moore  Stephens") as the Company
independent accountants for the audit of its financial statements for the fiscal
year ended January 31, 1999 with the certified public  accounting firm of Edward
Isaacs & Company  LLP.  The latter  firm has  rendered  its audit  opinion  with
respect to the Company's  consolidated  balance sheet as of January 31, 1999 and
the related consolidated statement of operations,  stockholders equity, and cash
flows for each of the two fiscal  years in the period  ended  January  31,  1999
contained in this report.

         Moore  Stephens'  report  with  respect  to  the  Company's   financial
statements  for the two fiscal  years ended  January 25, 1998 did not contain an
adverse  opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.

         The agreement to replace  Moore  Stephens and to retain a new principal
independent accounting firm was approved by the Company's audit committee and by
its board of directors.

         During the two most recent fiscal years ended  January 25, 1998,  there
were no  disagreements  between the Company and Moore  Stephens on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which disagreement,  if not resolved to the satisfaction of
Moore  Stephens,  would have caused it to make a reference to the subject matter
of the disagreement in connection with its report.

                                       19

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                           YEAR ENDED JANUARY 31, 1999


<PAGE>


                                TABLE OF CONTENTS

                                                               Page   
                                                               ----   

FINANCIAL STATEMENTS:

   Independent Auditors' Report                                 F-1

   Consolidated Balance Sheet - January 31, 1999               F-2-3

   Consolidated Statements of Operations -
      Years Ended January 31, 1999 and January 25, 1998         F-4

   Consolidated Statements of Stockholders' Equity -
      Years Ended January 31, 1999 and January 25, 1998         F-5

   Consolidated Statements of Cash Flows
      Years Ended January 31, 1999 and January 25, 1998         F-6

   Notes to Consolidated Financial Statements                 F-7-17


<PAGE>

                          INDEPENDENT AUDITORS' REPORT



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



We  have  audited  the   accompanying   consolidated   balance  sheet  of  Chefs
International,  Inc. and  subsidiaries  as of January 31, 1999,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the two  fiscal  years in the  period  ended  January  31,  1999.  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 audits 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  financials
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   subsidiaries  as  of  January  31,  1999,  and  the
consolidated  results of their  operations  and their cash flows for each of the
two fiscal  years in the period  ended  January 31,  1999,  in  conformity  with
generally accepted accounting principles.



April 26, 1999


                                       F-1

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                JANUARY 31, 1999



                                     ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                    $   871,950
     Investments                                      400,000
     Miscellaneous receivables                         71,278
     Inventories                                      995,647
     Due on sale of discontinued operations
         from related party                            68,355
     Assets held for sale                             135,000
     Prepaid expenses                                 157,472
                                                  -----------

             TOTAL CURRENT ASSETS                   2,699,702
                                                  -----------

PROPERTY, PLANT AND EQUIPMENT, at cost             19,747,731

Less: Accumulated depreciation                      7,322,169
                                                  -----------

             PROPERTY, PLANT AND EQUIPMENT, net    12,425,562
                                                  -----------

OTHER ASSETS:
     Investments                                      534,000
     Goodwill - net                                   502,580
     Liquor licenses - net                            544,233
     Due on sale of discontinued operations
         from related party                           211,149
     Equity in life insurance policies                458,600
     Due from related party                             2,427
     Other                                             22,482
                                                  -----------

             TOTAL OTHER ASSETS                     2,275,471
                                                  -----------

                                                  $17,400,735
                                                  ===========


See notes to consolidated financial statements.

                                       F-2

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEET (CONTINUED)

                                JANUARY 31, 1999



                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Notes and mortgages payable              $    586,342
     Accounts payable                              657,363
     Accrued payroll                                91,328
     Accrued expenses                              370,548
     Other liabilities                             321,263
     Income taxes payable                           19,700
                                              ------------

             TOTAL CURRENT LIABILITIES           2,046,544
                                              ------------

NOTES AND MORTGAGES PAYABLE                      1,442,470
                                              ------------

OTHER LIABILITIES                                  486,404
                                              ------------

STOCKHOLDERS' EQUITY:
     Capital stock - common $.01 par value,
         Authorized 15,000,000 shares,
         Issued and outstanding 4,488,369           44,884
     Additional paid-in capital                 32,304,485
     Accumulated deficit                       (18,924,052)
                                              ------------

             TOTAL STOCKHOLDERS' EQUITY         13,425,317
                                              ------------

                                              $ 17,400,735
                                              ============


See notes to consolidated financial statements.

                                       F-3

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                YEARS ENDED JANUARY 31, 1999 AND JANUARY 25, 1998



                                                 1999            1998
                                             ------------    ------------

SALES                                        $ 18,693,692    $ 18,097,100

COST OF GOODS SOLD                              6,141,920       5,943,083
                                             ------------    ------------

         GROSS PROFIT                          12,551,772      12,154,017
                                             ------------    ------------

OPERATING EXPENSES:
     Payroll and related expenses               5,582,361       5,424,262
     Other operating expenses                   3,840,887       3,929,281
     Depreciation and amortization              1,014,895       1,002,238
     General and administrative expenses        1,749,789       1,868,706
     Loss on closing of restaurant                 93,909              --
                                             ------------    ------------

         TOTAL OPERATING EXPENSES              12,281,841      12,224,487
                                             ------------    ------------

         INCOME (LOSS) FROM OPERATIONS            269,931         (70,470)
                                             ------------    ------------

OTHER INCOME (EXPENSE):
     Interest expense                            (128,132)       (115,181)
     Interest income                              169,393         149,399
                                             ------------    ------------

         OTHER INCOME, NET                         41,261          34,218
                                             ------------    ------------

         INCOME (LOSS) BEFORE INCOME TAXES        311,192         (36,252)

PROVISION FOR INCOME TAXES                         20,600              --
                                             ------------    ------------

         NET INCOME (LOSS)                   $    290,592    $    (36,252)
                                             ============    ============

BASIC INCOME (LOSS) PER COMMON SHARE         $        .06    $       (.01)
                                             ============    ============


See notes to consolidated financial statements.

                                       F-4

<PAGE>

<TABLE>
<CAPTION>
                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                YEARS ENDED JANUARY 31, 1999 AND JANUARY 25, 1998


                                                                                            
                                                Capital       Additional                        Total    
                                 Number         Stock          Paid-in        Accumulated   Stockholders'
                                of Shares      Par Value       Capital          Deficit         Equity 
                               ------------   ------------   ------------    ------------    ------------

<S>                               <C>         <C>            <C>             <C>             <C>         
BALANCE at January 26, 1997       4,488,291   $     44,883   $ 32,304,486    $(19,178,392)   $ 13,170,977

Fractional shares conversion             56             --             --              --              --

Net loss                                 --             --             --         (36,252)        (36,252)
                               ------------   ------------   ------------    ------------    ------------

BALANCE at January 25, 1998       4,488,347         44,883     32,304,486     (19,214,644)     13,134,725

Fractional shares conversion             22              1             (1)             --              --

Net income                               --             --             --         290,592         290,592
                               ------------   ------------   ------------    ------------    ------------

BALANCE at January 31, 1999       4,488,369   $     44,884   $ 32,304,485    $(18,924,052)   $ 13,425,317
                               ============   ============   ============    ============    ============
</TABLE>


See notes to consolidated financial statements.

                                       F-5

<PAGE>

<TABLE>
<CAPTION>
                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                YEARS ENDED JANUARY 31, 1999 AND JANUARY 25, 1998

                                                                                      1999            1998
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>         
OPERATING ACTIVITIES:
     Net income (loss)                                                             $   290,592    $   (36,252)
     Adjustments to reconcile net income (loss) to net
        cash provided by operating activities:
           Depreciation and amortization                                             1,014,895      1,002,238
           Loss on closing of restaurant                                                93,909             --
           Loss on disposal of assets                                                    2,045          6,558
                                                                                   -----------    -----------

              CASH PROVIDED BY OPERATIONS                                            1,401,441        972,544

           Increase  (decrease)  in cash  attributable  to changes in assets and
              liabilities:
                  Miscellaneous receivables                                             (5,050)        (7,942)
                  Inventories                                                           43,556       (113,740)
                  Prepaid expenses                                                     (58,925)       (10,038)
                  Accounts payable                                                    (287,704)       (22,179)
                  Accrued expenses and other liabilities                               104,144         28,699
                  Income taxes payable                                                  19,700             --
                                                                                   -----------    -----------

              NET CASH PROVIDED BY OPERATING ACTIVITIES                              1,217,162        847,344
                                                                                   -----------    -----------

INVESTING ACTIVITIES:
     Capital expenditures                                                           (1,199,438)      (790,701)
     Proceeds from sale of restaurant assets                                               800            430
     Loss on closing of restaurant                                                     (49,386)            --
     Sale or redemption of investments                                                 196,000        160,000
     Purchase of investments                                                          (249,000)      (250,000)
     Proceeds from notes receivable - discontinued operations - related party          240,803        670,544
     Equity in life insurance policies                                                 (52,162)       (48,032)
     Other assets                                                                       41,937        (45,246)
                                                                                   -----------    -----------

              NET CASH USED IN INVESTING ACTIVITIES                                 (1,070,446)      (303,005)
                                                                                   -----------    -----------

FINANCING ACTIVITIES:
     Repayment of debt                                                                (759,829)    (1,295,655)
     Proceeds from debt                                                                349,000        850,000
                                                                                   -----------    -----------

              NET CASH USED IN FINANCING ACTIVITIES                                   (410,829)      (445,655)
                                                                                   -----------    -----------

              NET (DECREASE) INCREASE IN CASH AND
                  CASH EQUIVALENTS                                                    (264,113)        98,684

CASH AND CASH EQUIVALENTS at beginning                                               1,136,063      1,037,379
                                                                                   -----------    -----------

              CASH AND CASH EQUIVALENTS at end                                     $   871,950    $ 1,136,063
                                                                                   ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid                                                                 $   122,819    $   113,399
                                                                                   ===========    ===========

     Income taxes paid                                                             $       900    $        --
                                                                                   ===========    ===========

NONCASH TRANSACTIONS:
     In fiscal 1999 the Company  acquired the Vero Beach property and restaurant
        for $1,188,507, payable $308,587 in cash and a $880,000 mortgage.
</TABLE>

See notes to consolidated financial statements.

                                                      F-6

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
         POLICIES

         Business:

         Chefs International,  Inc. and its subsidiaries (the "Company") operate
         seven seafood restaurants, located in New Jersey and Florida, generally
         under the trade  name,  "Lobster  Shanty".  The Company  also  operates
         Garcia's, a franchised Mexican restaurant in New Jersey.

         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 $632,000.

         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. At January 31,
         1999, investments include $35,000 representing the estimated fair value
         of 5% of the stock of the Mr.  Cookie  Face,  a  business  segment  the
         Company sold to a related party in 1997 (see Note 5).

         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 ranging from 3 to 40 years.

         Goodwill:

         Goodwill represents cost in excess of fair value of businesses acquired
         and is being amortized over an estimated  useful life of 40 years under
         the straight-line method.

                                       F-7

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

         Impairment:

         Certain  long-term assets of the Company,  including  goodwill,  liquor
         licenses  and  property,  plant and  equipment,  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 fair value usually  measured by
         projected discounted net cash flow.

         Management  also  re-evaluates  annually the periods of amortization to
         determine whether  subsequent events and circumstances  warrant revised
         estimates of useful lives. As of January 31, 1999,  management  expects
         these assets to be fully recoverable.

         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 1999 and 1998 were $541,464 and $548,355, respectively.

                                       F-8

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.       INVENTORIES

         Inventories consist of the following:

         Food                                                $   522,253
         Beverages                                               104,301
         Supplies                                                369,093
                                                             -----------

              Totals                                         $   995,647
                                                             ===========

3.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of the following:

         Land                                                $ 3,262,159
         Buildings and improvements, including leaseholds     14,629,266
         Furniture and equipment                               1,696,460
         Construction in progress                                 57,011
         China, glassware and utensils (a)                       102,835
                                                             -----------

                                                             $19,747,731
                                                             ===========

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

         Depreciation  expense was  $964,590  and  $950,161  for fiscal 1999 and
         1998, respectively.

4.       INTANGIBLE ASSETS

         Intangible assets consist of:

                                                           Liquor
                                            Goodwill       Licenses
                                          ------------   ------------
         Cost                             $    949,820   $    837,307
         Less: Accumulated amortization        447,240        293,074
                                          ------------   ------------

                                          $    502,580   $    544,233
                                          ============   ============


         Amortization  expense was $51,138 and $52,077 for fiscal 1999 and 1998,
         respectively.

         The liquor  license  for the  Company's  Belmar  restaurant,  which was
         closed during fiscal 1999, is included in the accompanying consolidated
         balance  sheet  as  asset  held  for  sale.  The  offers  in all of the
         negotiations  for the sale of the license are in excess of its recorded
         value.

                                       F-9

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.       DUE ON SALE OF DISCONTINUED OPERATIONS FROM RELATED PARTY

         On February 20, 1997 (as of January 26, 1997),  the Company sold 95% of
         the common stock of Mr. Cookie Face ("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 for $100,000 was due on or before March 24,
         1997, the second note for $500,000, is due in installments through July
         1, 2000,  and the third note for $500,000 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  recorded  a  valuation
         allowance of $601,050 against the second and third notes. During fiscal
         1999,  MCF  requested  a  restructuring  of the terms of the second and
         third notes.  As of January 31, 1999  management  has not yet agreed to
         the restructuring  terms but has permitted MCF to make partial payments
         until a restructured agreement is finalized.

         Cash  receipts  for these notes are applied to  principal  and interest
         based on the discounted  note payment  schedules,  which resulted in an
         additional  $40,000 of interest income being recognized in fiscal 1999,
         and have been applied as follows for fiscal 1999 and 1998:
<TABLE>
<CAPTION>

                                                      January 31,         January 25,
                                                        1999                 1998
                                                  ----------------      ---------------

<S>                                               <C>                   <C>            
          Interest income                         $         78,541      $        58,480
                                                  ================      ===============

          Average recorded investment in loans    $        326,222      $       398,950
                                                  ================      ===============

          Cash basis interest income              $         79,427      $        54,883
                                                  ================      ===============

          Valuation Allowance                     $        561,050      $       601,050
                                                  ================      ===============

6.       NOTES AND MORTGAGES PAYABLE

<S>                                                                                         <C>        
         Mortgage payable in monthly installments of $8,319,
         inclusive of interest at 7.82%, through November 2008,
         collateralized by real estate located in Vero Beach, Florida                       $   876,348

         Mortgage payable in various monthly installments to amortize the mortgage at the
         rate of  $105,000  annually,  through  December  2002  with  interest  at 9.25%,
         collateralized by real estate located in Toms River,  New Jersey                       420,000

         Mortgage  payable in  monthly  installments  of $2,067  through  May 2003,  plus
         interest at LIBOR plus  2.25%,  collateralized  by real  estate  located in Toms
         River, New Jersey                                                                      107,467
                                                                                            -----------

            Carried forward                                                                 $ 1,403,815
                                                                                            -----------
</TABLE>


                                      F-10

<PAGE>



                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.       NOTES AND MORTGAGES PAYABLE (Continued)
<TABLE>
<CAPTION>

<S>                                                                                    <C>              
         Brought forward                                                                        $       1,403,815

         Note payable in various monthly installments to amortize the note at the rate of
         $200,000   annually   through   November  15,  2000,  with  interest  at  7.51%,
         collateralized by real estate located in Point Pleasant Beach, New Jersey                        399,997

         Line  of  credit  due  June  30,  1999,  with  interest  at  LIBOR  plus  2.25%,
         collateralized by real estate located in Point Pleasant Beach, New Jersey                        225,000
                                                                                                 -----------------

                                                                                                         2,028,812
          Less: Current maturities                                                                         586,342
                                                                                                 -----------------

                                                                                                 $       1,442,470
                                                                                                 =================
</TABLE>

         Annual  maturities  for fiscal years 2001  through  2004 are  $364,087,
         $166,707, $169,746 and $51,492, respectively.

         At  January  31,  1999  LIBOR and the prime  rate were 5.08% and 7.75%,
         respectively,  and the weighted  average  interest rate for  short-term
         borrowings  was 7.33%.  The unused  amount  under the line of credit at
         January 31, 1999 was $275,000.

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

7.       TRANSACTIONS WITH RELATED PARTIES

         A  principal  stockholder  of the Company is the  principal  owner of a
         partnership  which leased the Vero Beach restaurant to the Company.  In
         October 1998 the Company  acquired the property for  $1,100,000.  Total
         rent  expense  was  $90,000  and  $120,000  for  fiscal  1999 and 1998,
         respectively.

         A director  purchased  95% of a subsidiary  as of January 26, 1997 (see
         Note 5).

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

                                      F-11

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.       RETIREMENT PROGRAMS

         The Company has a non-qualified  supplemental  retirement program which
         provides life insurance to certain eligible  employees.  The Company is
         the owner of all cash  values of the  policies.  The death  benefit  is
         split,  reimbursing the Company for premiums paid with the balance paid
         to the  beneficiary  designated by the employee.  Employees vest in the
         program  after ten  years,  with the  option to take  ownership  of the
         policy at that time or let the Company  continue to fund the policy for
         an additional 5 years.  The Company has recorded,  as a long-term asset
         in the  accompanying  balance  sheet,  its equity in life insurance for
         premiums  advanced and has included in other long-term  liabilities the
         Company's  estimated  liability  for the  amount of the  equity in life
         insurance which the Company will be required to turn over to employees.

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

         The  Company's  expense for these plans was  $46,253 and  $56,129,  for
         fiscal 1999 and 1998, respectively.

9.       COMMITMENTS AND CONTINGENCIES

         The  Company  leases  a  restaurant, parking  lot and  equipment  under
         operating leases expiring at various times through the year 2008.

         Minimum future rental payments under noncancelable  operating leases as
         of January 31, 1999, are as follows:

                 Year Ending January

                         2000                             $         126,256
                         2001                                       114,114
                         2002                                       123,870
                         2003                                       138,398
                         2004                                       118,017
                      Thereafter                                    462,233
                                                          -----------------

                                                          $       1,082,888
                                                          =================

         Rent  expense  was  $389,612  and  $434,347,  for fiscal 1999 and 1998,
         respectively.

         The Company has employment agreements terminating January 2000 with two
         employee/directors for annual amounts ranging from $92,800 to $160,000.
         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.

                                      F-12

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.      EARNINGS PER SHARE

         Effective January 25, 1998 the Company adopted SFAS No. 128,  "Earnings
         Per Share",  which  established  standards for computing and presenting
         both basic and diluted  earnings per share. The weighted average number
         of shares  outstanding  used to compute  basic  earnings  per share for
         fiscal 1999 and basic loss per share for fiscal 1998 was  4,488,369 and
         4,488,347,  respectively.  Stock options to purchase  249,060 shares in
         fiscal 1999 were outstanding,  but were not included in the computation
         of diluted  earnings per share because the options  exercise  price was
         greater  than the  average  market  price  of the  common  shares,  and
         therefore the effect would be anti-dilutive.  Stock options to purchase
         249,060 shares in fiscal 1998 were outstanding but were not included in
         the  computation  of diluted loss per share because the effect would be
         anti-dilutive.

11.      STOCK OPTIONS

         Under its 1982  Incentive  Stock Option Plan, the Company was permitted
         to grant key  executives  stock  options  through June 1992.  Under the
         plan,  an aggregate of 55,556  shares of common stock were reserved for
         issuance. Options vested immediately and were exercisable over a period
         of five or ten years.  As of January 31, 1999 options for 36,560 shares
         were outstanding. The options expire November 1999.

         In October 1994 and 1995, the Company's stockholders approved grants of
         216,667 and 300,000  non-qualified options to directors of the Company.
         The exercise  prices for the 1994 and 1995 grants were $3.75 and $3.00,
         respectively.  The options granted in both years vested immediately and
         were  exercisable over five years. As part of the sale of Mister Cookie
         Face (see Note 5), a director  forfeited 304,167 options issued in 1994
         and 1995.

         The Company  utilizes the  disclosure-only  provisions  of SFAS No. 123
         "Accounting  for  Stock-Based   Compensation"  and  applies  Accounting
         Principles Board ("APB") Opinion No. 25 and related  interpretations in
         accounting  for its stock option plans.  Under APB No. 25,  because the
         exercise prices of the Company's employee stock options are equal to or
         greater than the market prices of the  underlying  Company stock on the
         date of grant, no compensation expense is recognized. Since the options
         issued  were for past  service,  there would have been no effect on net
         income for 1999 and 1998 if the options had been recorded at fair value
         under SFAS No. 123.

         Summary of stock option activity is as follows:
<TABLE>
<CAPTION>

                                                         1999                        1998
                                             --------------------------  -----------------------------
                                                             Weighted                      Weighted
                                                             Average                       Average
                                                             Exercise                      Exercise
                                                Shares         Price         Shares         Price
                                             -------------   ----------  --------------  -------------

<S>                                                <C>            <C>           <C>             <C>   
         Outstanding - beginning of year           249,060        $3.19         256,839         $ 3.13
         Granted or sold during the year                 -            -               -              -
         Canceled during the year                        -            -          (7,779)         0.984
         Expired during the year                         -            -               -              -
         Exercised during the year                       -            -               -              -
                                             -------------   ----------  --------------  -------------

           Outstanding - end of year               249,060        $3.19         249,060         $ 3.19
                                             =============   ==========  ==============  =============

           Exercisable - end of year               249,060        $3.19         249,060         $ 3.19
                                             =============   ==========  ==============  =============
</TABLE>

                                      F-13

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.      STOCK OPTIONS (Continued)

         The following table summarizes  stock option  information as of January
         31, 1999:

<TABLE>
<CAPTION>

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

<S>       <C>                                                <C>               <C>               <C>              
          $             0.984                                $ 36,560          .7 Years          $           0.984
          $     3.00 to $3.75                                 212,500          .9 Years                      3.570
                                                        -------------        ----------          ------------------

                                                            $ 249,060          .9 Years          $           3.190
                                                        =============                            ==================
</TABLE>

12.      INCOME TAXES

         The significant components of deferred tax assets and liabilities as of
         January 31, 1999 are as follows:

         Deferred Tax Assets:
          Tax loss carryforwards                              $ 3,726,000
          Capital loss carryforwards                              215,000
          Other                                                    86,000
                                                       ------------------

             Totals                                             4,027,000
                                                       ------------------

        Deferred Tax Liabilities:
         Depreciation                                             249,000
         Valuation reserves                                       230,000
                                                       ------------------

             Totals                                               479,000
                                                       ------------------

        Net Deferred Tax Assets                                 3,548,000
        Less: Valuation allowance                               3,548,000
                                                       ------------------

                                                       $                -
                                                       ==================

         As of January 31, 1999 the valuation allowance reduces the net deferred
         tax  asset to zero.  The net  change  in the  valuation  allowance  was
         $102,000 for fiscal year 1999.  The change in fiscal 1999 was primarily
         due to the utilization of tax loss carryfowards.

                                      F-14

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




12.      INCOME TAXES (Continued)

         The Company used approximately  $567,000 and $230,000 of operating loss
         carryforwards in fiscal 1999 and 1998, respectively. The tax effect was
         as follows:

                                              1999           1998
                                         ------------    ------------

         Federal:
           Income tax expense            $    182,000    $     73,000
           Operating loss carryforward       (182,000)        (73,000)
                                         ------------    ------------

              Total                      $         --    $         --
                                         ============    ============

         State:
           Income tax expense            $     44,000    $     18,000
           Operating loss carryforward        (23,400)        (18,000)
                                         ------------    ------------

              Total                      $     20,600    $         --
                                         ============    ============


         The  Company  has  available  at  January  31,  1999,   operating  loss
         carryforwards as follows:


              Year of Expiration
              ------------------

                   2000                                   $  1,104,930
                   2001                                      1,565,887
                   2002                                      1,509,463
                   2003                                      2,072,345
                   2004                                      2,942,316
                   2005                                        472,062
                   2006                                        220,595
                   2007                                        215,047
                   2008                                        196,704
                   2009                                        155,075
                   2010                                        103,553
                   2011                                        144,559
                   2012                                         88,405
                                                          ------------

                     TOTAL                                $ 10,790,941
                                                          ============


                                      F-15

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.    INCOME TAXES (Continued)

       A  reconciliation  of the  Company's  effective tax rate to the statutory
       U.S. Federal tax rate is as follows:

                                                   1999             1998
                                                ----------       ----------

       Federal statutory rate                         34.0  %         (34.0) %
       State taxes net of Federal benefit              5.0             (5.0)
       Valuation allowance change                     28.6                -
       Operating loss carryforwards                  (61.0)            39.0
                                                ----------       ----------

         Effective Rate                                6.6  %             -  %
                                                ==========       ==========

13.    FAIR VALUE

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

                                                          January 31, 1999
                                             -----------------------------------------
                                                 Carrying               Estimated
                                                  Amount               Fair Value
                                             -----------------      ------------------

<S>                                                <C>                 <C>            
       Long-term investments                       $   534,000         $       534,000
       Related party long-term receivables         $   211,149         $       211,149
       Long-term debt                              $ 1,442,470         $     1,442,470
</TABLE>

       For certain short-term instruments,  including cash and cash equivalents,
       investments,  receivables, related party receivables, payables, and debt,
       it was assumed that the carrying amount  approximated  fair value for the
       majority of these instruments because of their short maturities. The fair
       value of long-term financial  instruments is determined to be the same as
       the carrying  amount,  based on the similarity of current market interest
       rates with the interest rates of the financial instruments.

14.    52-53 WEEK PERIOD

       The Company's  year end is the last Sunday in January.  The statements of
       operations  are  comprised  of a 53-week  period for fiscal  1999,  and a
       52-week period for fiscal 1998.


                                      F-16

<PAGE>

                   CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.    RECENTLY ISSUED ACCOUNTING STANDARDS

       In June 1998, the Financial  Accounting  Standards Board issued Statement
       of  Financial   Accounting  Standards  (SFAS)  No.  133,  Accounting  for
       Derivative  Instruments and Hedging  Activities,  which becomes effective
       for the Company's financial  statements  beginning January 31, 2000. SFAS
       No. 133 requires a company to recognize  all  derivative  instruments  as
       assets or  liabilities  in its  balance  sheet and  measure  them at fair
       value.  The adoption of SFAS No. 130 will have no impact on the Company's
       consolidated financial statements.

       The American  Institute of Certified Public  Accountants issued Statement
       of Position  (SOP) 98-1,  Accounting  for the Costs of Computer  Software
       Developed  or  Obtained  for  Internal  Use which are  effective  for the
       Company's fiscal 2000 financial statements. Adoption of SOP No. 98-1 will
       have  no  material  effect  on  the  Company's   consolidated   financial
       statements.

                                      F-17

<PAGE>

                            CHEFS INTERNATIONAL, INC.

                                    PART III


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

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

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

Anthony Papalia             41      President, Treasurer, Chief
                                    Executive Officer, Chief Financial
                                    Officer and Director

James Fletcher(a)           68      Director

Martin W. Fletcher(a)       46      Secretary and Director

Frank Koenemund             55      Director

Jack Mariucci               59      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.

                                       20

<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. Mr. Mariucci
is also a director of  International  Thoroughbred  Breeders,  Inc.,  a publicly
owned  Delaware  corporation  which owns Garden State Park in Cherry  Hill,  New
Jersey and the El Rancho Hotel in Las Vegas, Nevada.

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 1999,
all Section 16(a) filing requirements applicable to its officers,  directors and
beneficial owners of more than 10% of its equity securities were timely complied
with.


ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth information  concerning the compensation
paid or accrued by the Company  during the three fiscal years ended  January 31,
1999 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 1999.
During the  three-

                                       21

<PAGE>

year period  ended  January 31, 1999,  the Company did not grant any  restricted
stock  awards  or have any  long-term  incentive  plan in  effect.  The  Company
maintains  a  non-qualified   Supplemental  Employee  Benefit  Program  for  its
officers, supervisors,  restaurant managers and assistant managers paying annual
contributions  ranging from $1,000 to approximately  $3,000 per individual.  The
Program provides life insurance death benefits,  disability  income benefits and
retirement income benefits. 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 funded this obligation with an
insurance  policy  paying an annual  premium of  approximately  $5,000 until Mr.
Fletcher's retirement at the conclusion of fiscal 1997.

                           SUMMARY COMPENSATION TABLE

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

Anthony Papalia            1999     $150,000  $-0-     $2,088(a)
  President and            1998     $150,000  $-0-     $2,088(a)
  Chief Executive          1997     $150,000  $-0-     $2,088(a)
  Officer

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

EMPLOYMENT AGREEMENTS

         At the annual  meeting of the Company's  stockholders  held on December
19, 1995,  stockholders  ratified  employment  contracts between the Company and
Anthony  Papalia as chief  executive  officer  and chief  financial  officer and
between the Company and Martin Fletcher as controller.  Each contract expired at
the conclusion of the Company's 1999 fiscal year and 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.  As no such notice was given  during  fiscal  1999,  each
contract is currently in its first renewal  year.  Mr.  Papalia's  annual salary
under the  contract  was $150,000  and Mr.  Fletcher's  annual  salary under the
contract  was  $87,000  but each  individual's  salary is subject  to  automatic
increase in each Renewal Year based on increases in the Consumer Price Index. As
a result,  during  fiscal 2000,  Mr.  Papalia's  annual  salary was increased to
$160,000 and Mr.  Fletcher's  annual  salary was  increased  to $92,800.  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

                                       22

<PAGE>

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.  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 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 9,997 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.

                                       23

<PAGE>

         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.

         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.

                                       24

<PAGE>

         The  following   table  sets  forth  certain   information   concerning
unexercised  options held by Mr.  Papalia.  No options were  exercised in fiscal
1999.

                       1999 FISCAL YEAR-END OPTION VALUES

              Number of Unexercised Options At 1999 Fiscal Year-end
              -----------------------------------------------------

                                                        Value of Unexercised
                                                            In-The-Money
   Name              Exercisable      Unexercisable     Options At 1/31/99(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 31, 1999.

DIRECTORS' COMPENSATION

         During fiscal 1999, Jack Mariucci, was compensated at a monthly rate of
$1,500 for serving as a director.  Such  compensation  is  continuing  in fiscal
2000. In addition, James Fletcher was paid a monthly director's fee of $1,250 in
fiscal 1999, which compensation is continuing in fiscal 2000.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN
                  BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth  information  as of April 30, 1999 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               71,390(1)                 2%
James Fletcher                   334                   --

                                       25

<PAGE>

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

Martin Fletcher               65,167(2)                  1%
Frank Koenemund              233,334                     5%
Jack Mariucci                104,167(3)                  2%

All executive officers
and directors as a group
(five persons)               474,392(1)(2)(3)           10%

OTHER

Donald F. Conway           1,766,557(4)                 39%
Chapter 11 Trustee of
 the Bankruptcy Estate
 of Robert E. Brennan
Druker, Rahl & Fein
200 Canal Pointe Boulevard
Princeton, New Jersey 08540

Michael F. Lombardi,         358,665(5)                  8%
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

----------
*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) On June 10, 1997,  Donald  Conway,  CPA was appointed as Trustee in
the Chapter 11  Bankruptcy  proceedings  involving  Mr.  Brennan  pending in the
United States District Court for the District of New Jersey (Case No. 95-35502).
As a result,  Mr.  Conway in his  capacity  as Trustee is deemed the  beneficial
owner of these shares.

                                       26

<PAGE>

         (5) The five individuals,  the Investment Club and the firm and Defined
Benefit Plan of Lombardi & Lombardi,  P.A.  (collectively the "Lombardi Group"),
have filed a report on Schedule  13D and  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  their  acquisition  of the  Common  Stock  is for
investment purposes.  However, the Lombardi Group offered to purchase the shares
owned by Robert E.  Brennan  which  purchase,  if  consummated,  would  give the
Lombardi Group  beneficial  ownership of  approximately  47% of the  outstanding
Common Stock and would thereby enable the Lombardi Group to control the Company.
To date, the Lombardi Group offer has not been accepted.

         Donald  F.  Conway  in  his  capacity  as  Chapter  11  Trustee  of the
Bankruptcy  Estate  of  Robert E.  Brennan  may be deemed to be the  controlling
stockholder of the Company.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         See Item 1 herein, "Developments Since the Beginning of the Last Fiscal
Year" as to the  Company's  purchase in October 1998 of the Vero Beach,  Florida
real property where it had been operating a Lobster Shanty restaurant since 1979
from a partnership, the principal partner of which was the Chapter 11 Trustee of
the Bankruptcy Estate of Robert E. Brennan,  and as to Management's  acceptance,
pending  further  negotiation,  of a modified  schedule of installment  payments
under a  promissory  note  issued to the Company by MCF in  connection  with the
Company  sale on  February  20,  1997  (as of  January  26,  1997) of 95% of the
outstanding capital stock of MCF to a director, Frank "Doc" Koenemund.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

3.1               Restated Certificate of Incorporation of the Company

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

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

                                       27

<PAGE>

10.4              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 54,167
                  shares each at an exercise  price of $3.75 per share and as of
                  December 19, 1995 with Frank  Koenemund  (250,000  shares) and
                  Jack Mariucci  (50,000  shares) at an exercise  price of $3.00
                  per share(B)

10.5              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(C)

10.6              Agreement of Sale dated August 1998 between Gourmet Associates
                  and the Company  concerning the purchase by the Company of the
                  Vero Beach, Florida Lobster Shanty Restaurant

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

16                Letter of the Company's former auditors,  Moore Stephens, P.C.
                  dated  April  6,  1999  as  required  by  Item   304(a)(3)  of
                  Regulation S-B(D)

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

                           State of
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

27                Financial Data Schedule

                                       28

<PAGE>

-----------
         (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 February 20, 1997
         (D)  Incorporated by reference to exhibit filed with Amendment No. 1 to
the Company's current report on Form 8-K/A for April 1, 1999

         (b)      REPORTS ON FORM 8-K

         The  Company  did not file any  reports  on Form  8-K  during  the last
quarter of the fiscal year ended January 31, 1999.

                                       29

<PAGE>

                                   SIGNATURES

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


(Registrant)                                Chefs International, Inc.
                                            -------------------------



By                                          /s/ANTHONY C. PAPALIA
                                            ------------------------------------
                                            Anthony C. Papalia, President,
                                            Principal Executive, financial
                                            and accounting officer and director


Date                                        May 14, 1999
                                            ------------------------------------


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



By /s/ ANTHONY C. PAPALIA                  By /s/ FRANK KOENEMUND
   -----------------------------------        ----------------------------------
       Anthony C. Papalia, Principal              Frank Koenemund, Director
       executive, financial and
       accounting officer and director     Date May 14, 1999
                                                --------------------------------
Date May 14, 1999
     ---------------------------------




By /s/ MARTIN FLETCHER                     By /s/ JACK MARIUCCI
   -----------------------------------        ----------------------------------
       Martin Fletcher, Director                  Jack Mariucci, Director

Date May 14, 1999                          Date May 14, 1999
     ---------------------------------          --------------------------------

By /s/ JAMES FLETCHER
   -----------------------------------
       James Fletcher, Director

Date May 14, 1999
     ---------------------------------

                                       30

<PAGE>

                                 EXHIBIT INDEX


3.1       Restated Certificate of Incorporation of the Company

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

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

10.4      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 54,167  shares each at an exercise  price of $3.75
          per share and as of December  19, 1995 with Frank  Koenemund  (250,000
          shares) and jack  Mariucci  (50,000  shares) at an  exercise  price of
          $3.00 per share(B)

10.5      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(C)


10.6      Agreement of Sale dated August 1998 between Gourmet Associates and the
          Company  concerning  the  purchase  by the  Company of the Vero Beach,
          Florida Lobster Shanty Restaurant

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

16        Letter of the Company's  former auditors,  Moore Stephens,  P.C. dated
          April 6, 1999 as required by Item 304(a)(3) of Regulation S-B(D)

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


                              State of
Name                          Incorporation              Restaurants
----                          -------------              -----------

Chefs International           Florida                    Lobster Shanty -
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 -
  Realty Co., Inc.                                       Toms River, New Jersey

Highstown REB, Inc.           New Jersey                 Lobster Shanty -
                                                         Highstown, New Jersey

27        Financial Data Schedule

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                              EXHIBIT INDEX CONT'D

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          (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 February 20, 1997
          (D) Incorporated by reference to exhibit filed with Amendment No. 1 to
the Company's current report on Form 8-K/A for April 1, 1999