SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

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

For the fiscal year ended January 25, 1998

                                       OR

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

For the Transition period from_________________to________________

                          Commission File Number 0-8513

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

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

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

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

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

On March 31,  1998,  the  aggregate  market  value of the voting  stock of Chefs
International,  Inc.  (consisting  of  Common  Stock,  $.01 par  value)  held by
non-affiliates  of the Issuer was  approximately  $1,950,000 based upon the last
sale price for such Common Stock on said date in the over-the-counter  market as
reported  by the  National  Quotation  Bureau,  Inc.  On such  date,  there were
4,488,347 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 nine restaurants on a year-round basis, eight of
which are  free-standing  seafood  restaurants  in New Jersey (five) and Florida
(three) and one of which is a Mexican theme  restaurant  operated under the name
"Garcia's,"  located  in a shopping  mall in New  Jersey.  Seven of the  seafood
restaurants are operated under the name "Lobster  Shanty" and one under the name
"Baker's Wharfside." The Company opened its first seafood restaurant in November
1978 and opened its Garcia's  restaurant in April 1996. The Company had operated
LaCrepe  restaurants in various  shopping malls in New Jersey,  Pennsylvania and
Florida (the first such  restaurant  opening in November  1975),  but closed its
last La Crepe  restaurant  in December 1995 at its present  Garcia's  restaurant
site.  See "Recent  Developments"  as to the sale by the Company on February 20,
1997 (as of January 26,  1997) of 95% of the common  stock of its Mister  Cookie
Face,  Inc.  subsidiary  ("MCF" or "Mr.  Cookie Face"),  a Lakewood,  New Jersey
producer of ice cream  sandwiches.  (As used herein,  the term the "Company" may
also at times include Chefs and its various subsidiaries.)

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

Recent Developments

Reverse Stock Split

      Effective November 22, 1996, the Company completed a one-for-three reverse
stock split of its outstanding  Common Stock.  Unless otherwise  indicated,  all
share and per share  information  contained  in this report  gives effect to the
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.

Discontinued Operation

      The failure to complete a proposed 1993 public  offering of its securities
prevented  the  Company  from  adequately  funding the growth of MCF's ice cream
operations.  As a result, MCF was unable to expand its markets and product lines
as originally planned. Management determined it was advisable to divest Chefs of
the  bulk of its  100%  ownership  of MCF and to  terminate  its  obligation  to
continue  to fund MCF's  operations.  On  February  20,  1997 (as of January 26,
1997),  Chefs  sold  95% of the  outstanding  capital  stock  of MCF to a Chefs'
director, Frank "Doc" Koenemund.

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


                                        1

<PAGE>




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

Principal Payment Due Date                         Principal Payment Amount

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

together with interest on the unpaid principal balance at the rate of 9 1/4% per
annum payable monthly  commencing March 1, 1997. At the date of this report, the
March 1 and April 1, 1998  installments  of principal and interest had been paid
in full.  Note B, although  secured by a first lien on all of MCF's  assets,  is
subordinated  to any liens  granted in the  future by MCF to its senior  lending
bank or  institutional  lender but solely  with  respect to a maximum  aggregate
$1,750,000 of indebtedness.

           The  third  note  (Note C) in the  principal  amount of  $500,000  is
payable together with interest at an annual rate of 8 1/4% on or before February
20, 2004 but is  mandatorily  prepayable on a quarterly  basis from 30% of MCF's
"cash flow" on a consolidated  basis,  commencing  with the quarter ending April
30,  1997.  Note C is also secured by a first lien on all of MCF's assets and is
also  subordinated  to any liens  granted  in the  future  by MCF to its  senior
lending  bank or  institutional  lender  but  solely  with  respect to a maximum
$1,750,000 of indebtedness.  During fiscal 1998,  certain interest payments were
made to Chefs with respect to Note C based on MCF's "cash flow."

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

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

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

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

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

           In view of the substantial  advances made to MCF, the fact that MCF's
operating loss in fiscal 1997 was approximately  $600,000,  the decline in MCF's
sales and other factors,  Chefs' management concluded that it was in Chefs' best
interest to sell MCF. Chefs'  management  examined a number of alternatives  and
the  Board of  Directors  (with Mr.  Koenemund  abstaining)  concluded  that the
transaction  proposed by Mr.  Koenemund  afforded  Chefs with the best chance to
recoup all or a significant portion

                                        2

<PAGE>



of its  substantial  investment  in MCF.  The board  noted  that  Chefs also was
retaining a 5% equity  interest in MCF,  protected by a pre-emptive  right until
all of the Notes were paid. See Note 17 of Notes to the  Consolidated  Financial
Statements.

Bank Loans

      At January 26, 1997,  the Company's  principal bank financing was provided
pursuant  to a $625,000  term loan ("Term  Loan A") and a  $1,000,000  term loan
("Term  Loan B") from First Union  National  Bank  ("First  Union") as well as a
$1,000,000 revolving line of credit ("L/C line") from First Union. At that date,
approximately $416,500 was outstanding under Term Loan A payable in installments
of principal and interest through November 15, 1998;  approximately $800,000 was
outstanding  under Term Loan B payable in installments of principal and interest
through November 15, 2000 and  approximately  $500,000 was outstanding under the
L/C line,  due on May 31,  1997.  Interest  on the Term Loans was  computed at a
fixed annual rate of 7.51%.  These loans were secured by first  mortgages on the
Company's two Pt.  Pleasant Beach,  New Jersey seafood  restaurants and its Toms
River, New Jersey seafood restaurant.  The Company also had a $350,000 revolving
line of credit from First  Union due June 30, 1997  secured by a mortgage on the
Toms River  restaurant  under which  approximately  $100,000 was  outstanding at
January 26, 1997.

      During fiscal 1998, the Company paid  approximately  $191,000 in reduction
of the  principal of Term Loan A. The balance was retired out of the proceeds of
the December 1997 $525,000 bank loan hereinafter  described.  Principal payments
on Term Loan B during fiscal 1998 reduced the  outstanding  balance of that loan
at January 25, 1998 to approximately  $600,000. The L/C line obligation was paid
in full at the time of the  February  20, 1997 (as of January 26,  1997) sale of
95% of the capital stock of MCF to Frank Koenemund out of the proceeds  received
from that sale.  The $350,000 line of credit was renewed at June 30, 1997 for an
additional  year.  Advances under that line bear interest at First Union's prime
rate. At January 25, 1998,  approximately  $325,000 was  outstanding  under this
line of credit.

      On  December  1, 1997,  the  Company  borrowed  $525,000  from First Union
pursuant to a five-year term loan repayable in monthly installments of principal
commencing in March 1998 together with interest on the unpaid balance at a fixed
annual rate of 9 1/4%. This loan is also secured by a mortgage on the Toms River
restaurant.  The  Company  applied  $225,000  of the  loan  proceeds  to pay the
outstanding  balance of Term Loan A. The $300,000  balance of the loan  proceeds
has been applied by the Company to  partially  finance  renovations  at its Toms
River restaurant.  The entire amount of this loan was outstanding at January 25,
1998.

      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  Agreement,  the Company has made certain
affirmative and negative  covenants to First Union  (including  covenants not to
pay dividends, effect stock redemptions or incur certain additional indebtedness
while the loan is outstanding, and to maintain on a consolidated basis, tangible
net worth of at least  $11,400,000  increasing  by  $50,000  at each  subsequent
fiscal  year-end  commencing  with  fiscal  1999;  a debt to equity  ratio of no
greater  than .5:1;  a net  income,  depreciation  and  amortization  to current
portion  of long  term  debt  ratio of not less  than  1.2:1;  and cash and cash
equivalents of not less than $750,000).  A failure by the Company to satisfy any
such covenant  would  constitute  an event of default  under the Loan  Agreement
enabling 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 the Loan  Agreement 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.

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



                                        3

<PAGE>




                              RESTAURANT OPERATIONS

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

                                            Date of Opening
                                          Under the Company's
      Location                                Management

SEAFOOD RESTAURANTS

Lobster Shanty

Vero Beach, Florida                          December 1979
Pt. Pleasant Beach, New Jersey               October 1980
Toms River, New Jersey                       October 1980
Jensen Beach, Florida                        December 1980
Cocoa Beach, Florida                         September 1981
Hightstown, New Jersey                       December 1981
Belmar, New Jersey                           October 1994

Baker's Wharfside

Pt. Pleasant Beach, New Jersey               October 1980

GARCIA'S RESTAURANT

Monmouth Mall, Eatontown,
  New Jersey                                 April 1996

Seafood Restaurants

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

Lobster Shanty Restaurants

      Vero Beach,  Florida - This restaurant,  consisting of approximately 6,900
square feet, is free standing in Vero Beach, Florida approximately 100 yards off
U.S.  Highway #60 on the  intracoastal  waterway.  It opened in  December,  1979
pursuant  to a lease  from  Gourmet  Associates  ("Gourmet")  owned by Robert E.
Brennan,  the  principal  stockholder  of the Company.  The lease is currently a
month to month  "net"  lease at a monthly  rental of  $10,000  with the  Company
paying personal  property taxes and insurance  thereunder.  Management  believes
that the terms of this lease  agreement are at least as favorable as those which
could have been obtained from unaffiliated sources. In view of the fact that Mr.
Brennan  has  filed  a  voluntary  petition  for  relief  in the  United  States
Bankruptcy  Court  for  the  District  of New  Jersey  under  Chapter  11 of the
Bankruptcy Code (which proceedings are currently pending),  no assurances can be
given that the Company will be able to continue to lease this  restaurant on the
current basis or on a modified basis for any substantial  future period.  During
fiscal  1998,  the  Company  constructed  an outdoor  deck with a bar and dining
facilities at this restaurant at a cost of approximately

                                        4

<PAGE>



$125,000.  The Company made an offer in March 1998 to purchase  this  restaurant
but no assurances can be given that its offer will be accepted.

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

      Pt.  Pleasant  Beach,  New  Jersey  -  This   restaurant,   consisting  of
approximately 17,000 square feet, is free standing with a waterfront location on
Channel Drive in Pt. Pleasant Beach, New Jersey and seats  approximately 750. It
shares parking with the Baker's Wharfside  restaurant in Pt. Pleasant Beach with
space for approximately  250 automobiles.  The Company purchased this restaurant
and three others  (including the land,  buildings,  improvements  and businesses
including  personal  property  and  fixtures,  liquor  licenses  and  all of the
outstanding  stock of the four  corporations  operating these  restaurants) from
Robert E. Brennan,  the  principal  stockholder  of the Company,  and from three
partnerships owned by him, in October,  1980 for an aggregate  $7,750,000 less a
subsequent $250,000 prepayment discount.

      Toms River,  New Jersey - This  restaurant,  consisting  of  approximately
10,750  square  feet,  is free  standing on Robbins  Parkway in Toms River,  New
Jersey and seats  approximately  400. Municipal parking facilities are available
nearby.  The Company  purchased this restaurant and three others  (including the
land,  buildings,  improvements,  and businesses including personal property and
fixtures,  liquor  licenses  and  all  of the  outstanding  stock  of  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  $300,000.  In the current  fiscal  year,  the Company  intends to
construct an outdoor deck with a bar and dining facilities at this restaurant at
an expected cost of approximately $150,000.

      Jensen  Beach,   Florida  -  This  200  seat  restaurant,   consisting  of
approximately  4,500 square feet, is located in a free standing  building on the
intracoastal  waterway in Jensen Beach,  Martin County,  approximately  50 miles
north of Palm Beach. The restaurant has parking for 100 automobiles. Acquired in
October,  1980 were two  lots,  the  restaurant  with  furnishings  and a liquor
license from an  unaffiliated  party for  $975,000.  The Company made a $295,000
down  payment and paid the balance  over a ten year  period  through  September,
1990.

      Cocoa Beach, Florida - This approximately 240 seat restaurant,  consisting
of  approximately  9,600 square feet, is located in a free standing  building on
Highway  A1A in Cocoa  Beach and has  parking  for  approximately  90 cars.  The
Company acquired this restaurant as well as a seafood  restaurant in Titusville,
Florida in September 1981 through the purchase from two unaffiliated individuals
of the outstanding  capital stock of two  corporations  engaged in the ownership
and  operation of a Florida  seafood  restaurant  at each of the two sites.  The
corporations  owned  the  land  on  which  the  restaurants  were  located,  the
restaurant buildings,  the restaurant businesses including personal property and
fixtures and liquor licenses for each restaurant,  all of which were included in
the  sale.  The  purchase  price  paid by the  Company  for the stock of the two
corporations  (prior to closing  adjustments) was $3,370,000,  the bulk of which
was  represented  by 20-year  promissory  notes  payable  monthly and secured by
mortgages on the restaurants.  The Company sold the Titusville  restaurant to an
unaffiliated  third  party in January  1988  realizing  a loss of  approximately
$942,000.  The Company prepaid the balance of the remaining  indebtedness  under
the notes in July  1993  using  the net  proceeds  from the sale in June 1993 of
another Florida restaurant property.

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

                                        5

<PAGE>



      Belmar,  New Jersey - This restaurant,  consisting of approximately  9,000
square  feet,  is free  standing  on Main  Street in  Belmar,  New  Jersey.  The
restaurant  seats  approximately  250  and has  parking  for  approximately  110
automobiles.  The Company purchased the liquor license and trade name for use at
this  restaurant  in October 1994 for  $250,000  from  unaffiliated  parties and
leased the restaurant,  the parking lot and the restaurant  furniture,  fixtures
and  equipment at such time from such parties  pursuant to a five-year  lease in
which the Company was given four  consecutive  five-year  options to renew.  The
lease  provides  for  a  monthly  base  rent  (currently  approximately  $8,640)
increasing every three years up to a monthly base rent after the eighteenth year
of $12,693 with an additional annual percentage rent equal to 6% of Chefs' gross
receipts at the  restaurant  for such period less the base rent.  The restaurant
opened as a  "Lobster  Shanty"  restaurant  under the  Company's  management  in
October  1994.  In January  1997,  the Company  gave the  Landlord its notice to
terminate  this lease  effective  February  28, 1999  because of  unsatisfactory
operating results at this restaurant.

Baker's Wharfside Restaurant

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

Garcia's Restaurant

      In November 1995, the Company entered into an agreement (the  "Agreement")
with  Garcimex of New Jersey,  Inc.  ("Garcimex"),  the  exclusive  owner of the
"Garcia's"  trade mark,  service mark and trade name along with the goodwill and
recipes of a Mexican restaurant business associated with the marks.  Pursuant to
the Agreement, the Company was granted the exclusive right to establish and open
Mexican  restaurants  using the marks,  goodwill  and  recipes in six New Jersey
counties,  Hunterdon,  Mercer,  Middlesex,  Monmouth,  Ocean and  Somerset  (the
"Territory"). The Company was granted the right but not the obligation to open a
restaurant  utilizing  the marks and goodwill in each of the first five 12-month
periods,  in the Territory,  with a six-month  grace period with respect to each
such 12-month period. If the Company 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
18  months  of the  April  1996  opening  of its  initial  Garcia's  restaurant.
Regardless  of whether the Company  opened one Garcia's  restaurant in each such
period,  it will have and  retain  the  exclusive  right to  utilize  the marks,
goodwill and recipes at all Garcia's  restaurants opened by the Company pursuant
to the Agreement and Garcimex has agreed not to open another Mexican  restaurant
within an 18-mile radius of any Company operated Garcia's restaurant.

      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.


                                        6

<PAGE>



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

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

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

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

Sources of Food Products

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

Seasonal Aspects

      To date, the Company's New Jersey  seafood  restaurants  have  experienced
their  greatest  sales  volumes from May through  September  whereas its Florida
seafood  restaurants have experienced  their greatest sales volumes from January
through April.  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  supplies  and its
location.  The Company's seafood  restaurants compete primarily with other local
seafood  restaurants and to a lesser extent,  with local  restaurants  serving a
more general fare. The principal  national  competition to the Company's seafood
restaurants is the Red Lobster  restaurant  chain.  This chain has substantially
greater resources than the Company.  There are other restaurants in the mall and
in the  vicinity  of the mall  where the  Company  is now  operating  a Garcia's
restaurant,  all of which supply  competition  to the Company's  Garcia's  unit.
Although  there are no Mexican style  restaurants  in the mall,  there are other
Mexican style restaurants in the area. Typical "chain" competitors, all of which
are affiliated with better  established and more prominent  national chains, are
the Friendly Ice Cream chain and  McDonalds.  There can be no assurance that the
Company's  units  will be able to  successfully  compete  with any of such other
restaurants.





                                        7

<PAGE>



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.

Employees

      The  Company  maintains  its  administrative  employees  at its  executive
offices including its principal officers (see "Item 10 - Directors and Executive
Officers of the Registrant,") secretarial and bookkeeping personnel. Each of the
Company's  seafood  restaurant  units employs a general  manager,  two assistant
managers and between 40 and 130 other employees to serve as waitresses, waiters,
busboys,  bartenders,  cooks, dishwashers,  kitchen help, hostesses and cashiers
(some  on  a  part-time  basis).  The  Company's  Garcia's   restaurant  employs
approximately 80 employees serving similar functions. The Company also presently
employs  three area  supervisors,  each  responsible  for three of the Company's
restaurants.  Managerial  candidates are recruited for the Company's restaurants
from hotel and restaurant  management schools,  restaurant  recruiting agencies,
through  advertising  in restaurant  management  magazines and by promotion from
within the Company's own  organization.  At January 25, 1998,  the Company had a
total of approximately 430 employees (including part-time workers).  The Company
is  not a  party  to  any  collective  bargaining  agreements  and  has  enjoyed
satisfactory employee relations since inception.


Item 2.    Description of Property

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

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


Item 3.    Legal Proceedings

      In May 1997,  a lawsuit  was filed in the  Superior  Court of New  Jersey,
Chancery  Division,  Middlesex  County  (Docket  No.  C-133-97)  by  Michael  F.
Lombardi,  various Lombardi relatives, the law firm of Lombardi & Lombardi, P.A.
and the Lombardi & Lombardi, P.A. Defined Benefit Pension Plan (collectively the
"Lombardi   Group")  as  plaintiffs,   against  the  Company's  five  individual
directors,  Anthony C. Papalia, James Fletcher, Martin Fletcher, Frank Koenemund
and Jack Mariucci (the "Director  Group") and the Company's former  wholly-owned
subsidiary, Mister Cookie Face, Inc. ("MCF") as defendants.  Because the lawsuit
was a purported shareholder  derivative action brought on behalf of the Company,
the Company was named as a nominal defendant.

      The  complaint  alleged  that  certain  corporate  actions  including  the
Company's  purchase  of MCF in July 1993 from Frank  Koenemund,  the  subsequent
increase in Mr. Koenemund's salary, a bonus payment made to Mr. Koenemund during
fiscal 1996 and the  February  1997 sale (as of January 26, 1997) by the Company
of 95% of the  stock of MCF  back to Mr.  Koenemund  constituted  a waste of the
Company's  assets.  Among other remedies sought by the plaintiffs was a judgment
finding that the defendants  "wasted" the Company's assets in violation of their
fiduciary  duties and ordering them to account for damages  incurred and profits
lost by the Company; a judgment declaring the Stock  Purchase/Sale  Agreement by
which the Company sold 95% of MCF to Mr.  Koenemund in February  1997 to be null
and void "ab  initio";  a judgment  enjoining  borrowings,  fund raising or loan
transactions on behalf of MCF; a judgment  enjoining Mr.  Koenemund and MCF from
transferring, encumbering, hypothecating or diluting the 950 shares of MCF stock
transferred  to  Mr.   Koenemund  in  the  February  1997  sale  and  placing  a
constructive  trust on said shares;  a judgment  enjoining  Mr.  Koenemund  from
transferring,  encumbering, hypothecating or diluting his approximately 7% stock
ownership  in  the  Company;  and  in  the  alternative,   a  judgment  awarding
compensatory and/or punitive damages against

                                        8

<PAGE>



the  defendants,  jointly and  severally in an amount to be determined at trial.
The plaintiffs also asked for an award of costs and disbursements in the lawsuit
including a reasonable  allowance for their  attorneys'  and experts'  fees, and
such   other  or  further   relief  as  "may  be  just  and  proper   under  the
circumstances."

      Although  management  intends  to respond  at an  appropriate  time to the
substance  of the  complaint,  if  required,  the suit  appeared  to be  legally
deficient  for  several  reasons  and  management  filed a motion  with  respect
thereto.  Management  noted that subsequent to the Company's 1993 acquisition of
MCF, the terms of which were fully  disclosed,  the Lombardi Group  continued to
accumulate  a  substantial  position  in  the  Company's  Common  Stock  through
purchases of same and  according  to the most  recently  filed  amendment to its
Schedule  13D,  the  Lombardi  Group  appeared  to be the  beneficial  owner  of
approximately  8% of the Company's  outstanding  Common Stock.  In addition,  in
October 1996, in an apparent  effort to gain control of the Company,  Michael F.
Lombardi  wrote to the  Company's  attorneys  stating a wish to explore with the
Company's Board of Directors,  the possibility of the Lombardi Group  purchasing
2,000,000  shares  of the  Company's  Common  Stock.  Management  rejected  such
possibility.  Furthermore,  by  letter  dated  December  27,  1996,  Michael  F.
Lombardi,  presumably  on behalf of the  Lombardi  Group,  wrote to counsel  for
Robert  E.  Brennan  offering  to buy  Mr.  Brennan's  1,766,557  shares  of the
Company's Common Stock for  $1,095,264.72,  which purchase,  if made, would have
given the Lombardi  Group  ownership  of  approximately  46.4% of the  Company's
outstanding Common Stock and practical control. To date, such offer has not been
accepted.

      Management  filed a  motion  for  summary  judgment  with  respect  to the
complaint asking for dismissal of the complaint, disqualification of plaintiffs'
counsel,  an award  of  expenses  and  other  relief.  The  plaintiffs  in turn,
cross-moved for  disqualification  of defendants'  counsel and for other relief.
After conferring in Chambers with the Court,  the parties  stipulated and agreed
effective  September 4, 1997 to a dismissal of the complaint  without  prejudice
and without costs, and also agreed that the plaintiffs may not institute another
action in any court  relating in any way to the subject  matter of this  lawsuit
except upon a refusal by the Board of Directors of a demand, if any, made by the
plaintiffs  to the  Board in  accordance  with  applicable  law to bring  such a
lawsuit against the defendants.

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

      No matters were  submitted  to a vote of the  Company's  security  holders
during the quarter ended January 25, 1998.

                                        9

<PAGE>



                            CHEFS INTERNATIONAL, INC.

                                     PART II


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


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

      Because  the bid price for the Common  Stock since  February  23, 1998 has
been less than $1.00,  such security is not in compliance with NASDAQ's  minimum
bid price requirement.  If the prices does not increase to at least $1.00 for at
least ten consecutive trade dates prior to May 28, 1998, the Common Stock may be
delisted from trading on the NASDAQ System.  Such delisting may adversely impact
the liquidity for the Common Stock.

           Quarter                               Bid Prices
           Ended                               High        Low

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

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

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

      At March 31,  1998,  the number of record  holders of the Common Stock was
7,051.   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.


                                       10

<PAGE>


<TABLE>

Item 6.    Selected Financial Data

                                          [In thousands, except per share data]

                                           Y e a r s     e n d e d
                           January 25,January 26,January 28,January 29, January 30,
                              1 9 9 8    1 9 9 7   1 9 9 6   1 9 9 5     1 9 9 4

Operating Data:

<S>                          <C>        <C>         <C>        <C>         <C>    
  Gross Revenues             $ 18,097   $ 17,299    $ 16,571   $16,044     $15,318

  Operating Expenses         $ 12,224   $ 11,858    $ 11,443   $10,585     $11,355

  [Loss] Income from
   Continuing Operations     $    (36)  $   (175)   $   (336)  $   184     $   182

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

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

  Net [Loss]                 $    (36)  $ (1,913)   $ (2,184)  $  (257)    $  (177)

  [Loss] Income Per Share from
   Continuing Operations     $   (.01)  $   (.04)   $   (.07)  $   .04     $   .04

  Net [Loss] Per Common Share$   (.01)  $   (.43)   $   (.49)  $  (.06)    $  (.03)

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

Balance Sheet Data:

  Cash and Cash Equivalents  $  1,136   $  1,037    $  1,379   $ 1,267     $ 1,043

  Total Assets *             $ 16,805   $ 17,280    $ 18,508   $20,945     $19,863

  Total Long-Term Liabilities$  1,302   $  1,000    $  1,613   $ 1,844     $   540

  Total Liabilities          $  3,670   $  3,774    $  3,424   $ 3,678     $ 2,340

  Working Capital            $    465   $    178    $    957   $   495     $   375

  Stockholders' Equity       $ 13,135   $ 13,171    $ 15,084   $17,266     $17,523

*  At fiscal year end 1998, 1997, 1996, 1995 and 1994, includes $530, $557, $1,221, $3,529 and $3,590
   of goodwill.
</TABLE>





                                         11

<PAGE>



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

Results of Operations

      In fiscal 1998, the Company sustained a loss of $36,300 compared to losses
of $1,912,800 in 1997 and  $2,184,100 in 1996.  The 1997 and 1996 losses include
results  from the  Company's  wholly-owned  Mister  Cookie  Face,  Inc.  ("MCF")
subsidiary.  The  Company  sold  95% of the  capital  stock  of MCF to a  Chefs'
director, Frank "Doc" Koenemund, on February 20, 1997 (as of January 26,1997).

      The fiscal 1997 loss included a loss from the  discontinued MCF operations
of $1,165,100  and a loss of $572,900  resulting  from the sale of MCF. The 1996
loss included a loss of $1,847,800 from MCF's  operations.  Effective for fiscal
1996, the Company adopted the Statement of Financial  Account  Standards No. 121
("FASB121"),  "Accounting  for  Impairment of Long-Lived  Assets and  Long-Lived
Assets To Be Disposed Of." The MCF operational losses for 1997 and 1996 included
impairment losses of $565,900 and $2,024,900 respectively.  The Company's fiscal
1996 loss from continuing  operations included an impairment loss of $171,000 in
connection with restaurant operations.

      The Company's continuing  restaurant operations realized a loss of $36,300
for fiscal 1998  compared to losses of $174,700  and  $336,300  for fiscal years
1997 and 1996 respectively.  Sales for fiscal 1998 were $18,097,100, an increase
of  $798,500  or 4.6% over 1997 sales of  $17,298,600.  The number of  customers
served  increased  by  2.1%  in  fiscal  1998  and  there  was  an  increase  of
approximately 2.4% in the average check per customer.  The Company operated nine
restaurants  during the comparable  periods. A majority of the sales increase in
fiscal 1998 occurred during the first quarter of such year primarily as a result
of a mild winter and sales  during such quarter of $234,300 at  "Garcia's,"  the
Company's Mexican  restaurant,  which opened during the second quarter of fiscal
1997. Fiscal 1997 sales were $727,300 or 4.4% higher than 1996 sales.

      Gross profit for fiscal 1998 was 67.2% of sales,  slightly  below the 1997
gross profit of 67.3% and higher than the 66.7% in 1996.  During fiscal 1998 the
Company  experienced  higher  seafood  and  produce  prices.  A majority  of the
increased  costs  were  offset  with some menu  price  increases  and other menu
strategies  including  removal  of high  cost  items.  Additionally,  management
purchased substantial quantities of inventory in anticipation of further seafood
increases.  Drink prices were also  increased  modestly to compensate for higher
liquor costs.

      Payroll and related expenses were 30% of gross sales in fiscal 1998 versus
30.3% in 1997 and 30.4% in 1996. Although the Company  experienced  increases in
salaries and health and worker's  compensation  insurance costs, the substantial
increase  in sales  resulted in an  improvement  in overall  payroll  costs as a
percentage of sales.  The federal  minimum  wage,  which was raised to $5.15 per
hour in September 1997 (from $4.75 per hour since October  1996),  had a minimal
impact on payroll  costs  because most of the  Company's  employees,  other than
tipped  employees  whose cash wages remained the same,  already  received hourly
compensation in excess of $5.15.

      Other  operating  expenses were 22.3% of sales for fiscal 1998 compared to
22.6%  and  21.7%  for  the two  previous  years.  The  primary  reason  for the
improvement was the increase in sales.  Depreciation and  amortization  expenses
were approximately $27,000 higher in 1998 due to capital expenditures and a full
year of  depreciation  for  "Garcia's"  compared to nine months in fiscal  1997.
General and administrative  expenses were $27,700 higher in fiscal 1998 compared
to 1997 primarily due to legal costs  associated  with a lawsuit brought against
the Company's directors and MCF.  Approximately  $100,000 was expended defending
the suit which was  dismissed  in  September  1997.  General and  administrative
expenses  were  $138,000  higher in fiscal  1997 versus  1996  primarily  due to
increased  salaries  and payroll  taxes of $87,300,  higher  insurance  costs of
$22,200,  and $50,000 in expenses  associated  with the Company's  November 1996
reverse stock split.

      Interest  expense was $67,500  higher in fiscal 1998 as compared to fiscal
1997  primarily  as a result  of the  interest  expense  associated  with a bank
term-loan  allocated to MCF's operations.  Interest income was $61,000 higher in
fiscal 1998 as  compared  to fiscal  1997 due to interest  received on the notes
from the MCF sale. Interest expense in fiscal 1997 was slightly higher in fiscal
1996 due to borrowings  used to finance the "Garcia's"  renovations and interest
income was lower in fiscal  1997 as  compared  to fiscal 1996 due to lower rates
available for short-term investments.

                                       12

<PAGE>



Liquidity and Capital Resources

      The Company's ratio of current assets to current liabilities was 1.20:1 at
January  25,  1998,  compared to 1.06:1 and 1.53:1 at the end of each of the two
previous  fiscal years.  Working  capital was $465,100 at the end of fiscal 1998
compared to $177,800 and  $957,200 at the end of fiscal 1997 and 1996.  Net cash
provided by operating activities was $754,100. The primary changes in assets and
liabilities  in  fiscal  1998  were  an  increase  in  inventories  of  $113,700
reflecting  purchases  made during the third quarter in  anticipation  of higher
seafood  prices and an  increase  in other  assets of $93,300  primarily  due to
deposits advanced on the renovation of the Toms River, New Jersey Lobster Shanty
and an  increase in the cash  surrender  values of the  "Company's  Supplemental
Employee  Benefit  Program." Net cash flows from investing  activities in fiscal
1998 were a net  outlay of  $209,700  resulting  from  capital  expenditures  of
$790,700  for  restaurant  improvements  and  equipment  offset by  $670,500  in
payments  on  notes  receivable  from the MCF  sale.  The  capital  expenditures
included  approximately  $125,000  to build an outdoor  deck and bar at the Vero
Beach, Florida restaurant and approximately  $300,000 spent on the renovation of
the interior of the Toms River, New Jersey restaurant. The Company will spend an
additional  $150,000 to build an outdoor  dining area and bar for the Toms River
restaurant  which will open during the second  quarter of fiscal 1999.  Net cash
flows from  financing  activities  in fiscal  1998 were a net outlay of $455,600
resulting from debt repayment of $1,295,600 offset by the incurrence of new debt
of $850,000. Approximately 50% of the debt repayment was made with proceeds from
amounts  received  as a result of the MCF sale.  During  the  second  quarter of
fiscal 1998, the Company's $350,000 bank line of credit was renewed and $325,000
was borrowed to finance  inventory  purchases  leaving an  available  balance of
$25,000 at year end.  In  December  of 1997,  First  Union  National  Bank,  the
Company's primary bank,  advanced a five-year $525,000 term loan to the Company.
The proceeds were used to pay off an existing term loan which had an outstanding
balance of $225,000 and to partially fund the Toms River  renovation.  In fiscal
1997, net cash provided by operations was $1,172,800. The significant changes in
assets and liabilities  were an increase in inventory of $93,200 and an increase
of $343,400 in accounts  payable due to  increased  sales.  Cash  outflows  from
investing activities in fiscal 1997 included $1,144,200 for capital expenditures
primarily to build Garcia's, while financing activities including debt repayment
of $281,600.  For fiscal 1996, net cash flows from operations  totaled $479,400.
The primary change in assets and liabilities was a decrease in accounts  payable
of $79,200 due to lower sales.  Cash outflows  from  investing  activities  were
$530,400 for capital  expenditures  while  financing  activities  resulted in an
increase of $150,400. Fiscal 1996 financial activities included debt proceeds of
$1,125,000  offset by debt repayment of $976,800.  Borrowings  included $350,000
used to finance a portion of the Garcia's renovation.

      At the end of fiscal 1998,  the Company was not in compliance  with one of
its covenants  under its Loan  Agreement with First Union by failing to maintain
the requisite Funds Flow Coverage Ratio.  However, the Company requested and the
Bank granted a waiver of its right to declare a default under the Loan Agreement
based on the Company's failure to comply with this covenant at January 25, 1998.

      Management  anticipates  that funds from  operations will be sufficient to
meet obligations in fiscal 1999, including routine capital expenditures.

Inflation

      It is not possible for the Company to predict with any accuracy the effect
of inflation  upon the results of its  operations in future years.  The price of
food is extremely  volatile and  projections as to its performance in the future
and are dependent upon a complex set of factors.


                                       13

<PAGE>



Item 8.    Financial Statements and Supplementary Data

                          INDEPENDENT AUDITOR'S REPORT


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



            We have  audited the  accompanying  consolidated  balance  sheets of
Chefs  International,  Inc.  and its  subsidiaries  as of January  25,  1998 and
January  26,  1997,  and the  related  consolidated  statements  of  operations,
stockholders'  equity,  and cash flows for each of the three fiscal years in the
period ended January 25, 1998. These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

            In our opinion,  the consolidated  financial  statements referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of Chefs  International,  Inc. and its  subsidiaries  as of January 25,
1998 and January 26, 1997, and the consolidated  results of their operations and
their cash flows for each of the three fiscal years in the period ended  January
25, 1998, in conformity with generally accepted accounting principles.

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







                                          MOORE STEPHENS, P. C.
                                          Certified Public Accountants.
 
Cranford, New Jersey
March 20, 1998

                                       F-1

<PAGE>



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


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


<TABLE>

                                                           January 25,  January 26,
                                                             1 9 9 8       1 9 9 7

Assets:
Current Assets:
<S>                                                        <C>          <C>        
  Cash and Cash Equivalents                                $1,136,063   $ 1,037,379
  Investments                                                 196,000       160,000
  Miscellaneous Receivables                                    66,228        58,286
  Inventories                                               1,039,203       925,463
  Due on Sale of Discontinued Operations
   from Related Party - Current                               297,441       682,258
  Prepaid Expenses                                             98,547        88,509
                                                           ----------   -----------

  Total Current Assets                                      2,833,482     2,951,895
                                                           ----------   -----------

Property, Plant and Equipment - At Cost                    18,591,633    18,200,415

Less:  Accumulated Depreciation                             7,234,384     6,676,718
                                                           ----------   -----------

  Property, Plant and Equipment - Net                      11,357,249    11,523,697
                                                           ----------   -----------

Other Assets:
  Investments                                                 685,000       631,000
  Goodwill - Net                                              529,972       557,364
  Liquor Licenses - Net                                       702,979       727,663
  Due on Sale of Discontinued Operations
   from Related Party - Long-Term                             222,866       508,593
  Cash Surrender Value of Life Insurance                      406,438       358,406
  Due from Related Party                                        4,702         6,524
  Other                                                        62,144        15,076
                                                           ----------   -----------

  Total Other Assets                                        2,614,101     2,804,626
                                                           ----------   -----------

  Total Assets                                            $16,804,832   $17,280,218
                                                           ===========  ===========




See Notes to Consolidated Financial Statements.

</TABLE>

                                        F-2

<PAGE>



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


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


<TABLE>

                                                           January 25,  January 26,
                                                             1 9 9 8       1 9 9 7

Liabilities and Stockholders' Equity:
Current Liabilities:
<S>                                                        <C>          <C>        
  Accounts Payable                                         $  945,067   $   967,245
  Accrued Payroll                                             120,470       134,954
  Accrued Expenses                                            305,688       337,897
  Notes and Mortgages Payable to Banks                        630,000     1,008,500
  Capital Lease Obligations - Current                          85,727        79,154
  Other Liabilities                                           281,435       246,304
                                                           ----------   -----------

  Total Current Liabilities                                 2,368,387     2,774,054
                                                           ----------   -----------

Long-Term Debt:
  Notes and Mortgages Payable to Banks                        819,998       807,999
  Capital Lease Obligations - Long-Term                        23,916       109,643
                                                           ----------   -----------

  Total Long-Term Debt                                        843,914       917,642
                                                           ----------   -----------

Other Liabilities                                             457,806       417,545
                                                           ----------   -----------

Commitments and Contingencies                                      --            --
                                                           ----------   -----------

Stockholders' Equity:
  Capital Stock - Common, $.01 Par Value, Authorized
   15,000,000 Shares; Issued and Outstanding 4,488,347 in
   1998 and 4,488,291 in 1997                                  44,883        44,883

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

  Accumulated [Deficit]                                   (19,214,644)  (19,178,392)
                                                           -----------  -----------

  Total Stockholders' Equity                               13,134,725    13,170,977
                                                           ----------   -----------

  Total Liabilities and Stockholders' Equity              $16,804,832   $17,280,218
                                                           ===========  ===========


</TABLE>

See Notes to Consolidated Financial Statements.


                                        F-3

<PAGE>



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


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

<TABLE>

                                                     P e r i o d s   E n d e d
                                             January 25,   January 26,  January 28,
                                                1 9 9 8      1 9 9 7       1 9 9 6

<S>                                          <C>           <C>          <C>        
Sales                                        $18,097,100   $17,298,626  $16,571,357

Cost of Goods Sold                             5,943,083    5,656,124     5,511,095
                                             -----------   ----------   -----------

  Gross Profit                                12,154,017   11,642,502    11,060,262
                                             -----------   ----------   -----------

Operating Expenses:
  Payroll and Related Expenses                 5,424,262    5,238,257     5,037,515
  Other Operating Expenses                     4,036,281    3,910,968     3,593,820
  Depreciation and Amortization                1,002,238      974,758       990,867
  General and Administrative Expenses          1,761,706    1,733,963     1,595,644
  Loss on Closing and Sale of Restaurants             --           --        54,355
  Impairment Loss of Long-Lived Assets                --           --       170,867
                                             -----------   ----------   -----------

  Total Operating Expenses                    12,224,487   11,857,946    11,443,068
                                             -----------   ----------   -----------

  [Loss] from Operations                         (70,470)    (215,444)     (382,806)
                                             -----------   ----------   -----------

Other Income [Expense]:
  Interest Expense                              (115,181)     (47,713)      (45,892)
  Interest Income                                149,399       88,408        92,373
                                             -----------   ----------   -----------

  Other Income - Net                              34,218       40,695        46,481
                                             -----------   ----------   -----------

  [Loss] from Continuing Operations
   Before Income Taxes                           (36,252)    (174,749)     (336,325)

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

  [Loss] from Continuing Operations              (36,252)    (174,749)     (336,325)

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

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

  Net [Loss]                                 $   (36,252)  $(1,912,767) $(2,184,149)
                                             ===========   ===========  ===========

  Basic [Loss] Per Common Share from
   Continuing Operations                     $      (.01)  $     (.04)  $      (.07)
                                             ===========   ==========   ===========

  Basic [Loss] Per Common Share              $      (.01)  $     (.43)  $      (.49)
                                             ===========   ==========   ===========


See Notes to Consolidated Financial Statements.
</TABLE>


                                        F-4

<PAGE>



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


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



<TABLE>

                                          Capital Additional                 Total
                             Number        Stock    Paid-in   AccumulatedStockholders'
                            of Shares    Par Value  Capital    [Deficit]    Equity

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

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

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

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

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

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

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

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

Balance - January 26, 1997  4,488,291     44,883  32,304,486   (19,178,392)  13,170,977

  Fractional Shares Conversion     56         --          --            --           --

  Net [Loss]                       --         --          --       (36,252)     (36,252)
                           ----------  ---------  ----------   -----------   ----------

Balance - January 25, 1998  4,488,347  $  44,883 $32,304,486  $(19,214,644) $13,134,725
                           ==========  ========= ===========  ============  ===========

</TABLE>


See Notes to Consolidated Financial Statements.


                                         F-5

<PAGE>



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


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------

<TABLE>

                                                     P e r i o d s  e n d e d
                                             January 25,   January 26,  January 28,
                                                1 9 9 8      1 9 9 7       1 9 9 6
Operating Activities:
<S>                                          <C>           <C>          <C>         
  [Loss] Income From Continuing Operations   $   (36,252)  $ (174,749)  $  (336,325)
                                             -----------   ----------   -----------
  Adjustments to Reconcile Net [Loss] Income 
   to Net Cash Provided by Continuing 
   Operating Activities:
   Depreciation and Amortization               1,002,238      974,758       990,867
   Loss on Asset Disposals                         6,558        3,293         2,512
   Loss [Gain] on Closing and Sale of Restaurants     --           --        54,355

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Inventories                                (113,740)     (93,220)      (62,843)
     Prepaid Expenses                            (10,038)      16,545       (40,096)
     Other Assets                                (93,278)      48,524       (50,488)
     Miscellaneous Receivable                     (7,942)      41,324        25,961

   Increase [Decrease] in:
     Accounts Payable                            (22,179)     343,425       (79,219)
     Accrued Expenses and Other Liabilities       28,699       12,884       (25,350)
                                             -----------   ----------   -----------

   Total Adjustments                             790,318    1,347,533       815,699
                                             -----------   ----------   -----------

  Net Cash - Continuing Operations - Forward     754,066    1,172,784       479,374
                                             -----------   ----------   -----------

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

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

   Total Adjustments                                  --    1,550,922     2,527,514
                                             -----------   ----------   -----------

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

Investing Activities - Continuing Operations:
  Capital Expenditures                          (790,701)  (1,144,192)     (530,382)
  Proceeds from Sale of Restaurant Assets            430        8,939            --
  Sale or Redemption of Investments              160,000           --            --
  Purchase of Investments                       (250,000)     (50,000)           --
  Proceeds from Notes Receivable - Discontinued
   Operations                                    670,544           --            --
  Sale of Discontinued Operations - Cash Transferred  --     (156,384)           --
                                                    ----   ----------   -----------

  Net Cash - Investing Activities - Continuing
   Operations - Forward                      $  (209,727)  $(1,341,637) $  (530,382)

See Notes to Consolidated Financial Statements.
</TABLE>

                                        F-6

<PAGE>



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


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------

<TABLE>

                                                     P e r i o d s  e n d e d
                                             January 25,   January 26,  January 28,
                                                1 9 9 8      1 9 9 7       1 9 9 6

<S>                                          <C>           <C>          <C>        
  Net Cash - Continuing Operations - 
   Forwarded                                 $   754,066   $1,172,784   $   479,374
                                             -----------   ----------   -----------

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

  Net Cash - Investing Activities - Continuing
   Operations - Forwarded                       (209,727)  (1,341,637)     (530,382)
                                             -----------   ----------   -----------

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

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

Financing Activities - Continuing Operations:
  Repayment of Debt                           (1,295,655)    (281,585)     (976,785)
  Proceeds from Debt                             850,000      100,000     1,125,000
  Proceeds from Exercise of Stock Options             --           --         2,188
                                             -----------   ----------   -----------

  Net Cash - Financing Activities - Continuing
   Operations                                   (445,655)    (181,585)      150,403
                                             -----------   ----------   -----------

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

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

  Net Increase [Decrease] in Cash and Cash
   Equivalents                                    98,684     (341,435)      112,013

Cash and Cash Equivalents - Beginning of 
 Periods                                       1,037,379    1,378,814     1,266,801
                                               ---------   ----------   -----------

  Cash and Cash Equivalents - End of Periods $ 1,136,063   $1,037,379   $ 1,378,814
                                             ===========   ==========   ===========

  Supplemental Disclosures of Cash Flow Information:
  Cash paid during the periods for:
   Interest                                  $   113,399   $  178,777   $   197,752
   Income Taxes                              $        --   $       --   $        --

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

</TABLE>

See Notes to Consolidated Financial Statements.

                                        F-7

<PAGE>



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


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

Chefs   International  and  its  subsidiaries  [the  "Company"]   operated  nine
restaurants at January 25, 1998 and January 26, 1997.  Eight of the  restaurants
are seafood restaurants, operated in New Jersey and Florida, generally under the
trade name,  "Lobster Shanty." The Company also operated Garcia's,  a franchised
Mexican restaurant in New Jersey.

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

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

Concentrations  of Credit Risk -The Company  maintains  cash balances at several
financial  institutions  in New Jersey and Florida.  The balances are insured by
the  Federal  Deposit  Insurance  Corporation  up to  $100,000.  Uninsured  cash
balances  totaled  approximately  $1,025,000  and  $780,000 at the end of fiscal
years 1998 and 1997,  respectively.  The Company does not require  collateral to
support financial instruments subject to credit risk.

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 the end of fiscal 1998 and
1997, investments include the estimated fair value of 5% of the stock of the MCF
ice cream operation retained by the Company of $35,000.

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

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

Goodwill  -  Goodwill  represents  cost in  excess of fair  value of  businesses
acquired and is being amortized over estimated useful lives ranging from 3 to 40
years under the straight-line method.

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

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

As of January 25, 1998, management expects these assets to be fully recoverable.
For fiscal 1996, the Company adopted Statement of Financial Accounting Standards
["SFAS"] No. 121,  "Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived Assets to be Disposed Of" [See Note 4].


                                       F-8

<PAGE>



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



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

Reclassification  - Certain  amounts in the 1997 financial  statements have been
reclassified to conform with the 1998 financial statement presentation.

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  1998,  1997 and 1996 were  $548,355,  $455,409  and  $466,737,
respectively.

Earnings  Per  Share - The  Financial  Accounting  Standards  Board  has  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share";  which is effective for financial  statements  issued for periods ending
after December 15, 1997.  Accordingly,  earnings per share data in the financial
statements  for the year  ended  January  25,  1998,  have  been  calculated  in
accordance  with SFAS No. 128.  Prior periods  earnings per share data have been
recalculated and it was determined that no adjustment was necessary.

SFAS No. 128 supersedes  Accounting  Principles  Board Opinion No. 15, "Earnings
per  Share,"  and  replaces  its  primary  earnings  per share  with a new basic
earnings per share  representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period.  SFAS No.
128 also requires a dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all companies  with complex  capital
structures.  Diluted  earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding  during the reporting
period,  while giving effect to all dilutive  potential  common shares that were
outstanding during the period,  such as common shares that could result from the
potential exercise or conversion of securities into common stock.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise,  or contingent  issuance of securities that would have an antidilutive
effect on earnings  per share (i.e.,  increasing  earnings per share or reducing
loss per share).  The dilutive  effect of  outstanding  options and warrants and
their   equivalents  are  reflected  in  dilutive  earnings  per  share  by  the
application  of the treasury  stock method which  recognizes the use of proceeds
that could be  obtained  upon  exercise of options  and  warrants  in  computing
diluted  earnings  per share.  It  assumes  that any  proceeds  would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive  effect only when the average  market price of the
common  stock  during the period  exceeds the  exercise  price of the options or
warrants.  The Company's options were not included in the computation of diluted
earnings per share because to do so would have been antidilutive for the periods
presented;  however,  such options could  potentially  dilute basic earnings per
share in the future.



                                       F-9

<PAGE>



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



[2] Inventory

Inventories consist of the following:
                                  January 25, January 26,
                                    1 9 9 8     1 9 9 7

Food                               $ 580,036 $ 479,575
Beverages                            111,127   103,455
Supplies                             348,040   342,493
                                   --------- ---------

  Totals                           $1,039,203$ 925,463
  ------                           ===================

[3] Property, Plant and Equipment

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

                                    January 25,  January 26,        Estimated
                                      1 9 9 8      1 9 9 7         Useful Life

Land                                $ 2,335,026 $  2,335,026           N/A
Buildings and Improvements           12,617,504   12,595,530      20 - 40 Years
Leasehold Improvements                1,100,618      976,123      Term of Lease
Furniture and Equipment               2,168,098    2,140,220      5 - 10 Years
Construction in Progress                276,405       59,534
China, Glassware and Utensils            93,982       93,982            *
                                    ----------- ------------

  Totals                            $18,591,633 $ 18,200,415
  ------                            =========== ============

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

Depreciation  expense was $950,161,  $922,682 and $936,274 for fiscal 1998, 1997
and 1996, respectively.

[4] Intangible Assets

As of the end of fiscal 1998 and 1997, intangible assets consist of:

                                                               Liquor
1998                                             Goodwill     Licenses

Cost                                            $  967,132    $  987,307
Less:  Accumulated Amortization                    437,160       284,328
                                                ----------    ----------

  Net                                           $  529,972    $  702,979
  ---                                           ==========    ==========

1997

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

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

Amortization expense was $52,077,  $52,076 and $54,593 for fiscal 1998, 1997 and
1996, respectively.


                                      F-10

<PAGE>



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


[4] Intangible Assets [Continued]

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

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

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

[5] Notes Receivable - Impairment

As part of the sale of a subsidiary  to a director [See Note 16], two notes with
a face  value of  $1,000,000  are  held by the  Company  at  January  25,  1998.
Valuation  allowances  totaling  $601,050 were taken against these notes for the
years  ending  January  25,  1998  and  January  26,  1997,  resulting  in a net
receivable of $398,950.

Cash receipts for these notes are applied to principal and interest based on the
note payment schedules, and have been applied as follows:

                                    1 9 9 8     1 9 9 7
                                    -------     -------

Interest Income                    $  58,480 $      --
                                   ========= =========

Average Recorded Investment in Loan$ 398,950 $ 398,950

Cash Basis Interest Income         $  54,883 $      --
                                   ========= =========

The valuation  allowance  related to the notes  receivables was based on current
facts and circumstances and it is at least reasonably  possible that a change in
the estimate may occur in the near term.

[6] Notes and Mortgages Payable to Banks

Notes and mortgages payable to banks as of the end of fiscal 1998 and 1997, were
as follows:

                                                            1 9 9 8   1 9 9 7
                                                            -------   -------

Note Payable, Due November 15, 2000, at 7.51% fixed,
  collateralized by real estate                          $  599,998  $ 799,999

Note Payable, Due November 15, 1998, at 7.51% fixed,
  collateralized by real estate                                  --    416,500

Revolving Credit, Due May 31, 1997, at LIBOR + 2%,
  collateralized by real estate                                  --    500,000
                                                         ----------  ---------

  Totals - Forward                                       $  599,998  $1,716,499

                                      F-11

<PAGE>



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



[6] Notes and Mortgages Payable to Banks [Continued]


                                                            1 9 9 8   1 9 9 7
                                                            -------   -------


  Totals - Forwarded                                     $  599,998  $1,716,499

Line of credit, Due June 30, 1997, at prime, collateralized
  by real estate                                                 --    100,000

Line of Credit, Due June 30, 1998, at prime, collateralized
  by real estate                                            325,000         --

Mortgage Payable, due December 2, 2002, at 9.25%,
  collateralized by real estate                             525,000         --
                                                         ----------  ---------

Totals                                                    1,449,998  1,816,499
Less:  Current Portion                                      630,000  1,008,500
                                                         ----------  ---------

  Total Long-Term Notes and Mortgages Payable to Banks   $  819,998  $ 807,999
  ----------------------------------------------------   ==========  =========

At January 25, 1998, unused amount under the line of credit was $25,000.

The weighted average interest rate for short-term borrowings at January 25, 1998
was 8.5% and at January 26, 1997 was 8.25%.

LIBOR and the prime rate were 5.7% and 8.5%, respectively at January 25, 1998.

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

At January 25, 1998, annual maturities of the above debt are as follows:

1999                                                     $  630,000
2000                                                        305,000
2001                                                        304,998
2002                                                        105,000
2003                                                        105,000
Thereafter                                                       --
                                                         ----------

  Total                                                  $1,449,998

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

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

The Company is in technical  violation of one loan covenant,  but has obtained a
waiver from the lending institution.

                                      F-12

<PAGE>



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


[7] Capital Lease Obligations

The Company leases  equipment under capital leases expiring in fiscal year 2000.
Future  minimum  payments by the Company  under  capital  leases  consist of the
following at January 25, 1998:

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

  Total Minimum Lease Payments                               115,658
  Amount Representing Interest                                 6,015

  Present Value of Minimum Lease Payment                     109,643
  Less:  Current Portion                                      85,727

    Capital Lease Obligations - Long-Term                $    23,916
    -------------------------------------                ===========

Equipment  purchased through capital leases was sold as part of the discontinued
operation [See Note 16]. The Company remains  responsible for the payments,  but
as a result of the sale, has a receivable  from the buyer for an amount equal to
the lease obligation.

[8] Transactions with Related Parties

A principal  stockholder of the Company is the principal  owner of a partnership
which  leases  the Vero  Beach  Restaurant  to the  Company.  The  lease is on a
month-to-month  basis and  requires  monthly  payments  of  $10,000.  Total rent
expense was $120,000 for fiscal 1998, 1997 and 1996.

A loan has been made to a director  with an  outstanding  balance at January 25,
1998 of $4,702  and at  January  26,  1997 of  $6,524.  Principal  and  interest
payments are made on a monthly basis with interest at 6%.

A director  purchased  95% of a subsidiary as of January 26, 1997 [See Note 16].
Notes receivable  totaling  $398,950 [See Note 5], capital leases  receivable of
$109,643 [See Note 7] and a  miscellaneous  receivable of $11,714  resulted from
this transaction as of January 25, 1998.

The Company has a retirement agreement with a director/former employee [See Note
9].

[9] Commitments and Contingencies

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

Minimum  future  rental  payments  under  noncancelable  operating  leases as of
January 25, 1998, are as follows:

Year ending
 January
  1999                                                   $   218,309
  2000                                                       114,832
  2001                                                       110,342
  2002                                                       121,086
  2003                                                       137,238
  Thereafter                                                 580,250
                                                         -----------

   Total Minimum Future Rentals                          $ 1,282,057
   ----------------------------                          ===========

                                       F-13

<PAGE>



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




[9] Commitments and Contingencies [Continued]

Rent expense was $434,347, $383,603 and $315,723 for fiscal 1998, 1997 and 1996,
respectively.

The Company has three year employment  agreements  terminating January 1999 with
two  employee/directors  for annual  amounts  ranging  from $87,000 to $150,000.
Total payments under the agreements over the next five years are $237,000. These
agreements  provide for lump sum payments in the event of the termination of the
employee/directors  without  cause or a change in  control  of the  Company,  as
defined, for a portion of the unexpired term of the contracts.

The Company has an agreement with a director/former  employee which provides for
the payment of $20,000 per year through 2007.  The  discounted  present value of
this agreement is recorded as a liability. The amount has been partially insured
with a life insurance contract owned by the Company.

[10] Loss Per Share

Basic loss per share are based on weighted average number of shares  outstanding
of 4,488,347,  4,488,291  and  4,487,180  for fiscal years 1998,  1997 and 1996,
respectively.  The effect of options or  warrants  is  anti-dilutive  for fiscal
years 1998,  1997 and 1996.  On November 22, 1996,  the Company  effected a one-
for-three  reverse stock split of its outstanding  common stock.  All share data
has been adjusted retroactively to reflect this change.

[11] Stock Options

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

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

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

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

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



                                       F-14

<PAGE>



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



[11] Stock Options [Continued]

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

The pro forma amounts are indicated below:

                                             1 9 9 8     1 9 9 7     1 9 9 6
                                             -------     -------     -------
Net Loss:
  As Reported                              $   (36,252)$(1,912,767)$(2,184,149)
  Pro Forma                                $   (36,252)$(1,687,420)$(2,454,566)

Net Loss Per Share:
  As Reported                              $      (.01)$     (.43) $     (.49)
  Pro Forma                                $      (.01)$     (.38) $     (.55)

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

The fair  value of each stock  option  grant is  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in fiscal year 1996:  dividend yields of 0%;  expected  volatility of
116%,  risk-free interest rate of 5.77%; and an expected life of five years. The
weighted  average  fair value of options  granted  were $-0-,  $-0- and $0.90 in
1998, 1997 and 1996, respectively.

Summary of stock option activity is as follows:

                                 1 9 9 8          1 9 9 7         1 9 9 6
                            ---------------  ---------------  -----------
                                   Weighted         Weighted          Weighted
                                    Average          Average           Average
                                   Exercise         Exercise          Exercise
                            Shares   Price   Shares   Price   Shares    Price

Outstanding - Beginning of 
    Years                   256,839 $  3.13  565,667 $  3.11  268,445 $  3.22
Granted or Sold During the 
 Years                           --      --      --       --  300,000    3.00
Canceled During the Years    (7,779)  0.984(304,167)    3.13     (556)  0.984
Expired During the Years         --      --  (4,661)   0.984       --      --
Exercised During the Years       --      --      --       --   (2,222)  0.984
                            ------- -------  ------  -------  ------- -------

  Outstanding - End of Years249,060 $  3.19  256,839 $  3.13  565,667 $  3.11
                            ======= =======  ======= =======  ======= =======

  Exercisable - End of Years249,060 $  3.19  256,839 $  3.13  565,667 $  3.11
                            ======= =======  ======= =======  ======= =======

                                      F-15

<PAGE>



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




[11] Stock Options [Continued]

The following table summarizes stock option information as of January 25, 1998:

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

     $       0.984            $  36,560      1.8 Years            $   0.984
     $3.00 to $3.75             212,500      2.0 Years                 3.57
                              ---------      ---                  ---------

                                249,060      2.0 Years            $    3.19
                              =========                           =========

[12] Income Taxes

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

                                           January 25, January 26,
                                             1 9 9 8     1 9 9 7
Deferred Tax Assets:
  Tax Loss Carryforwards                   $ 4,166,000 $5,100,000
  Impairment Loss                                   --    226,400
  Capital Loss Carryforward                    215,000    215,000
  Amortization                                  92,000     79,000
                                           ----------- ----------

  Totals                                     4,473,000  5,620,400
                                           ----------- ----------

Deferred Tax Liabilities:
  Depreciation                                 425,000    584,400
  Valuation Reserves                           294,000    294,000
                                           ----------- ----------

  Totals                                       719,000    878,400
                                           ----------- ----------

  Net Deferred Tax Assets                    3,754,000  4,742,000
  Less: Valuation Allowance                  3,754,000  4,742,000
                                           ----------- ----------

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

For the fiscal  years 1998 and 1997,  the  valuation  allowance  reduces the net
deferred  tax asset to zero.  The net  change  in the  valuation  allowance  was
$988,000 for fiscal year 1998 and  $320,000 for fiscal year 1997.  The change in
fiscal 1998 was primarily due to the sale of the subsidiary with substantial tax
loss carryforwards [See Note 16].



                                      F-16

<PAGE>



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


[12] Income Taxes [Continued]

The Company used  approximately  $230,000 of  operating  loss  carryforwards  in
fiscal 1998 as follows:

                                             1 9 9 8     1 9 9 7     1 9 9 6
                                             -------     -------     -------
Federal:
  Income Tax Expense                       $    73,000 $   55,000  $   43,000
  Operating Loss Carryforward                  (73,000)   (55,000)    (43,000)
                                           ----------- ----------  ----------

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

State:
  Income Tax Expense                       $    18,000 $   20,000  $   31,000
  Operating Loss Carryforward                  (18,000)   (20,000)    (31,000)
                                           ----------- ----------  ----------

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

The Company has available at January 25, 1998,  operating loss  carryforwards as
follows:

     Year of                            Unused Operating
   Expiration                          Loss Carryforwards
      2000                                $ 1,740,749
      2001                                  1,838,179
      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
                                          -----------

         Totals                           $11,699,052

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

                                               1 9 9 8      1 9 9 7    1 9 9 6
                                               -------      -------    -------

Statutory Rate                                      (34)%       (34)%      (34)%
State Taxes                                          (5)         (5)        (5)
Operating Loss Carryforwards                         39          39         39
                                              ---------    --------    -------

Effective Rate                                       --%         --%        --%



                                      F-17

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------




[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.

                                     January 25, 1998       January 26, 1997
                                   Carrying    Estimated  Carrying   Estimated
                                    Amount    Fair Value   Amount   Fair Value

Long-Term Investments             $  685,000 $  685,000  $ 631,000  $  631,000
Related Party Long-Term Receivable$  222,866 $  222,866  $ 508,593  $  508,593
Long-Term Debt                    $ (843,914)$ (843,914) $(917,642) $ (917,642)

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 52-week period for fiscal 1998, 1997 and 1996.

[15] Capital Transactions

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

[16] Discontinued Operations

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

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

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

The  $500,000  down payment from the sale was used to retire bank debt in fiscal
1998.




                                      F-18

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
------------------------------------------------------------------------------





[17] New Authoritative Pronouncements

In June 1997, the Financial  Accounting Standards Board ["FASB"] issued SFAS No.
130, "Reporting  Comprehensive  Income." SFAS No. 130 establishes  standards for
reporting  and  display  of  comprehensive  income  and  its  components  in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997.  Reclassification of financial statements for earlier periods
provided for comparative purposes is required.  The Company is in the process of
determining  its  preferred  format.  The  adoption of SFAS No. 130 will have no
impact on the Company's  consolidated results of operations,  financial position
or cash flows.

In June 1997, the FASB has issued SFAS No. 131,  "Disclosures  About Segments of
an Enterprise and Related  Information." SFAS No. 131 establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual  financial  statements  and requires  that those  enterprises
report  selected  information  about  operating  segments  in interim  financial
reports  issued  to  shareholders.  SFAS  No.  131 is  effective  for  financial
statements  for fiscal  years  beginning  after  December  15,  1997.  Financial
statement disclosures for prior periods are required to be restated. The Company
is in the process of evaluating  the  disclosure  requirements.  The adoption of
SFAS No.  131 will have no  impact  on the  Company's  consolidated  results  of
operations; financial position or cash flows.


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

                                      F-19

<PAGE>



              INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULE


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

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

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







                                          MOORE STEPHENS, P. C.
                                          Certified Public Accountants.
Cranford, New Jersey
March 20, 1998

                                      F-20

<PAGE>



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


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


<TABLE>

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

For the period ended January 25, 1998:
  Amortization of Goodwill
<S>                         <C>        <C>        <C>       <C>           <C>       
   [See Note 4]             $ 409,768  $  27,392  $      -- $       --    $  437,160
                            =========  =========  ========= ==========    ==========

  Amortization of Other 
   Intangibles
   [See Note 4]             $ 259,644  $  24,684  $      -- $             $  284,328
                            =========  =========  ========= ==========    ==========

For the period ended 
 January 26, 1997:
  Amortization of Goodwill  $ 777,427  $  98,136  $      -- $ (465,795)[A]$  409,768
                            =========  =========  ========= ==========    ==========

  Amortization of Other
   Intangibles              $ 234,960  $  24,684  $      -- $       --    $  259,644
                            =========  =========  ========= ==========    ==========

For the period ended 
  January 28, 1996:
  Amortization of Goodwill  $ 594,594  $ 182,833  $      -- $       --    $  777,427
                            =========  =========  ========= ==========    ==========

  Amortization of Other
   Intangibles              $ 210,276  $  24,684  $      -- $       --    $  234,960
                            =========  =========  ========= ==========    ==========

</TABLE>



[A] Deduction Due to Sale of Business Segment.

                                        F-21

<PAGE>




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

None

                                       14

<PAGE>



                            CHEFS INTERNATIONAL, INC.

                                    PART III


Item 10.                    Directors and Executive Officers of the Registrant

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

      Name                    Age           Office

Anthony Papalia                40           President, Treasurer, Chief 
                                            Executive Officer, Chief Financial 
                                            Officer and Director

James Fletcher                 67           Director

Martin W. Fletcher             45           Secretary and Director

Frank Koenemund                54           Director

Jack Mariucci                  58           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.

      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.

                                       15

<PAGE>



     DDB  Needham  is  a  global  advertising  agency  with  offices  in  cities
throughout the world.  Mr. Mariucci was also a member of the New York Management
Board of DDB Needham.  Since October  1994,  Mr.  Mariucci has been  principally
engaged as an independent marketing consultant. He was elected a director of the
Company in July 1993.

Compliance with Section 16 (a) of the Exchange Act

      Based solely upon a review of Forms 3 and 4 and on representations that no
Forms 5 were  required,  the Company  believes that with respect to fiscal 1998,
all Section 16(a) filing requirements applicable to its officers,  directors and
beneficial owners of more than 10% of its equity securities were timely complied
with.


Item 11.  Executive Compensation

      The following  table sets forth  information  concerning the  compensation
paid or accrued by the Company  during the three fiscal years ended  January 25,
1998 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 1998.
During the  three-year  period ended January 25, 1998, the Company did not grant
any restricted stock awards or have any long-term  incentive plan in effect. The
Company  maintains a  Supplemental  Employee  Benefit  Program for its officers,
supervisors,   restaurant   managers  and  assistant   managers   paying  annual
contributions  ranging from $1,000 to approximately  $3,000 per individual.  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            1998            $150,000      $-0-        $2,088(a)
  President and            1997            $150,000      $-0-        $2,088(a)
  Chief Executive          1996            $119,692      $-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  expires  at the
conclusion of the Company's 1999 fiscal year and is  automatically  renewed on a
year by year basis for up to five consecutive  additional  one-year terms unless
either  party  gives at least six  months  prior  notice  that he or it does not
desire such renewal.  Mr. Papalia's annual salary under the contract is $150,000
and  Mr.  Fletcher's   annual  salary  under  the  contract  is  $87,000.   Each
individual's  salary is subject to automatic increase in each Renewal Year based
on increases in the Consumer Price Index. If the employment of either individual
is  terminated  other than for cause,  he will  become  entitled  to a Severance
Payment equal to the amount of his compensation over the balance of the contract
term. Each individual is also entitled to terminate his employment and receive a
Severance  Payment  equal to six  months  salary in the  event of a  "change  of
control" of the Company.

     In connection  with the Company's  acquisition  of MCF in July 1993,  Frank
Koenemund  executed  an  employment  contract  with  MCF  agreeing  to  serve as
president and chief executive officer at an annual

                                       16

<PAGE>



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

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

Stock Options

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

     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

                                       17

<PAGE>



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.

     The following table sets forth certain information  concerning  unexercised
options held by Mr. Papalia. No options were exercised in fiscal 1998.



                       1998 Fiscal Year-End Option Values

              Number of Unexercised Options at 1997 Fiscal Year-End

                                                           Value of Unexercised
                                                               In-The-Money
     Name              Exercisable        Unexercisable    Options at 1/25/98(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
25, 1998.

Directors' Compensation

     During fiscal 1998,  Jack  Mariucci,  was  compensated at a monthly rate of
$1,500 for serving as a director.  Such  compensation  is  continuing  in fiscal
1999. In addition, James Fletcher was paid a monthly director's fee of $1,250 in
fiscal 1998, which compensation is continuing in fiscal 1999.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The  following  table  sets  forth  information  as of March 31,  1998 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.


                                       18

<PAGE>




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

Anthony Papalia                         71,390(1)              2%
James Fletche                              334                 --
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

Robert E. Brennan                      1,766,557(4)           39%
264 Route 537 East
Colts Neck, New Jersey  07722

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 may also be deemed a beneficial
owner of these shares.
     (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 has 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.

     Robert E.  Brennan  through his stock  ownership  and Donald  Conway as his
Bankruptcy  Trustee  may each be deemed to be  controlling  stockholders  of the
Company.



                                       19

<PAGE>



Item 13.  Certain Relationships and Related Transactions

     Robert E. Brennan is a principal  stockholder of the Company as well as the
owner of Gourmet Associates ("Gourmet") which has leased the Vero Beach, Florida
Lobster  Shanty  restaurant to the Company since 1979.  During the Company's two
most  recently  completed  fiscal  years and at present,  the lease has been and
continues to be a month to month "net" lease at a monthly rental of $10,000 with
the Company also paying  personal  property taxes and insurance  thereunder.  In
March 1998, the Company made an offer to purchase this restaurant. No assurances
can be given that the offer will be accepted. See Item 1 herein.

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

                                       20

<PAGE>



                            CHEFS INTERNATIONAL, INC.

                                     PART IV


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

     (a)(1)Financial Statements

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

        (2)Financial Statement Schedules

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

        (3)Exhibits

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

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

4.1     Specimen Common Stock Certificate(A)

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

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

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

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

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

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

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

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

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

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

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


                                       21

<PAGE>



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

22      Subsidiaries   -  The  following   table   indicates  the  wholly  owned
        subsidiaries of the Company,  their  respective  states of incorporation
        and the 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
------------
     (A)   Incorporated  by  reference  to  exhibit  filed  with  the  Company's
Registration Statement on Form SB-2 (File no. 33-66936)


     (B)  Incorporated  by reference to exhibit filed with the Company's  annual
report on Form 10-K for the fiscal year ended January 28, 1996
     (C)  Incorporated by reference to exhibit filed with the Company's  current
report on Form 8-K for July 23, 1993
     (D)  Incorporated  by reference to exhibit filed with the Company's  annual
report on Form 10-KSB for the fiscal year ended January 30, 1994
     (E)  Incorporated  by reference to exhibit filed with the Company's  annual
report on Form 10-KSB for the fiscal year ended January 29, 1995
     (F)  Incorporated by reference to exhibit filed with the Company's  current
report on Form 8-K for February 20, 1997

     The Company did not file any reports on Form 8-K during the last quarter of
the fiscal year ended January 25, 1998.


                                       22

<PAGE>


                                   SIGNATURES

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


(Registrant)                           Chefs International, Inc.



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

Date                                   April 24, 1998


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



By/s/Anthony C. Papalia                By/s/Frank Koenemund
     Anthony C. Papalia, Principal          Frank Koenemund, Director
     Executive, Financial and
     Accounting Officer and Director   Date April 24, 1998

Date April 24, 1998


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

Date April 24, 1998                    Date April 24, 1998
     ---------------------------            --------------


By/s/James Fletcher
     James Fletcher, Director

Date April 24, 1998

                                       23