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 for the fiscal year ended June 30, 1998

                                       OR

     |_|  Transition  Report  Pursuant to Section 13 or 15(d) of the  Securities
          Exchange Act of 1934 for the transition period from _____ to _____

                                     0-19263
                              (Commission File No.)

                            SUPREMA SPECIALTIES, INC.
             (Exact name of registrant as specified in its charter)


         New York                                                  11-2662625   
(State or other jurisdiction                                   (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                510 East 35th Street, Paterson, New Jersey 07543
           (Address of principal executive offices including zip code)

                                 (973) 684-2900
              (Registrant's Telephone Number, including area code)

           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;
                             Share Purchase Rights
                                (Title of Class)


<PAGE>


     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 90 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. [ X ]

     The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of August 14, 1998 was $12,902,463.

     As of August 14, 1998, there were 4,562,800 shares of the registrant's
Common Stock outstanding.

     Documents Incorporated by Reference:

     Suprema Specialties, Inc.'s definitive Proxy Statement for the annual
meeting of shareholders to be held in November 1998 which will be filed on or
before October 12, 1998 is incorporated by reference into Part III of this Form
10-K Annual Report.


<PAGE>


                                     PART I

Item 1.    Business

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves
important known and unknown risks and uncertainties that could significantly
affect actual results, performance or achievements of the Company in the future
and, accordingly, such actual results, performance or achievements may
materially differ from those expressed or implied in any forward-looking
statements made by or on behalf of the Company. These risks and uncertainties
include, but are not limited to, those relating to the Company's growth
strategy, customer concentration, outstanding indebtedness, seasonality,
expansion and other activities of competitors, changes in federal or state laws
and the administration of such laws, protection of trademarks and other
proprietary rights, and the general condition of the economy and its effect on
the securities markets and other risks detailed in the Company's other filings
with the Securities and Exchange Commission. The words "believe," "expect,"
"anticipate," "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date the statement
was made.


General

     Suprema Specialties, Inc. and its wholly owned subsidiaries (hereinafter
referred to collectively as the "Company") manufactures, processes and markets a
variety of premium, gourmet natural cheese products, using fine quality imported
and domestic cheeses.

     The Company manufacturers bulk cheeses at its facilities in Manteca,
California and Ogdensburg, New York and purchases bulk cheeses from foreign
sources (primarily from Europe and to a lesser extent, South America) and
domestic sources. Bulk cheese is repackaged and sold to food service
distributors and food manufacturers under the Suprema Di Avellino(R) name or on
a private label basis or is grated or shredded and packaged by the Company and
sold to retail customers under the Suprema Di Avellino(R) name. The Company
packages its products for retail sale in convenient, easy to use, tamper
evident, resealable, clear plastic cups, bags and shakers.

     The Company commenced operations in 1983 and currently markets and
distributes its products nationally.


                                       -1-
<PAGE>


Products

     The Company's product line, which it principally markets under the Suprema
Di Avellino(R) brand name, currently consists primarily of grated and shredded
imported and domestic parmesan and romano cheeses, imported pecorino (sheep's
milk) romano cheese (including "lite" versions of these products containing less
fat and fewer calories), bulk mozzarella, ricotta and provolone cheese products.
Its cheese products are natural, containing no preservatives, additives,
sweeteners, dehydrated fillers or artificial flavorings. These cheese products
are often used as cooking ingredients and as flavor enhancements and complements
to other foods, such as pastas, meat sauces, soups and salads.

     The Company sells its cheese products to food service industry
distributors, which distribute cheese products to restaurants, hotels and
caterers; food manufacturers; and supermarkets and other retail customers,
including grocery stores, delicatessens and gourmet shops. The Company's
supermarket customers include several regional chain stores, such as King
Kullen, Shop-Rite, BJ's, Food Town, Stop'N Shop, D'Agostino's and Giant. For the
years ended June 30, 1997 and June 30, 1998, sales of bulk cheese products to
food service industry distributors and food manufacturers under the Suprema Di
Avellino(R) name or on a private label basis accounted for 54% and 41%,
respectively, of the Company's revenues in each period.

     For retail sales, the Company packages a significant portion of its
products in resealable tamper-evident transparent plastic cups and eight ounce
shakers, permitting consumers to reseal the package which the Company believes
maximizes freshness and enhances visual appeal.

     The Company also sells certain of its products in shrink-wrapped plastic
packaging and in plastic pillow packs. These packs range in size from one to ten
pounds or can be packaged in customized sizes for food service distributors and
food manufacturers.


Production

     The Company has increasingly emphasized the marketing and sale of domestic
Italian variety cheese products manufactured at its Manteca, California facility
and, it's Ogdensburg New York facility. For the years ended June 30, 1997 and
June 30, 1998, respectively, sales of mozzarella, ricotta and provolone cheese
products manufactured at such facilities accounted for approximately 54.7% and
71.8%, respectively, of the Company's revenues. The Company also processes
natural cheese products, which involves shredding, grating and packaging, at its
facility in Paterson, New Jersey. These facilities serve as distribution


                                       -2-
<PAGE>


points for various geographic markets throughout the United States.

     The Company's East Coast production facility is located in Paterson, New
Jersey and is equipped with state of the art equipment for grating, shredding
and packaging the Company's products. The Company currently operates this
facility at approximately 63% of full productive capacity.

     The Company employs a Director of Operations at each facility. The
Company's Directors of Operations make preproduction inspections of each
product, and monitor critical manufacturing and processing functions. Random
samples of each product are regularly sent to outside laboratories, which
perform routine physical, chemical and micro-biological tests of products.


Customers

     The Company sells its cheese products directly and through distributors to
supermarkets and other retail customers, including grocery stores, delicatessens
and gourmet shops; food service industry distributors, which distribute the
products to, among others, restaurants, hotels and caterers; and food
manufacturers. The Company's products sold to food service industry distributors
and food manufacturers are sold principally in bulk. The Company's supermarket
customers include several regional chain stores, such as King Kullen, Shop-Rite,
BJ's, Foodtown, Stop'N Shop, D'Agostino's, Super Valu, and Giant.

     For the fiscal years ended June 30, 1997 and June 30, 1998, sales of cheese
products to retailers accounted for approximately 10% and 6%, respectively, of
the Company's revenues; sales to food service companies accounted for
approximately 83% and 88%, respectively, of the Company's revenues; and sales to
food manufacturers accounted for approximately 7% and 6% respectively, of the
Company's revenues.

     For the fiscal year ended June 30, 1998, A&J Cheese Company accounted for
18% of the Company's revenues, and for the fiscal year ended June 30, 1997, A&J
Cheese Company and Lisanti Foods of New Jersey accounted for 14% and 10% of the
Company's revenues respectively.

Marketing, Sales and Advertising

     The Company currently employs regional sales representatives to market its
products to retail customers primarily in New York, New England and California,
and one national representative who is responsible for sales of the Company's
products to the food service industry. In addition, the Company engages
independent food brokers throughout the United States for


                                       -3-
<PAGE>


marketing to both retail and food service customers. Food brokers, who are paid
on a commission basis, and salaried sales representatives, are generally
responsible in their respective geographic markets for identifying customers,
soliciting customer orders and inspecting merchandise on supermarket shelves. To
achieve greater market penetration, the Company will continue to strengthen and
expand its sales force and food broker network. The Company also employs a Vice
President-Sales, who is responsible for managing and coordinating the entire
sales program. This includes making sales presentations to food brokers and
working with regional sales representatives and food brokers in the marketing
and selling of products to, and the maintenance of relationships with, retail
customers.

     The Company believes that product recognition by customers, consumers and
food brokers is an important factor in the marketing of the Company's products.
Accordingly, the Company promotes its products and brand name through the use of
promotional materials, including full color product brochures, circulars, free
standing product displays and newspaper inserts. The Company also employs a Vice
President of Market Development in an effort to increase product recognition in
various geographic markets.

     The Company generally sells its cheese products pursuant to customer
purchase orders and fills orders within approximately seven days of receipt.
Because orders are filled shortly after receipt, backlog is not material to the
Company's business. Substantially all of the Company's products are delivered to
customers by independent trucking companies.


Suppliers

     For the fiscal years ended June 30, 1997 and June 30, 1998, the Company's
largest supplier, a milk cooperative, accounted for approximately 31% and 25%,
respectively, of all purchases. The Company does not usually maintain contracts
with its suppliers. The Company believes that there are numerous alternative
sources of supply available to it, including for products currently provided by
its largest supplier.

     For the years ended June 30, 1997 and June 30, 1998, approximately 7% and
5%, respectively, of the Company's supply requirements were manufactured by
foreign producers in Europe and South America. Currently, the Company imports
certain of its bulk cheese directly from foreign suppliers and, to a lesser
extent, also purchases through domestic importers. The Company purchases cheese
supplies in large quantities in order to obtain volume discounts and places its
orders for import bulk cheese approximately four to six months in advance of
anticipated production requirements.


                                       -4-
<PAGE>


     The Company is subject to various risks inherent in dependence on foreign
sources of supply, including economic or political instability, shipping delays,
fluctuations in foreign currency exchange rates, custom duties and import quotas
and other trade restrictions, all of which could have a significant impact on
the Company's ability to obtain supplies and deliver finished products on a
timely and competitive basis. Cheese imported from Argentina is currently
subject to United States import quotas and custom duties. There are currently no
quotas or custom duties imposed on pecorino romano cheese imported into the
United States from Italy, although there are quotas and duties imposed on
parmesan cheese imported from Italy.

     The Company also purchases certain of its cheese requirements from domestic
sources. The Company manufactures certain of its cheese requirements primarily
for sale to the food service industry. For the fiscal years ended June 30, 1997
and June 30, 1998, approximately 93% and 95%, respectively, of the Company's
supply requirements were manufactured by the Company or purchased from domestic
sources.


Trademarks

     In September, 1992, the Company registered the name "Suprema Di
Avellino(R)" with the United States Patent and Trademark Office.


Government Regulation

     The Company is subject to extensive regulation by the United States Food
and Drug Administration (the "FDA"), the United States Department of
Agriculture, and by other state and local authorities in jurisdictions in which
the Company's products are manufactured, processed or sold, regarding the
importation, manufacturing, processing, packaging, storage, distribution and
labeling of the Company's products. Applicable statutes and regulations
governing cheese products include "standards of identity" for the content of
specific types of cheese; nutritional labeling and serving size requirements;
and general "Good Manufacturing Practices" with respect to production processes.
The Company's manufacturing and processing facilities are subject to compliance
with federal and state regulations regarding work safety and environmental
matters. The Company's manufacturing and processing facilities and products are
subject to periodic inspection by federal, state and local authorities. The
Company believes that it is currently in substantial compliance with all
material governmental laws and regulations and maintains all material permits
and licenses relating to its operations.

     Advertising relating to the Company's products is subject to review of the
Federal Trade Commission and state


                                       -5-
<PAGE>


agencies to monitor and prevent unfair or deceptive trade practices.


Competition

     The Company faces significant competition in the marketing and sales of its
products. The Company's wholesale products compete with other products on the
basis of price, quality and service. The Company's retail products compete for
consumer recognition and shelf space with cheese products which have achieved
significant national, regional and local brand name recognition and consumer
loyalty including such product brands as Kraft, Sorrento, Sargento and Polly-O.
The Company also competes with other importers of foreign cheese and companies
manufacturing substitute cheese products. These products are marketed by
companies with significantly greater financial, manufacturing, marketing,
distribution, personnel and other resources than the Company, thereby permitting
such companies to procure supermarket shelf space and to implement extensive
advertising and promotional programs, both generally and in response to efforts
by additional competitors to enter into new markets. The food industry is also
characterized by the frequent introduction of new products, accompanied by
substantial promotional campaigns. The Company's products are positioned as
premium, gourmet products and, accordingly, are generally higher in price than
certain similar competitive products. The Company believes the principal
competitive factors in the marketing of cheese products are quality, freshness,
price, product recognition, packaging convenience and ease of use.

     As is the case with other companies marketing cheese products, the Company
is subject to evolving consumer preferences and nutritional and health-related
concerns. The Company believes that the absence of preservatives, additives,
sweeteners, dehydrated fillers or artificial flavorings increases the
attractiveness of its products to consumers. In addition, the Company has
introduced certain "lite" cheese products containing less fat and fewer
calories. The Company will continue to endeavor to respond to certain consumer
concerns about dairy products, such as the cholesterol, calories, sodium,
lactose and fat content of such products. The Company expects to see increased
competition from other companies whose products or marketing strategies address
these consumer concerns.


Employees

     As of August 14, 1998, the Company had 140 full-time employees of which 9
are employed in executive capacities and management positions, 21 are engaged in
sales and marketing and administrative capacities and 110 are engaged in
production and operations. In June, 1997, the employees of Suprema Specialties
West, Inc. which represent approximately 50% of the total


                                       -6-
<PAGE>


workforce, elected to form a Union. In December 1997, the Company formalized a
contract with its employees which remains in effect through December 31, 1999.
The Company considers its relations with its employees to be good.


Item 2.   Properties

     The Company operates three facilities: manufacturing facilities in Manteca,
California and Ogdensburg, New York and its executive offices and production
facility in Paterson, New Jersey. The Company's facility in Paterson, New
Jersey, consists of an aggregate of approximately 32,000 square feet and
contains the Company's executive offices as well as production, storage and
shipping facilities has been expanded to include a refrigerated/freezer storage
facility. On March 29, 1996, the Company purchased its Paterson production
facility which it previously had leased. The purchase was financed through a
mortgage on the property. Proceeds of the loan were $1,050,000 of which
approximately $686,250 was used to pay the remaining obligation to the landlord.
The five year note bears interest of 8.51% per annum, is being amortized at a
fifteen year rate and requires a balloon payment at the end of year five of
approximately $840,000.

     The Company's facility in Manteca, California, which consists of an
aggregate of approximately 75,000 square feet and contains a cheese
manufacturing operation, as well as storage and shipping facilities, is occupied
under a net lease which expires on August 31, 2005, and which may be extended at
the option of the Company for two (2) additional five-year periods subject to
further extension as set forth below. The basic annual rental (exclusive of
insurance and taxes) is $576,000, subject to adjustment for increases in the
Consumer Price Index during the renewal term. The rent is based on a formula
relating to the Landlord's cost of construction of the additional space.

     The Company's facility in Ogdensburg, New York, which consists of an
aggregate of approximately 72,000 square feet and contains a cheese
manufacturing operation, as well as storage and shipping facilities, is occupied
under an operating lease which commenced in August 1996 and expires July 31,
2017. However, at each five year anniversary of the commencement of the lease;
July 31, 2002, July 31, 2007, and July 31, 2012 the Company may elect to
terminate the lease. Minimum monthly base rental is $4,000 plus a fee of $.06
per hundred weight of whole milk sold and delivered, provided that in no event
shall the minimum monthly rent exceed $8,000.

     The Company leases, generally with options to purchase, substantially all
of the equipment at these manufacturing and processing facilities, subject to
lease agreements currently


                                       -7-
<PAGE>


providing for annual aggregate payments of approximately $2,285,000.


Item 3.   Legal Proceedings

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


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 last quarter of its fiscal year ended June 30, 1998.


                                       -8-
<PAGE>


                                     PART II


Item 5.   Market for the Registrant's Common Equity and Related Stockholder
          Matters

     The Company's Common Stock has been traded in the over-the-counter market
and quoted on the NASDAQ System under the symbol "CHEZ" since April 25, 1991. On
March 22, 1993, the Company's stock commenced trading on the NASDAQ National
Market System. The following table sets forth the high and low closing bid
prices of the Company's Common Stock for the periods indicated below. The
following quotes represent inter-dealer quotations without adjustment for retail
markups, markdowns or commissions and may not necessarily represent the prices
of actual transactions.


                                                      Common Stock 
                                                      ------------ 
                                                   High           Low
                                                   ----           ---


Fiscal Year ending June 30, 1997
         First Quarter                            6 1/2           5 1/8
         Second Quarter                           5 7/8           4 3/8
         Third Quarter                            5 3/8           3 9/16
         Fourth Quarter                           4 1/2           3


Fiscal Year ending June 30, 1998

         First Quarter                            4 1/4           3 1/4

         Second Quarter                           3 7/8           2 25/32
         Third Quarter                            4 15/16         3 1/4
         Fourth Quarter                           4 7/16          3 3/8

     The closing price of the Common Stock on August 14, 1998 was 3 1/2.

     As of August 14, 1998, the number of record holders of the Company's Common
Stock was 92. The Company believes that this number does not include an
estimated 1,000 beneficial owners of the Company's Common Stock who currently
hold such securities in the name of depository institutions.

     In August 1994, the Company completed a private placement of 500,000 shares
of Series A Convertible Preferred Stock at a purchase price of $3.00 per share
with gross proceeds of $1,500,000 and net cash proceeds of approximately
$1,300,000. Each share of Preferred Stock was convertible into one share of
Common Stock. The Preferred Stock bore a cumulative 10% dividend, payable
quarterly. During fiscal year 1996, the Company paid $146,250 of dividends on
the preferred stock. In


                                       -9-
<PAGE>


June 1996 all of the shares of Preferred Stock were converted into Common Stock.

     In June 1996, the Company completed a public offering for 1,500,000 shares
of its common stock of which 1,000,000 shares were issued by the Company and
500,000 shares were offered by selling shareholders upon conversion of 500,000
shares of the Company's convertible preferred stock (see above), at a purchase
price of $5.50 per share. Gross proceeds payable to the Company from the
offering was approximately $5,500,000 and net proceeds to the Company was
approximately $4,481,350. The Company received no proceeds from the shares sold
by selling shareholders. In association with the Company's public offering, the
Company granted to the underwriter an option to purchase an aggregate of 225,000
shares of the Company's common stock at the price of $5.50 per share to cover
over-allotments. In July, 1996, the underwriter exercised its option. Gross
proceeds payable to the Company from the issuance was approximately $1,237,500
and net proceeds to the Company was approximately $1,021,791.

     The Company has neither paid nor declared any cash dividends on its shares
of Common Stock. The Board of Directors of the Company does not presently
anticipate that cash dividends will be paid on its shares of Common Stock in the
foreseeable future. In addition, the Company's agreement with its bank prohibits
the payment of cash dividends. The Company anticipates that any funds derived
from operations in the foreseeable future will be required to be devoted to the
development of the Company's business.


                                      -10-
<PAGE>



         Selected Financial Data

     The following selected consolidated  financial information is derived from,
and should be read in connection with, the consolidated  financial statements of
the Company contained elsewhere herein.

<TABLE>
<CAPTION>
                                                                         Years Ended June 30,
                                            -----------------------------------------------------------------------------
                                            1998               1997              1996              1995              1994
                                            ----               ----              ----              ----              ----
                                                                (In thousands, except per share data)
Earnings Statement
  Data:
<S>                                    <C>                <C>               <C>               <C>               <C>        
 Net Sales                             $   108,140        $    88,311       $    65,104       $    52,109       $    31,996

Earnings before
  cumulative
  effect of
  accounting
  change and
  extraordinary
  loss on
  extinguishment
  of debt                                    2,417                121             1,409               912               504

 Net Earnings                                1,406                121             1,409               912               429
 Earnings Per
  Share before
  cumulative
  effect of
  accounting
  change and
  extraordinary
  loss on
  extinguishment
  of debt (Basic)                              .53                .03               .46               .32               .23


Earnings  Per  Share  before
 cumulative
 effect  of
 accounting
 change  and
 extraordinary
 loss on
 extinguishment
 of debt
 (Diluted)                                     .51                .02               .40               .32               .23

 Net earnings per
 share (Basic)                                 .31                .03               .46               .32               .20

 Net earnings per
 share (Diluted)                               .30                .02               .40               .32               .20
</TABLE>


                                      -11-
<PAGE>


<TABLE>
<CAPTION>

Weighed Average
  Common Shares
  Outstanding
  (Basic)(1)                     4,563                4,552             2,768             2,352             2,171


Weighed Average
  Common Shares
  Outstanding
  (Diluted)(2)                   4,745                5,040             3,195             2,369             2,191




<CAPTION>
                                                                      June 30,
                                 --------------------------------------------------------------------------------
                                 1998                1997               1996              1995               1994
                                 ----                ----               ----              ----               ----
                                                                     (In thousands) 
Balance Sheet
  Data:

<S>                            <C>                  <C>               <C>               <C>               <C>    
  Total Assets                 $61,846              $47,043           $41,663           $27,212           $16,746

  Working Capital               43,391               32,546            19,374            11,209             8,384

  Long Term 
  Obligations
  (including
  capital lease
  obligations                   
  and current portion           35,493               23,772            18,482            13,310             7,099

  Total
   Liabilities                  45,151               31,754            27,577            19,811            11,600

  Warrants                          --                1,171             1,171                --                --

  Stockholders'
   Equity                       16,695               15,289            14,086             7,401             5,146
</TABLE>




----------
(1)  See Footnote 11 to Notes to Consolidated Financial Statements.
(2)  See Footnote 11 to Notes to Consolidated Financial Statements.


                                      -12-
<PAGE>


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

Results of Operations

     The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain items reflected in the Company's Statements
of Earnings.

<TABLE>
<CAPTION>

                             Percentage of Revenues

                                                                      Year                   Year                  Year
                                                                      Ended                  Ended                 Ended
                                                                     June 30,               June 30,              June 30,
                                                                      1998                   1997                  1996    
                                                                     --------               --------              --------    
<S>                                                                   <C>                    <C>                   <C>   
Net Sales ......................................................      100.0%                 100.0%                100.0%
Cost of sales ..................................................       82.7                   83.0                  78.9
                                                                     --------               --------              --------   

Gross margin ...................................................       17.3                   17.0                  21.1

Selling and shipping
expenses .......................................................        7.4                   10.4                  12.5

General and administrative
expenses .......................................................        3.4                    2.5                   2.8

Interest expense ...............................................        2.7                    2.5                   2.8

Other (Income)/Expense .........................................         --                    1.4                   (.5)
                                                                     --------               --------              --------   

Earnings before income taxes
and extraordinary item .........................................        3.8                     .2                   3.7

Income taxes ...................................................        1.6                     .1                   1.5
                                                                     --------               --------              --------   

Earnings before extraordinary
item ...........................................................        2.2                     .1                   2.2

Extraordinary loss on
extinguishment of debt .........................................
                                                                       (0.9)                    --                    --





Net Income                                                              1.3                     .1                   2.2
                                                                     ========               ========              ========
</TABLE>


                                      -13-
<PAGE>


Fiscal Year Ended June 30, 1998 Compared to Year Ended June 30, 1997.

     Revenues for the fiscal year ended June 30, 1998 were approximately
$108,140,000, as compared to approximately $88,311,000 for the fiscal year ended
June 30, 1997, an increase of approximately $19,829,000, or 22.5%. This increase
reflects higher sales volume for food service products manufactured by the
Company.

     The Company's gross margin increased by approximately $3,697,000, from
approximately $15,048,000 for the year ended June 30, 1997 to approximately
$18,745,000 for the year ended June 30, 1998, primarily as a result of the
increased sales volume. The Company's gross margin as a percentage of sales
increased from 17.0% in the year ended June 30, 1997 to 17.3% in the year ended
June 30, 1998. The increase in gross margin as a percentage of net sales was due
primarily to lower costs of raw materials during fiscal year ended June 30,
1998, partially offset by higher costs associated with the Ogdensburg New York
manufacturing facility and the shift toward lower margin sales associated with
the food service and food ingredient markets.

     Selling and shipping expenses decreased by approximately $1,151,000 from
approximately $9,176,000 during the fiscal year ended June 30, 1997 to
approximately $8,025,000 during the fiscal year ended June 30, 1998. As a
percentage of sales, selling and shipping expenses decreased from 10.4% for the
fiscal year ended June 30, 1997 to 7.4% for the fiscal year ended June 30, 1998.
The decrease in selling and shipping expenses was primarily due to the unusual
charge associated with the write-off of the marketing service agreements in
fiscal 1997, (see note 5 to the financial statements) of approximately $944,000
as such amounts no longer had continuing value as a result of declining
relevance of these product lines, as well as a decrease in freight expenses due
to the Ogdensburg facility coming on line.

     General and administrative ("G&A") expenses increased from approximately
$2,181,000 in fiscal 1997 to approximately $3,636,000 in fiscal 1998. As a
percentage of sales, G&A expenses increased from 2.5% in fiscal 1997 to 3.4% in
fiscal 1998. The increase in general and administrative expenses is primarily
due to an increase in personnel and other administrative expenses in association
with the Company's sales growth.

     Net interest expense increased to approximately $2,917,000 for the year
ended June 30, 1998 from approximately $2,231,000 for the year ended June 30,
1997. The increase was primarily the result of the Company's expanded borrowing
requirements necessary to finance working capital needs partially offset by a
decrease in capital lease interest expense due to the sale leaseback transaction
completed during the fourth quarter of fiscal 1997.


                                      -14-
<PAGE>


     Other income changed from a loss of approximately $1,259,000 in fiscal year
1997 to $0 in fiscal year 1998. The loss in fiscal year 1997 was attributable to
the  sale of the  Company's  assets  in  association  with  the  sale  leaseback
transaction the Company  completed during the fourth quarter of fiscal 1997 (see
note 4 to the financial statements).

     The provision for income taxes for the year ended June 30, 1998 increased
by approximately $1,670,000 compared to fiscal year 1997 primarily as a result
of increased taxable income and an increase in the effective tax rate from 40
percent to 42 percent.

     The Company took an extraordinary charge on the extinguishment of the
Subordinated Debt Notes net of tax of approximately $1,011,000 during the
quarter ended December 31, 1997 (See Note 7). The charge was the result of
prepayment penalties related to the early extinguishment of the subordinated
debt and associated fees.

     Net earnings applicable to common stock before the extraordinary charge on
the extinguishment of the subordinated debt increased by approximately
$2,296,000 to approximately $2,417,000 in fiscal year 1998 from approximately
$121,000 in fiscal year 1997 due to the reasons discussed above.

     Net earnings applicable to common stock increased by approximately
$1,285,000 to approximately $1,406,000 in fiscal year 1998 from approximately
$121,000 in fiscal year 1997 due to the reasons discussed above.


Fiscal Year Ended June 30, 1997 Compared to Year Ended June 30, 1996.

     Revenues for the fiscal year ended June 30, 1997 were approximately
$88,311,000, as compared to approximately $65,104,000 for the fiscal year ended
June 30, 1996, an increase of approximately $23,207,000, or 35.6%. This increase
reflects higher sales volume for food service products manufactured by the
Company.

     The Company's gross margin increased by approximately $1,303,000, from
approximately $13,745,000 for the year ended June 30, 1996 to approximately
$15,048,000 for the year ended June 30, 1997, primarily as a result of the
increased sales volume. The Company's gross margin as a percentage of sales
decreased from 21.1% in the year ended June 30, 1996 to 17.0% in the year ended
June 30, 1997. The decrease in gross margin as a percentage of net sales was due
primarily to higher costs of raw materials during fiscal year ended June 30,
1997, costs associated with the Ogdensburg New York manufacturing facility and
the shift toward lower margin sales associated with the food service and food
ingredient markets.


                                      -15-
<PAGE>


     Selling and shipping expenses increased by approximately $1,051,000 from
approximately $8,125,000 during the fiscal year ended June 30, 1996 to
approximately $9,176,000 during the fiscal year ended June 30, 1997. The
increase in selling and shipping expenses was primarily due to the unusual
charge associated with the write-off of the marketing service agreements (see
note 5 to the financial statements) of approximately $944,000 as such amounts no
longer need continuing value as a result of declining relevance of these product
lines, partially offset by a decrease in freight expenses due to the Ogdensburg
facility coming on line. As a percentage of sales, selling and shipping expenses
decreased from 12.5% for the fiscal year ended June 30, 1996 to 10.4% for the
fiscal year ended June 30, 1997. This decrease is primarily due to the Company's
increased revenue growth along with a decrease in the Company's freight
expenses, partially offset by the unusual charge associated with the write-off
of the marketing service agreements.

     General and administrative ("G&A") expenses increased from approximately
$1,807,000 in fiscal 1996 to approximately $2,181,000 in fiscal 1997, or
$374,000. The increase in general and administrative expenses is primarily due
to an increase in personnel. As a percentage of sales, G&A expenses decreased
from 2.8% in fiscal 1996 to 2.5% in fiscal 1997. This decrease is primarily due
to the Company's increased revenue growth during the fiscal year ended June 30,
1997.

     Net interest expense increased to approximately $2,232,000 for the year
ended June 30, 1997 from approximately $1,812,000 for the year ended June 30,
1996. The increase was the result of the Company's expanded borrowing and lease
financing requirements necessary to finance working capital needs and capital
expansion for the Manteca California and the Ogdensburg New York manufacturing
facilities.

     Other income decreased from approximately $412,000 in fiscal year 1996 to a
loss of approximately $1,259,000 in fiscal year 1997, primarily as a result of
other income associated with the payment in full of the note pertaining to the
licensing agreement during fiscal year 1996 as compared to the loss on the sale
of the Company's assets in association with the sale leaseback transaction the
Company completed during the fourth quarter of fiscal 1997 (see note 4 to the
financial statements) of approximately $1,259,000.

     The provision for income taxes for the year ended June 30, 1997 decreased
by approximately $923,000 compared to fiscal year 1996 as a result of the above.

     Net earnings applicable to common stock decreased to approximately $121,000
in fiscal year 1997 from approximately $1,409,000 in fiscal year 1996 due to the
reasons discussed above.


                                      -16-
<PAGE>


Liquidity and Capital Resources

     At June 30, 1998, the Company had working capital of approximately
$43,391,000 as compared to approximately $32,546,000 in June 1997, an increase
of approximately $10,845,000. The increase in working capital is the result of
the Company's net income as well as increased borrowings of $8,105,000. The cash
was invested in the increased accounts receivable and inventory levels in
support of the Company's increased sales volume.

     The Company has a bank revolving credit facility that, in September 1998,
was amended and increased the bank's potential commitment to $26,000,000. The
rate of interest on amounts borrowed under the revolving credit facility is
LIBOR plus 200 basis points. The revolving credit loan agreement expires on
November 2, 1999. Advances under this facility are initially limited to 80% of
eligible accounts receivable, and 40% of inventory except packaging material, as
defined in the agreement. The agreement contains restrictive covenants,
including the maintenance of total debt to tangible net worth and debt service
coverage ratios, minimum levels of tangible net worth, and capital expenditure
limitations. As of June 30, 1998, the Company is in compliance with these
covenants. At June 30, 1998, the Company had $21,262,000 outstanding under the
long-term revolving credit facility with approximately $3,738,000 remaining as
available to borrow under the facility.

     In October 1997, the Company entered into an agreement with Fleet Bank,
N.A. pursuant to which the bank provided bridge financing of $10 million to the
Company. Approximately $6.7 million of the proceeds from the loan was used to
retire $5.0 million of subordinated debt with CoreStates Enterprise Fund and
repurchase from CoreStates warrants to purchase 354,990 shares of Suprema's
common stock. The balance of the proceeds was used for general working capital
purposes. As a result of prepayment penalties related to the early
extinguishment of the CoreStates debt and associated fees, Suprema took an
extraordinary charge of $1.7 million (approximately $1.0 million net of tax)
during the second quarter ended December 31, 1997. In March 1998, the Company
entered into a Loan and Security Agreement with Albion Alliance Mezzanine Fund,
L.P. and an affiliate (the "Fund") (see note 7) pursuant to which the Fund
loaned $10.5 million to the Company. Proceeds of the loan were used to retire
the bridge financing agreement with Fleet bank, N.A. entered into in October
1997.

     In May, 1997 the Company entered into an agreement with Fleet Capital
Leasing Corporation under which the Company sold to Fleet Capital its interests
in certain production and operating equipment for $9,565,000. Under the
agreement, the Company will lease back the equipment for a period of eight years
under an operating lease. The Company extinguished the existing capital lease
obligations and fees pertaining to the equipment


                                      -17-
<PAGE>


and, as a result, realized net proceeds to the Company of approximately
$3,711,000.

     Prior to May 1997, the Company typically financed equipment purchases
through capital lease financing transactions. At June 30, 1998, the Company had
obligations of approximately $2,767,054 under capital leases, including $330,000
under capital leases entered into in fiscal year 1998. The additional capital
lease obligations entered into in fiscal year 1998 is in connection with the
expansion of the Company's Manteca California facility.

     In June 1996, the Company completed a public offering for 1,500,000 shares
of its $.01 par value common stock of which 1,000,000 shares were issued by the
Company and 500,000 shares were offered by selling shareholders upon conversion
of 500,000 shares of the Company's convertible preferred stock, at a purchase
price of $5.50 per share. Gross proceeds payable to the Company from the
offering were approximately $5,500,000 and net proceeds to the Company were
approximately $4,481,000. The Company received no proceeds from the shares sold
by the selling shareholders. In association with the Company's secondary public
offering, the Company granted to the underwriter an option to purchase an
aggregate of 225,000 shares of the Company's common stock at the price of $5.50
per share to cover over-allotments. In July 1996, the underwriter exercised its
option to purchase 225,000 shares of the Company's common stock at the price of
$5.50 per share to cover over-allotments. Gross proceeds from the issuance was
approximately $1,237,500 and net proceeds to the Company was approximately
$1,024,000.

     In March, 1996, the Company purchased its Paterson production facility
which it previously had leased, financed by a mortgage from Fleet Bank, N.A.
Proceeds of the loan amounted to $1,050,000, of which $686,000 was used to pay
the Company's remaining obligation to the landlord. The balance of the proceeds
was used to complete the expansion of the Paterson facility to include a
freezer/cooler refrigerated storage facility. The five year note which bears
interest at 8.51% per annum is being amortized at a fifteen year rate with a
balloon payment of approximately $840,000 due on March 29, 2001. At June 30,
1998, the Company had an obligation of approximately $964,000 under the
mortgage.

     Management believes that the Company has adequate working capital to meet
its reasonably foreseeable cash requirements.

     Net cash used by operating activities for the year ended June 30, 1998 was
approximately $7,056,000, as compared with approximately $8,148,000 in the prior
year. The use of cash in operations was primarily the result of increases in
inventory, and accounts receivable in support of the Company's increased sales
volume, partially offset by net earnings as adjusted for


                                      -18-
<PAGE>


non-cash expenses, and increases in accounts payable, income taxes payable,
other accrued expenses and other current liabilities. The cash used in
operations was financed through cash flow and from financing activities. Net
cash used in investing activities for the year ended June 30, 1998 was
approximately $1,039,000 as compared with $2,852,000 in the prior year. The
investing activities relate to continued expenditures for fixed assets
(including capital equipment utilized in the Company's California and New York
manufacturing facilities). As a result, at June 30, 1998, the Company had cash
of $489,890, as compared to $480,225 for the prior year.

     As of August 14, 1998, the Company has made no additional commitments for
capital expenditures. In August 1998, the Board of Directors approved a stock
repurchase program to acquire of up to $1,600,000 of the Company's common stock.

Foreign Currency

     The Company is subject to various risks inherent in dependence on foreign
sources of supply, including economic or political instability, shipping delays,
fluctuations in foreign currency exchange rates, custom duties and import quotas
and other trade restrictions, all of which could have a significant impact on
the Company's ability to obtain supplies and deliver finished products on a
timely and competitive basis. The Company has no material hedged monetary
assets, liabilities or commitments denominated in currencies other than the
United States dollar.


Effect of New Accounting Pronouncements

     In June 1997, SFAS 130, "Reporting Comprehensive Income", and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components and SFAS 131 requires disclosure of reportable
operating segments. In February 1998, SFAS 132,"Employer's Disclosures about
Pensions and Other Post-Retirement Plans," was issued. SFAS 132 standardized
pension disclosures. These statements are effective for the Company's 1999
fiscal year. The Company will be reviewing these pronouncements to determine
their applicability to the Company, if any.

     In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes accounting and reporting for
derivative instruments and for hedging activities. This statement is effective
for the Company's 2000 fiscal year. The Company is reviewing this pronouncement
to determine its applicability to the Company, if any.


                                      -19-
<PAGE>


Year 2000 Issue

     The Company has assessed the potential issues associated with the year 2000
and believes that its costs to address such issues would not be material. The
Company anticipates that all of its operating systems are Year 2000 compliant.
The Company also believes that costs or consequences of an incomplete or
untimely resolution would not result in the occurrence of a material event or
uncertainity reasonably likely to have a material adverse effect on the Company.
However, the Company has not determined whether its principal suppliers and
customers are Year 2000 compliant. In the event any of the Company's principal
suppliers and customers are not year 2000 compliant it may have a material
adverse affect on the Company.


Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

           Not  applicable.


Item 8.    Financial Statements and Supplementary Data

           The Financial Statements and Supplementary Data of the Company
are included following Part IV of this report.


Item 9.    Changes in and Disclosure with Accountants on
           Accounting and Financial Disclosure

                None.


                                      -20-
<PAGE>


                                    PART III


Item 10.   Directors and Executive Officers of the Company

     The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.


Item 11.   Executive Compensation

     The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.


Item 12.   Security Ownership of Certain Beneficial Owners and Management

     The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.


Item 13.   Certain Relationships and Related Transactions

     The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.


                                      -21-
<PAGE>

<TABLE>

                                     PART IV

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

(a)  Financial Statement / Schedules

<S>                                                                                     <C>
     Report of Independent Certified Public Accountants                                 F-1

     Consolidated Balance Sheets - June 30, 1998 and 1997                               F-2

     Consolidated Statements of Earnings - For the Years Ended June 30, 1998,
          1997 and 1996                                                                 F-3

     Consolidated Statements of Stockholders' Equity - For the Years Ended 
          June 30, 1998, 1997 and 1996                                                  F-4

     Consolidated Statements of Cash Flows - For the Years Ended June 30, 1998,
          1997 and 1996                                                                 F-5

     Notes to Consolidated Financial Statements                                         F-6 - F-17

     Report of Independent Certified Public Accountants on Supplemental
          Schedules                                                                     F-18

     Schedule II - Valuation and Qualifying Accounts and Reserves - For the
          Years Ended June 30, 1998, 1997 and 1996                                      F-1
</TABLE>


(a)  Exhibits

     Exhibit No.

     3.1  Certificate of Incorporation, as amended*

     3.2  By-laws of the Registrant*

     3.3  Amendment to Certificate of Incorporation.

     4.1  Rights Agreement, dated as of March 6, 1996, between the Company and
          Continental Stock Transfer & Trust Company**

    10.1  Stock Option Plan*


----------
*    Incorporated by reference to the registrant's registration statement on
     Form S-18, SEC File No. 33-39076-NY

**   Incorporated by reference to the registrant's registration Report on Form
     8-K dated March 18, 1996.


                                      -22-
<PAGE>


    10.2       Lease, Option and Assignment to Purchase the Company's Paterson,
               New Jersey facility and amendment thereto.*

    10.3       Employment Agreement by and between the Company and Mark
               Cocchiola.*

    10.4       Employment Agreement by and between the Company and Paul
               Lauriero.*

    10.11      Revolving Loan, Guaranty and Security Agreement by and among the
               Company, Suprema Specialties West, Inc. and National Westminister
               Bank NJ dated as of February 15, 1994, as amended***

    10.14      Form of Equipment Lease between the Company and BLT Leasing Corp.
               dated December 28, 1992.****

    10.16      Amendment to Lease and Purchase Agreement, dated October 4, 1994
               between East 35th Street Associates and the Company.*****

    10.17      Loan and Security Agreement among CoreStates, Enterprise and the
               Company and Suprema Specialties West, Inc. dated October 25,
               1995.****

    10.18      Lease between Cape Vincent Milk Producers Cooperative, Inc.,
               Marble City Bulk Milk Producers Cooperative, Inc., Northern New
               York Bulk Milk Producers Cooperative, Inc., Seaway Bulk Milk
               Producers Cooperative Inc., and the Company, dated May 21, 1996.

    10.19      Master Equipment Lease Agreement No. 32399 between Fleet Capital
               Corporation and Suprema Specialties, Inc. dated May 29,1997

    10.20      Securities Purchase Agreement, dated as of March 9, 1998,
               between the Company and Alliance Capital Management, L.P. 
               (without exhibits)

    10.21      Note Agreement, dated as of March 9, 1998, between the Company 
               and each of Albion Alliance Mezzanine Fund, L.P. and The
               Equitable Life Assurance Society of the United States.


----------

***   Incorporated by reference to the registrant's Report on Form 10-Q for the
      quarter ended December 31, 1995.
                           
****  Incorporated by reference to the registrant's Annual Report on form 10-K
      for the year ended June 30, 1994.

***** Incorporated by reference to the registrant's Annual Report on Form 10-K
      for the year ended June 30, 1993.


                                      -23-
<PAGE>

    10.22      Warrant Agreement, dated as of March 9, 1998, between the Company
               and Albion Alliance Mezzanine Fund, L.P. and The
               Equitable Life Assurance Society of the United States.

    21.        Subsidiaries of the Registrant

    23.1       Consent of Independent Certified Public Accountants

    27         Financial Data Schedule.

(b)  Report on Form 8-K.

     No reports on Form 8-K were filed by the Company during its fiscal quarter
ended June 30, 1998.


                                      -24-
<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.

                                                   SUPREMA SPECIALTIES, INC.


                                                   By: /s/ Mark Cocchiola   
                                                   ----------------------------
                                                       Mark Cocchiola, President
Dated:  September 23 , 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 dates indicated.

Name                          Title                              Date

/s/ Mark Cocchiola            Chairman of the Board,             Sept. 23, 1998
---------------------
Mark Cocchiola                President, Chief
                              Executive Officer and
                              Director (Principal
                              Executive Officer)


/s/ Paul Lauriero             Executive Vice                     Sept. 23, 1998
---------------------
Paul Lauriero                 President and Director


/s/ Steven Venechanos         Chief Financial                    Sept. 23, 1998
---------------------
Steven Venechanos             Officer and
                              Secretary



/s/ Marco Cocchiola           Director                           Sept. 23, 1998
---------------------         
Marco Cocchiola


/s/ Rudolph Acosta            Director                           Sept. 23, 1998
---------------------
Rudolph Acosta


/s/ Paul DeSocio              Director                           Sept. 23, 1998
---------------------
Paul DeSocio


/s/ William Gascoigne         Director                           Sept. 23, 1998
---------------------
William Gascoigne


                                      -23-
<PAGE>



                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED JUNE 30, 1998, 1997 AND 1996



<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Shareholders
Suprema Specialties, Inc. and Subsidiaries
Paterson, New Jersey

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Suprema
Specialties,  Inc.  and  Subsidiaries,  as of June 30,  1998 and  1997,  and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Suprema Specialties,
Inc.  and  Subsidiaries  as of June 30, 1998 and 1997,  and the results of their
operations  and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.


                                                                BDO Seidman, LLP

Woodbridge, New Jersey

August 12, 1998

                                                                             F-1
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                               June 30, 
                                                                                ------------------------------------
                                                                                     1998                    1997
                                                                                     ----                    ----
                                                   ASSETS
Current:
<S>                                                                             <C>                      <C>        
   Cash                                                                         $   489,890              $   480,225
   Accounts receivable, net of allowances of $470,290
     at June 30, 1998 and 1997, respectively                                     23,239,810               14,667,008
   Inventories                                                                   28,511,930               22,462,421
   Income taxes receivable                                                                -                  921,243
   Prepaid expenses and other current assets                                        688,117                  679,781
   Deferred income taxes                                                            188,000                  168,348
                                                                                -----------              -----------
       TOTAL CURRENT ASSETS                                                      53,117,747               39,379,026

PROPERTY, PLANT AND EQUIPMENT, net                                                6,999,695                6,135,082

OTHER ASSETS                                                                      1,728,616                1,528,434
                                                                                -----------              -----------
                                                                                $61,846,058              $47,042,542

                                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
   Accounts payable                                                             $ 7,469,422              $ 5,411,478
   Current portion of long-term obligations                                         500,964                  402,877
   Mortgage payable - current                                                        43,457                   39,875
   Income taxes payable                                                             245,498                     --
   Accrued expenses and other
     current liabilities                                                          1,467,034                  805,754
   Deferred income taxes                                                               --                    172,653
                                                                                -----------              -----------
       TOTAL CURRENT LIABILITIES                                                  9,726,375                6,832,637

DEFERRED INCOME TAXES                                                               475,340                  420,952

REVOLVING CREDIT LOAN                                                            21,262,000               15,589,856

SUBORDINATED DEBT                                                                10,500,000                4,303,670

LONG-TERM CAPITAL LEASES                                                          2,266,090                2,470,599

MORTGAGE PAYABLE                                                                    921,413                  964,870
                                                                                -----------              -----------
                                                                                 45,151,218               30,582,584
                                                                                -----------              -----------

WARRANTS (subject to mandatory redemption)                                             --                  1,171,000
                                                                                -----------              -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Redeemable, convertible preferred stock, $.01 par
     value, 2,500,000 shares authorized, none issued
     and outstanding at June 30, 1998 and 1997                                         --                       --
   Common stock, $.01 par value, 10,000,000 shares
     authorized, 4,562,800 issued and outstanding                                    45,628                   45,628
   Additional paid-in capital                                                    11,243,347               11,243,347
   Retained earnings                                                              5,405,865                3,999,983
                                                                                -----------              -----------
       TOTAL STOCKHOLDERS' EQUITY                                                16,694,840               15,288,958
                                                                                -----------              -----------
                                                                                $61,846,058              $47,042,542
                                                                                ===========              ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                                                             F-2
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS


<TABLE>
<CAPTION>
                                                                               Years ended June 30, 
                                                          -----------------------------------------------------------
                                                                1998                1997                1996
                                                                ----                ----                ----

<S>                                                       <C>                    <C>                    <C>          
Net sales                                                 $ 108,140,007          $  88,311,454          $  65,103,914
Cost of sales                                                89,395,062             73,263,129             51,358,460
                                                          -------------          -------------          -------------
       Gross margin                                          18,744,945             15,048,325             13,745,454
                                                          -------------          -------------          -------------

Expenses:
   Selling and shipping expenses                              8,024,823              9,175,567              8,125,052
   General and administrative
     expenses                                                 3,636,090              2,180,576              1,807,275
                                                          -------------          -------------          -------------
                                                             11,660,913             11,356,143              9,932,327
                                                          -------------          -------------          -------------

Income from operations                                        7,084,032              3,692,182              3,813,127
Other income (expense):
   Interest, net of interest income of $0,
     $3,000 and $27,000 in 1998, 1997 and
     1996, respectively                                      (2,916,992)            (2,231,820)            (1,812,342)
   Other                                                             --             (1,259,081)               412,500
                                                          -------------          -------------          -------------
                                                             (2,916,992)            (3,490,901)            (1,399,842)
                                                          -------------          -------------          -------------
Earnings before income taxes and
   extraordinary item                                         4,167,040                201,281              2,413,285
Income taxes                                                  1,750,157                 80,500              1,004,000
                                                          -------------          -------------          -------------
Earnings before extraordinary item                            2,416,883                120,781              1,409,285
Extraordinary item - loss on extinguishment
   of debt (net of income tax of $762,000)                    1,011,001                     --                     --
                                                          -------------          -------------          -------------

Net earnings                                              $   1,405,882          $     120,781          $   1,409,285
                                                          =============          =============          =============

Preferred stock dividends                                            --                     --               (146,250)

Net earnings applicable to
   common stock                                               1,405,882                120,781              1,263,035

Basic earnings per share
   before extraordinary item                              $         .53          $         .03          $         .46
                                                          =============          =============          =============

Basic earnings per share related
   to extraordinary item                                  $        (.22)         $          --            $        --
                                                          =============          =============          =============

Basic earnings per share                                  $         .31          $         .03          $         .46
                                                          =============          =============          =============

Diluted earnings per share
   before extraordinary item                              $         .51          $         .02          $         .40
                                                          =============          =============          =============

Diluted earnings per share related
   to extraordinary item                                  $        (.21)         $          --            $        --
                                                          =============          =============          =============

Diluted earnings per share                                $         .30          $         .02          $         .40
                                                          =============          =============          =============

Basic weighted average shares outstanding                     4,562,800              4,552,146              2,768,100
                                                          =============          =============          =============

Diluted weighted average shares
   outstanding                                                4,744,919              5,039,995              3,195,358
                                                          =============          =============          =============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                                                             F-3
<PAGE>

<TABLE>
<CAPTION>
                                                      SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
                 
                                                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                                                                 
                                      Series A                                                                 
                                   Preferred stock                   Common stock                                   
                               -----------------------         -------------------------      Additional                          
                                                                                               paid-in         Retained   
                               Shares           Amount           Shares           Amount       capital         earnings   
                               -----------  ----------         ------------  -----------    ------------     -------------  


Balance, June 30,
<S>                            <C>            <C>              <C>          <C>             <C>              <C>         
      1995                     500,000       $1,108,977        2,450,000    $     24,500    $  3,651,528     $  2,616,167

Issuance of shares on
   conversion of
   marketing service
   agreements                     --               --            306,900           3,070         937,114             --

Issuance of shares on
   cashless exercise
   of warrants                    --               --             43,293             432            (432)            --

Dividends on
   preferred stock                --               --               --              --              --           (146,250)

Net proceeds from
   shares issued
   during secondary
   offering                       --               --          1,000,000          10,000       4,471,350             --

Conversion of Series
   "A" convertible
   preferred stock
   into common stock          (500,000)      (1,108,977)         500,000           5,000       1,103,977             --

Net earnings                      --               --               --              --              --          1,409,285
                          ------------     ------------     ------------    ------------    ------------     ------------
Balance, June 30,
      1996                        --               --          4,300,193          43,002      10,163,537        3,879,202

Net proceeds from
   underwriters over
   allotment                      --               --            225,000           2,250       1,021,791             --

Exercise of stock
   options and
   warrants                       --               --             37,607             376          58,019             --

Net earnings                      --               --               --              --              --            120,781
                          ------------     ------------     ------------    ------------    ------------     ------------
Balance, June 30,
      1997                        --               --          4,562,800          45,628      11,243,347        3,999,983

Net earnings                      --               --               --              --              --          1,405,882
                          ------------     ------------     ------------    ------------    ------------     ------------
Balance, June 30,
      1998                        --               --          4,562,800     $    45,628    $ 11,243,347     $  5,405,865
                          ============     ============     ============    ============    ============     ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                                                             F-4
<PAGE>

<TABLE>
<CAPTION>
                                        SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                         Years ended June 30, 
                                                                           -----------------------------------------------
                                                                           1998                   1997                1996
                                                                           ----                   ----                ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                    <C>                  <C>                  <C>         
  Net earnings                                                         $  1,405,882         $    120,781         $  1,409,285
  Adjustments to reconcile net earnings to
   net cash used in operating activities:
     Depreciation and amortization                                          647,946            1,233,080            1,086,949
     Provision for doubtful accounts                                             --                   --               82,030
     Loss on sale leaseback transaction                                          --            1,259,085                   --
     Write-off of prepaid commissions/licensing fees                           --                943,863                   --
     Deferred income taxes                                                  (88,784)            (199,500)             301,000
     Other income                                                                --                   --             (412,500)
     Extraordinary loss on extinguishment of debt                         1,011,001                   --                   --
     (Increase) decrease in assets:
      Accounts receivable                                                (8,572,802)          (5,861,207)          (3,537,008)
      Inventories                                                        (6,049,509)          (5,561,066)          (6,548,379)
      Prepaid expenses and other current assets                              (8,336)             330,945              124,788
      Prepaid income taxes                                                  921,243             (717,225)                  --
      Other assets                                                          (49,133)           1,403,907           (1,470,571)
     Increase (decrease) in liabilities:
      Accounts payable                                                    2,057,944           (1,092,998)           1,763,990
      Income taxes payable                                                1,007,498             (244,413)            (291,319)
      Accrued expenses and other current
        liabilities                                                         661,280              236,252              204,690
                                                                       ------------         ------------         ------------
          Net cash used in operating activities                          (7,055,770)          (8,148,496)          (7,287,045)
                                                                       ------------         ------------         ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for purchase of property and equipment                        (1,039,215)          (2,852,287)          (1,606,755)
  Proceeds from note receivable                                                --                   --                637,500
                                                                       ------------         ------------         ------------
          Net cash used in investing activities                          (1,039,215)          (2,852,287)            (969,255)
                                                                       ------------         ------------         ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from revolving credit loan                                    29,554,981           36,791,000           18,175,000
  Repayment of revolving credit loan                                    (23,882,837)         (28,941,144)         (18,135,000)
  Proceeds from subordinated loan                                        10,500,000                   --            5,000,000
  Proceeds from mortgage                                                         --                   --            1,050,000
  Proceeds from secondary offering/options                                       --            1,082,436            4,481,350
  Deferred financing costs in connection with new
   subordinated debt                                                       (797,584)                  --                   --
  Principal payments of mortgage                                            (39,875)             (36,588)              (8,667)
  Principal payments of capital leases                                     (436,422)          (6,420,125)          (2,125,428)
  Payments to retire subordinated loan and repurchase
   warrants                                                              (6,793,613)                  --                   --
  Proceeds from sale-leaseback                                                   --            9,565,000                   --
  Costs in connection with sale-leaseback                                        --           (1,088,436)                  --
  Payment of preferred dividend                                                  --                                  (146,250)
                                                                       ------------         ------------         ------------
          Net cash provided by financing activities                       8,104,650           10,952,143            8,291,005
                                                                       ------------         ------------         ------------
NET INCREASE (DECREASE) IN CASH                                               9,665              (48,640)              34,705
CASH, beginning of period                                                   480,225              528,865              494,160
                                                                       ------------         ------------         ------------
CASH, end of period                                                    $    489,890         $    480,225         $    528,865
                                                                       ============         ============         ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
   Interest (net of amount capitalized of $55,000
     in 1998, $51,996 in 1997 and $253,000 in 1996)                    $  2,669,167         $  2,403,700         $  1,900,630
   Income taxes                                                              32,070            1,233,187            1,019,439
  Noncash investing and financing transactions:
   Purchases of property and equipment through
     capital leases                                                         330,000            3,653,262            2,156,010
   Issuance of common stock upon conversion of
     marketing service agreements                                                --                   --              940,186
</TABLE>


          See accompanying notes to consolidated financial statements.

                                                                             F-5
<PAGE>



                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 1 - ORGANIZATION AND BUSINESS DESCRIPTION

Suprema  Specialties,  Inc., a New York  corporation  incorporated on August 15,
1983 and its  subsidiaries  (the  "Company")  manufacture,  process and market a
variety of premium, gourmet natural cheese products.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Consolidation Policy

The  consolidated  financial  statements  include the  financial  statements  of
Suprema Specialties, Inc. and its wholly-owned subsidiaries, Suprema Specialties
West, Inc. and Suprema Specialties Northeast, Inc. All intercompany transactions
and balances have been eliminated in consolidation.

Inventory

Inventories  are  valued  at the  lower  of cost  (determined  by the  first-in,
first-out method) or market.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is being provided
by use of the  straight-line  method  over  the  estimated  useful  lives of the
related  assets.  Leasehold  improvements  are amortized over the shorter of the
term of the lease, including renewal options, or the useful lives of the assets.
Equipment under  capitalized  leases is being amortized over the useful lives of
the assets.

Long-Lived Assets

Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of"
("SFAS  121"),  was  adopted  as of July 1,  1996.  SFAS  121  standardized  the
accounting practices for the recognition and measurement of impairment losses on
certain  long-lived  assets.  The  adoption of SFAS 121 was not  material to the
results of operations or financial position.

Product Introduction Costs

The  Company  incurs  certain  costs in  connection  with  expanding  its market
position in the United  States.  These  costs,  referred  to in the  industry as
"slotting" are deferred and amortized over the stated program period,  generally
ranging from one to twelve months.

Revenue Recognition

The Company  records  revenues when products are shipped.  Customers do not have
the right to return products shipped.

Advertising Cost

The Company expenses  advertising costs as incurred and cooperative  advertising
costs  when  related  revenue  is  recognized.  Advertising  costs  amounted  to
approximately  $2,864,000,  $3,004,000  and  $3,431,000 in 1998,  1997 and 1996,
respectively.

Research and Development

Research and development  expenditures which are insignificant for the Company's
projects are expensed as incurred.

                                                                             F-6
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

Income  taxes are  recorded  in  accordance  with SFAS No. 109,  which  requires
recognition of deferred tax  liabilities  and assets for the expected future tax
consequences  of events that have been included in the  financial  statements or
tax  returns.  Under  this  method,  deferred  tax  liabilities  and  assets are
determined based on the difference between the financial statement and tax bases
of assets  and  liabilities  using  enacted  tax rates in effect for the year in
which the differences are expected to reverse.

Stock Options

The  Company  follows  SFAS No.  123 by  making  the  required  pro  forma  note
disclosures only.

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.

Risks and Uncertainties

In  December  1997,  the Company  formalized  a two year  collective  bargaining
agreement with the employees of Suprema Specialties West, which represent 50% of
the total  workforce,  which expires on December 1, 1999. The Company  considers
its relations with its employees to be good.

Earnings Per Share

Effective  July 1, 1997,  the Company  adopted SFAS 128,  "Earnings  Per Share."
Earnings  per share  have  been  restated  for all  periods  presented.  Diluted
earnings per share are not materially different then previously reported primary
earnings per share as computed under Accounting Principals Board #15.

Effect of New Accounting Pronouncements

In June  1997,  SFAS  130,  "Reporting  Comprehensive  Income,"  and  SFAS  131,
"Disclosures  about  Segments of an Enterprise  and Related  Information,"  were
issued.  SFAS 130 addresses standards for reporting and display of comprehensive
income  and its  components  and  SFAS 131  requires  disclosure  of  reportable
operating segments.  In February 1998, SFAS 132,  "Employer's  Disclosures About
Pensions  and Other  PostRetirement  Plans,"  was issued.  SFAS 132  standardize
pension  disclosures.  These  statements  are effective  for the Company's  1999
fiscal year.  The Company does not expect the  adoption of these  statements  to
have a material effect on the financial statements.

In June 1998,  SFAS 133,  "Accounting  for  Derivative  Instruments  and Hedging
Activities,"  was issued.  SFAS 133  standardizes  accounting  and reporting for
derivative  instruments and for hedging activities.  This statement is effective
in  the  Company's  2000  fiscal  year.  The  Company  will  be  reviewing  this
pronouncement to determine its applicability to the Company, if any.


                                                                             F-7
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 3 - INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>

                                                                         June 30, 
                                                         ------------------------------------
                                                                 1998                    1997
                                                                 ----                    ----
<S>                                                       <C>                     <C>        
Raw materials                                             $ 3,640,655             $ 2,236,541
Finished goods                                             24,046,053              19,293,624
Packaging                                                     825,222                 932,256
                                                             --------                --------
                                                          $28,511,930             $22,462,421
                                                          ===========             ===========


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:
<CAPTION>
                                                                         June 30, 
                                                          -----------------------------------
                                                                 1998                    1997
                                                                 ----                    ----

Property and plant                                        $ 1,545,900             $ 1,525,705
Equipment                                                   4,937,767               4,205,016
Leasehold improvements                                      1,182,662               1,158,797
Furniture and fixtures                                        183,075                 176,687
Delivery equipment                                             48,178                  48,179
Construction in progress                                      590,259                   4,242
                                                             --------                  ------
                                                            8,487,841               7,118,626
Less: Accumulated depreciation and
   amortization                                             1,488,146                 983,544
                                                           ----------                --------
                                                          $ 6,999,695             $ 6,135,082
                                                          ===========             ===========
</TABLE>


In May 1997, the Company entered into a sale-leaseback transaction whereby fixed
assets with a net book value of $10,824,082  were sold for $9,565,000 and leased
back under operating leases. In connection with this transaction,  $4,847,382 of
capital  leases  were  paid in full.  A loss of  $1,259,081  resulted  from this
transaction  which is reflected as other expense.  The Company incurred costs of
$1,088,436  primarily  related to  prepayment  penalties on the capital  leases.
These costs have been included in other assets and will be amortized  over eight
years, the life of the lease.

Included in property, plant and equipment are plant and equipment acquired under
capital leases with an initial cost of $3,419,067 and $3,087,041 and accumulated
amortization of $539,313 and $26,828 as of June 30, 1998 and 1997, respectively.


                                                                             F-8
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 5 - MARKETING SERVICE AGREEMENTS

The Company entered into marketing service  agreements with  unaffiliated  third
parties  expiring  at various  dates  through  June 1998,  pursuant to which the
Company was  provided  with  certain  marketing  and program  support  services,
including the payment of advertising  promotional  expenditures  by such parties
(no amounts were provided  during 1995 through 1997) in exchange for commissions
based on Company sales of specified products. In addition, two of the agreements
provided that after an initial period (as defined in the agreements) the Company
or the providers of the marketing services have the right to convert some or all
of the  remaining  estimated  commissions  to common stock of the Company at the
market price at the time of conversion.  Such conversion right was limited to no
more  than  10% and 2 1/2%,  as  specified  in  each of the  agreements,  of the
Company's common stock issued and outstanding at the time of the conversion. For
the years  ended  June 30,  1997 and 1996,  commission  expenses  related to the
marketing agreements, were approximately $794,000 and $598,000, respectively.

On August 14,  1995,  two of these  providers  informed  the  Company  they were
exercising their conversion feature in the agreements.  As a result, the Company
issued  306,900  shares of common  stock in  September  1995.  The  shares  were
recorded  at  approximate  fair value at the date the notice of  conversion  was
received.  The corresponding  amount was reflected in other assets and was being
amortized over the remaining term of the related  agreements,  as the applicable
sales revenue is recorded.

During  fiscal 1994,  the Company made  payments  under the  marketing  services
agreements leading to a prepaid position of $430,000, which is included in other
current  assets.  In December 1995, an additional  $300,000 was prepaid as final
settlement of the remaining agreements. This amount was being charged to expense
over the remaining three years of the related agreements as the applicable sales
revenue was recorded.  In connection  with the amendment of two of its Marketing
Service  Agreements,  the Company granted  warrants to purchase 50,000 shares of
the Company's  common stock in September 1994. The warrants were  exercisable at
$3.00 per share and terminated on June 30, 1998.

In the fourth  quarter of 1997, as a result of a review of the Company's  retail
cheese  business,  it was determined the remaining asset amounts,  $943,863,  no
longer had continuing value. These amounts were written off and were included in
selling and shipping expenses.

NOTE 6 - INCOME TAXES

The provision for income taxes consists of the following:

                                                       June 30, 
                                 -----------------------------------------------
                                       1998              1997              1996
                                       ----              ----              ----
Current:
   Federal                       $1,460,119         $ 233,000         $ 555,000
   State                            378,822            57,000           148,000
                                 ----------         ---------          ---------
                                  1,838,941           280,000           703,000
                                 ----------         ---------          ---------
Deferred:
   Federal                          (70,494)         (169,600)          255,800
   State                            (18,290)          (29,500)           45,200
                                 ----------         ---------         ----------
                                    (88,784)         (199,500)          301,000
                                 ----------         ---------         ----------
Provision for income taxes       $1,750,157          $ 80,500         $1,004,000
                                 ==========         =========         ==========


                                                                             F-9
<PAGE>



                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 6 - INCOME TAXES (continued)

The  following  reconciles  income  taxes  at the  U.S.  statutory  rate  to the
provision for income taxes:

<TABLE>
<CAPTION>
                                                               June 30, 
                                            ----------------------------------------------
                                                  1998              1997              1996
                                                  ----              ----              ----

<S>                                         <C>                 <C>              <C>      
Computed tax expense at statutory rates     $1,416,800          $ 68,000         $ 821,000
State taxes, net of federal tax benefit        262,100            10,500           109,000
Travel and entertainment expenses not
   deductible                                   17,000             2,000            67,000
Officers life insurance not deductible           5,400             3,500             7,000
Other, net                                      48,857            (3,500)                -
                                           -----------          --------        ----------
                                            $1,750,157          $ 80,500        $1,004,000
                                           ===========          ========        ==========

Deferred income taxes arise from the difference  between book and tax accounting
for  depreciation,  the  write-offs of  uncollectible  accounts  receivable  and
product introduction costs.

The net deferred tax liabilities are comprised of the following components as of
June 30, 1998 and 1997:

<CAPTION>
                                                                        June 30, 
                                                             ----------------------------
                                                                  1998              1997
                                                                  ----              ----
<S>                                                           <C>               <C>      
Depreciation                                                   $ 40,000          $ 40,000
Product introduction costs                                       44,913           118,200
Deferred sale leaseback costs                                   390,427           435,400
Capital loss carryforward                                       755,307           755,307
                                                               --------          --------
                                                              1,230,647         1,348,907
Accounts receivable reserve                                    (188,000)         (168,300)
                                                              ---------         ---------
                                                              1,042,647         1,180,607
Less: Valuation allowance                                      (755,307)         (755,307)
                                                              ---------         ---------
                                                              $ 287,340         $ 425,300
                                                              =========         =========
</TABLE>

A  valuation  allowance  has been  provided  against the loss on sale of capital
assets due to the Company's current inability to realize this asset.

NOTE 7 - LONG-TERM DEBT

Revolving Credit Loan

In September  1998, the long-term  revolving  credit  facility (the  "Facility")
between  the  Company  and a bank was  amended  to  increase  the line for up to
$26,000,000  through  November  1999.  The rate of interest on amounts  borrowed
under the Facility is the adjusted LIBOR rate, as defined,  plus 2% (7.69% as of
June 30,  1998).  The  Facility is  collateralized  by all existing and acquired
assets of the Company, as defined in the Facility  agreement,  and is guaranteed
by Suprema  Specialties West, Inc. and Suprema  Specialties  Northeast,  Inc. In
connection  with  obtaining  the Facility,  the Company and Suprema  Specialties
Northeast,  Inc. has agreed to pay a commitment  fee on the average daily unused
portion  of the  Facility,  equal to 1/4 of 1% per  annum.  Advances  under this
Facility  are  limited  to  80%  of  eligible  accounts  receivable,  40% of all
inventory except packaging material,  as defined in the Facility agreement.  The
Facility  agreement  contains  restrictive  financial  covenants,  including the
maintenance  of  specified  total debt to net worth  ratios,  minimum  levels of
tangible  net  worth,  and debt  service  coverage  ratios,  as  defined,  and a
restriction  on  dividends  to common  shareholders.  As of June 30,  1998,  the
Company was in compliance with these covenants.


                                                                            F-10
<PAGE>



                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 7 - LONG-TERM DEBT (continued)

Revolving Credit Loan (cont)

At June 30,  1998,  the  Company  had  approximately  $3,738,000  available  for
borrowing under the Facility.

Subordinated Debt Facility

In October 1995,  the Company  entered into a Loan and Security  Agreement  with
CoreStates  Enterprise Fund (the "Fund"),  a division of CoreStates  Bank, N.A.,
pursuant  to which  the Fund  loaned  $5,000,000  to the  Company.  The loan was
secured by a subordinated  security  interest in substantially all of the assets
of the Company and was  subordinated to the loan of the Company's senior lender.
The loan bore interest at 11 3/4% per annum.  In  connection  with the execution
and delivery of the Loan Agreement,  the Company delivered a Warrant to the Fund
exercisable  for nominal  additional  consideration  for  354,990  shares of the
Company's Common Stock. After October 1, 2000, or upon the occurrence of certain
other  rights,  the Fund had the right to put the  Warrant  to the  Company on a
formula  basis.  The Warrant was recorded at its relative  fair value at date of
issue, $1,100,000.  The corresponding debt discount was being amortized over the
life of the loan on the interest rate method. At June 30, 1997, the value of the
put option was approximately $1,171,000.

In October  1997,  the Company  entered  into an  agreement  with  another  bank
pursuant  to which the bank  provided  bridge  financing  of $10  million to the
Company.  Approximately $6.7 million of the proceeds was used to retire the $5.0
million  subordinated  debt  and the  repurchase  of  warrants  attached  to the
subordinated  debt.  The balance of the  proceeds  was used for general  working
capital  purposes.  These  transactions  resulted  in an  extraordinary  loss of
approximately  $1,011,000,  net. The extraordinary loss was comprised of (i) the
prepayment  penalty of $1,279,000 and the write-off of deferred  financing costs
and debt discount of $494,000,  net of the combined tax benefit of $762,000. The
fair value of the warrants was determined  pursuant to the contractually  agreed
value among the relevant parties.

In March 1998, the Company entered into a Loan and Security Agreement with
Albion Alliance Mezzanine Fund, L.P. and The Equitable Life Assurance Society of
the United States (the "Fund") pursuant to which the Fund loaned $10,500,000 to
the Company. The loan is unsecured and is subordinated to the loan of the
Company's senior lender. The loan bears interest at 16 1/2% per annum. Interest
is payable monthly at the rate of 12% with the balance deferred until February
1, 2003 when it is due in full. The principal amount of the loan is payable in
three installments of $3,500,000 on each March 1, beginning in the year 2004. In
addition, in connection with the execution and delivery of the Loan Agreement,
the Company delivered a Warrant to the Fund to purchase 105,000 shares of the
Company's Common Stock at an exercise price of $4.12 per share. The warrant is
exercisable until March 1, 2006.

Mortgage Payable

On March 29, 1996, the Company purchased its Paterson  production facility which
it previously  had leased.  The purchase was financed  through a mortgage on the
property.  Proceeds of the loan were  $1,050,000,  of which $686,250 was used to
pay the remaining  obligation  to the landlord.  The balance of the proceeds was
used to complete  the  expansion  of a 7,800  square foot  refrigerated  storage
facility.  The five year note which  bears  interest at 8.51% per annum is being
amortized at a fifteen  year rate and  requires a balloon  payment at the end of
year five of approximately $840,000.


                                                                            F-11
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 7 - LONG-TERM DEBT (continued)

Mortgage Payable

Principal payments on long-term debt over the next five years and thereafter are
as follows:

   1999                                          $   43,457
   2000                                          21,309,361
   2001                                             874,052
   Thereafter                                    10,500,000
                                                -----------
                                                $32,726,870
                                                ===========

The fair  value  of the  long-term  debt and  capital  leases  approximates  the
recorded  value based on  borrowing  rates  currently  available  for loans with
similar terms and maturities.

NOTE 8 - CAPITAL LEASES

There are various  equipment and furniture and fixtures  financed  under capital
leases. These leases have interest rates ranging from 6.7% to 11.5%. At June 30,
1998,  the Company's  future  minimum lease payments under capital leases are as
follows:

   1999                                        $   804,197
   2000                                            800,313
   2001                                            800,313
   2002                                            642,431
   2003                                            590,629
   Thereafter                                       91,701
                                               -----------
   Total minimum lease payments                  3,729,584
   Less: amount representing interest              962,530
                                               -----------
   Present value of minimum lease payments       2,767,054
   Less: current portion                           500,964
                                               -----------
   Long-term portion of capital leases         $ 2,266,090
                                               ===========

NOTE 9 - LEASE COMMITMENTS

The Company rents warehouse space and certain equipment under lease arrangements
classified  as operating  leases.  The lease for the  production  facilities  in
Manteca,  which was renewed in December 1994,  expires 10 years from the date of
completion  of  construction  of each segment of the facility with two five year
renewal options. The Company also leases its Ogdensburg  facility.  The lease is
for 5 years with three 5 year renewals at the Company's option. Rent expense was
approximately  $2,400,000,  $922,000  and  $922,000 for the years ended June 30,
1998,  1997  and  1996,  respectively.  Future  minimum  rental  payments  under
non-cancelable operating leases are: 1999 - $2,363,837;  2000 - $2,395,560; 2001
- $2,395,560; 2002 - $2,347,560; 2003 - $2,347,560 and thereafter - $4,432,250.

NOTE 10 - STOCKHOLDERS' EQUITY

In June 1996, the Company  completed a public  offering for 1,500,000  shares of
its $.01 par value  common  stock of which  1,000,000  shares were issued by the
Company and 500,000 shares were offered by selling  shareholders upon conversion
of 500,000  shares of the Company's  convertible  preferred  stock at a purchase
price of $5.50 per share.  Gross  proceeds  from the offering was  approximately
$4,481,350.  The Company  received no proceeds from the shares issued during the
offering from those shares offered by the selling shareholders.


                                                                            F-12
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 10 - STOCKHOLDERS' EQUITY (continued)

In 1997, an additional  225,000 shares of Common Stock were sold pursuant to the
exercise of the underwriters' over-allotment option which generated net proceeds
of approximately $1,024,000.

Issuance of Preferred Stock

In August 1994 the Company  completed a private  placement of 500,000  shares of
Series A convertible  preferred stock (the "Preferred Stock") for gross proceeds
of $1,500,000 or $3.00 per share.  Each share of Preferred Stock was convertible
into one share of common stock at any time prior to  redemption  at a conversion
price of $3.00 per share.  The Preferred  Stock was  redeemable at the Company's
option any time after the first  anniversary  of the closing  provided the daily
average  of the high and low  price of the  Company's  common  stock  equals  or
exceeds $5 per share for 10 consecutive days.  Quarterly  dividends were payable
in cash at an annual dividend rate of 10%.

In June 1996, these shares were converted into common stock.

Stock Option Plan

On  February  11,  1991,  the Company  adopted  the 1991 Stock  Option Plan (the
"Plan")  pursuant to which officers,  directors and key employees of the Company
are eligible to receive incentive and/or  non-qualified stock options. The Plan,
which expires in February 2001, is administered  by the board of directors.  The
selection of participants, allotment of shares, determination of price and other
conditions  of the  grant of  options  is  determined  by the  board at its sole
discretion in order to attract and retain persons instrumental to the success of
the Company. Incentive stock options granted under the Plan vest evenly over the
first three years and are  exercisable  for a period of up to ten years from the
date of grant at an exercise  price which is not less than the fair market value
of the common  stock on the date of grant,  except that the term of an incentive
stock option granted under the Plan to a shareholder owning more than 10% of the
outstanding  common stock may not exceed five years and its  exercise  price may
not be less than 110% of the fair market  value of the common  stock on the date
of the grant.

In November 1995,  the Company  amended this 1991 Stock Option Plan (the "Plan")
to  increase  the  maximum  number of shares as to which  options may be granted
under the Plan from 450,000 to 900,000. Stock option transactions under the Plan
are summarized as follows:

                                         1991               Weighted Average
                                        Plan (#)            Exercise Price ($)
                                        --------            ------------------
Outstanding at June 30, 1995             249,000                  $3.26
    Granted                              105,000                  $4.55
    Exercised                                 --
    Forfeited                             (8,000)                 $3.06
                                        --------
Outstanding at June 30, 1996             346,000                  $3.66
    Granted                              176,000                  $3.84
    Exercised                            (13,500)                 $3.08
    Forfeited                                 --
                                        --------     
Outstanding at June 30, 1997             508,500                  $3.73
    Granted                              243,000                  $3.25
    Exercised                                 --                     --
    Forfeited                                 --                     --
                                        --------      
Outstanding at June 30, 1998             751,500                  $3.58
                                        ========                  =====


                                                                            F-13
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 10 - STOCKHOLDERS' EQUITY (continued)

Stock Option Plan (continued)

                                                   # shares
Options exercisable at June 30, 1998                356,000            $3.61

Weighted - average fair value of
    options granted during fiscal 1996              105,000            $2.35

Weighted - average fair value of
    options granted during fiscal 1997              176,000            $2.21

Weighted - average fair value of
    options granted during fiscal 1998              243,000            $1.22

The following table summarizes  information  about stock options  outstanding at
June 30, 1998:

<TABLE>
<CAPTION>

                                  Options Outstanding                                          Options Exercisable

                               Number of             Weighted-              Weighted-                              Weighted-
      Range of                  Options              Average                Average            Number              Average
      Exercise                Outstanding          Remaining Con-           Exercise         Exercisable           Exercise
     Prices ($)                 at 6/30/98          tractual Life           Price ($)         at 6/30/98           price ($)
-----------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                   <C>                      <C>             <C>                    <C> 
    2.50 to 4.00                631,500               8.0 years                3.37            227,778                3.32

    4.00 to 5.63                120,000               7.3 years                4.65             78,334                4.64
-----------------------------------------------------------------------------------------------------------------------------
    2.50 to 5.63                751,500               7.9 years                3.58            356,112                3.61
=============================================================================================================================
</TABLE>


The  Corporation  has adopted the  disclosures  only  provisions of Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation."  Accordingly,  no  compensation  cost has been recognized for the
stock option plans. Had  compensation  cost been recognized for the stock option
plans been  determined  based on the fair value at the date of grant  consistent
with the  provisions  of SFAS No. 123,  the  Corporation's  net earnings and net
earnings  per share would have been reduced to the pro forma  amounts  indicated
below:

<TABLE>
<CAPTION>
                                                                        June 30, 
                                                     ---------------------------------------------
                                                        1998               1997            1996
                                                        ----               ----            ----
Net earnings, before extraordinary item
<S>                                                  <C>                 <C>            <C>       
   - as reported                                     $2,416,883          $120,781       $1,409,285
Net earnings, before extraordinary item
   - pro forma                                        2,105,023           (25,500)       1,344,770
Basic earnings per share, before extra-
   ordinary item - as reported                              .53               .03              .46
Basic earnings per share, before extra-
   ordinary item - pro forma                                .46              (.01)             .43
Diluted earnings per share, before extra-
   ordinary item - as reported                              .51               .02              .40
Diluted earnings per share, before extra-
   ordinary item - pro forma                                .44              (.01)             .37
</TABLE>


                                                                            F-14
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 10 - STOCKHOLDERS' EQUITY (continued)

Stock Option Plan (continued)

The fair market  value of each option  grant is  estimated  on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants: expected volatility of 35% in 1996 and 1997 and 46%
in 1998,  risk free  interest  rate of 5.9% in 1996 and 6.7% in 1997 and 5.8% in
1998; expected lives of 10 years; and no dividend yield.

Warrants

In  connection  with entering into a consulting  agreement  with the  investment
banker which acted as sales agent for the private  placement of Preferred  Stock
discussed above, on April 28, 1994 and June 30, 1994, the investment  banker was
granted two warrants to purchase 45,000 and 40,000 shares, respectively,  of the
Company's $0.01 par value common stock. Each warrant terminates 5 years from its
issue date, and carries a $3.00 exercise price.

As of June  30,  1994  and  1993,  a total  of  260,000  and  175,000  warrants,
respectively,  have been  issued to  unaffiliated  parties  at  exercise  prices
ranging  from $3.00 to $5.08 per share.  At June 30,  1998,  these  warrants are
exercisable at prices ranging from $3.00 to $5.08 per share.

As discussed in Note 7, the Company granted warrants in March 1998, to purchase
105,000 shares of common stock exercisable at $4.12 per share through March
2006.

NOTE 11 - EARNINGS PER SHARE

Basic and diluted  earnings per share for each of the three years ended June 30,
1998, 1997 and 1996 are calculated as follows:

<TABLE>
<CAPTION>
                                                         Net Income             Shares            Per share
                                                        (Numerator)          (Denominator)          Amount
                                                -----------------------------------------------------------
For the year ended June 30, 1998:
<S>                                                     <C>                    <C>                   <C>
   Basic earnings per share                             $1,406,882             4,562,800             .31
   Effect of assumed conversion of                              --               182,119             .01
     employee stock options
                                                -----------------------------------------------------------
   Diluted earnings per share                           $1,406,882             4,744,919             .30
                                                ===========================================================
For the year ended June 30, 1997:
   Basic earnings per share                               $120,781             4,552,146             .03   
   Effect of assumed conversion of                              --               487,849             .01
     employee stock options and warrants
                                                -----------------------------------------------------------
   Diluted earnings per share                             $120,781             5,039,995             .02   
                                                ===========================================================
For the year ended June 30, 1996 (pro forma):
     Basic earnings per share                           $1,263,035             2,768,100             .46
     Effect of assumed conversion of                            --               427,258             .06
       employee stock options and
       warrants
                                                -----------------------------------------------------------
     Diluted earnings per share                         $1,263,035             3,195,358             .40
                                                ===========================================================
</TABLE>


                                                                            F-15
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 11 - EARNINGS PER SHARE (continued)

The  earnings per share  computation  for the year ended June 30, 1996 was based
upon the  2,450,000  shares  outstanding  at the  beginning  of the year  plus a
pro-ration of the 306,900 shares issued in connection with the conversion of the
two  marketing  service  agreements,  a  proration  of 43,293  shares  issued in
connection with the cashless option exercise pertaining to underwriters warrants
and a proration of 1,500,000  shares  issued in the Company's  secondary  public
offering.

The  earnings per share  computation  for the year ended June 30, 1997 was based
upon 4,300,193 shares outstanding at the beginning of the year, plus a proration
225,000 shares arising from the issuance of common stock issued upon exercise of
the  underwriters  over  allotment  option  in the  Company's  secondary  public
offering.  This  circulation does not include 287,000 options because the effect
is anti-dilutive.

The  earnings per share  computation  for the year ended June 30, 1998 was based
upon  4,562,800  shares   outstanding   during  the  year.  Other  common  stock
equivalents  were excluded from the calculation  since they were  anti-dilutive.
This  calculation  does not  include  569,400  options  because  the  effect  is
anti-dulutive.

NOTE 12 - CONCENTRATION OF CREDIT RISK

The Company  provides credit to customers on an unsecured basis after evaluating
customer  credit  worthiness.  Since  the  Company  sells  to a broad  range  of
customers  concentrations  of credit risk are very  limited.  The  Company  also
provides  a reserve  for bad  debts for  accounts  receivable  where  there is a
possibility for loss.

The Company  maintains  demand  deposits with major banks.  At June 30, 1998 and
1997, all of the Company's cash was held in one major bank.

NOTE 13 - MAJOR CUSTOMERS

During the fiscal  year ended June 30,  1998,  the  Company had sales to a major
customer of approximately  $19,600,000,  representing  approximately  18% of net
sales.  At June  30,  1998,  three  customers  represented  33%,  17% and 14% of
accounts receivable.

During the fiscal year ended June 30,  1997,  the Company had sales to two major
customers of approximately $12,125,000 and $9,099,000 representing approximately
14%  and  10% of net  sales,  respectively.  At  June  30,  1997,  one  customer
represented 19% of accounts receivable, no other customers exceeded 10%.

During the fiscal year ended June 30,  1996,  the Company had sales to two major
customers of approximately $8,394,000 and $7,982,000 representing  approximately
13% and 12% of net sales, respectively.


                                                                            F-16
<PAGE>


                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   =========================================================================


NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of quarterly results of operations for the 1998, 1997
and 1996 fiscal years (in thousands of dollars except per share data):

<TABLE>
<CAPTION>

                                                First              Second                Third              Fourth
1998                                           Quarter             Quarter              Quarter            Quarter
-------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                <C>                 <C>                <C>     
Net sales                                      $ 25,156           $ 26,113            $ 26,407           $ 30,464

Gross profit                                      4,272              4,471               4,725              5,277

Income from operations                            1,450              1,657               1,830              2,147

Earnings before extraordinary                       478                610                 635                694
   item

Extraordinary item, net                              --               (1,011)               --                 --

Net earnings                                        478               (401)                635                694

Net earnings per share before                       .10                .13                 .14                .16
   extraordinary item

Extraordinary item                                   --               (.22)               --                 --

Net earnings per share                              .10               (.09)                .14                .16

1997
-------------------------------------------------------------------------------------------------------------------------
Net sales                                        21,922             22,307              21,786             22,296

Gross profit                                      3,945              3,724               3,971              3,408

Income from operations (Note 5)                   1,053              1,815               1,298               (474)

Net earnings                                        308                417                 388               (992)

Net earnings per share                              .06                .08                 .08               (.20)
=========================================================================================================================
</TABLE>


                                                                            F-17
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Shareholders
Suprema Specialties, Inc. and Subsidiaries
Paterson, New Jersey

The audits  referred  to in our report  dated  August 12,  1998  relating to the
consolidated financial statements of Suprema Specialties, Inc. and Subsidiaries,
which is contained in Item 8 of this Form 10-K,  included the audits of the June
30, 1998, 1997 and 1996 financial  statement schedule listed in the accompanying
index. This financial  statement schedule is the responsibility of the Company's
management.  Our  responsibility  is to  express  an  opinion  on the  financial
statement schedule based upon our audits.

In our opinion,  such  financial  statement  schedule  presents  fairly,  in all
material respects, the information set forth therein.


                                                              BDO Seidman, LLP


Woodbridge, New Jersey

August 12, 1998


                                                                            F-18
<PAGE>


   
<TABLE>
<CAPTION>
                                                                                                             Schedule II
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JUNE 30, 1996, 1997 AND 1998        





                                Balance @            Charged to         Charged to                      Balance @
                               Beginning of          Costs and            Other         Deductions        End of
        Description              Period              Expenses (1)        Accounts           (2)           Period
<S>                               <C>                  <C>              <C>               <C>             <C>  
YEAR ENDED JUNE 30, 1996
   Accounts receivable                                 
      allowance                   $380,290             $128,000         $   --            $   --          $508,290  
                                  ========             ========         ========          ========        ========  
                                                                                                                    
                                                                                                                    
YEAR ENDED JUNE 30, 1997                                                                                            
  Accounts receivable                                                                                               
    allowance                      508,290                   --             --              38,000         470,290  
                                  ========             ========         ========           ========       ========  
                                                                                                                    
YEAR ENDED JUNE 30, 1998                                                                                            
   Accounts receivable                                                                                              
      allowance                   $470,290               $   --         $   --             $   --         $470,290  
                                  ========             ========         ========           ========       ========  
</TABLE>


(1)  To increase accounts receivable allowance.

(2)  Uncollectible accounts written off, net of recoveries.

                                                                            F-19