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, 1997

                                       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)

Registrant's Telephone Number, including area code: (201) 684-2900

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

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]


<PAGE>


The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of September 11, 1997 was $12,760,500.

As of September 11, 1997, 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 1997 which will be filed on
     or before October 12, 1997 is incorporated by reference into Part III of
     this Form 10-K Annual Report.


<PAGE>


                                     PART I

Item 1. Business

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 purchases bulk cheeses from foreign sources (primarily from
Europe and to a lesser extent, South America) and domestic sources, and
manufactures bulk cheeses at its facilities in Manteca, California, and
Ogdensburg, New York. 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.


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. For the years ended
June 30, 1996 and June 30, 1997, sales of bulk cheese products to food service
industry distributors and food manufacturers under the Suprema Di


                                      -1-
<PAGE>


Avellino(R) name or on a private label basis accounted for 43% and 54%,
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 for the past nine months, its Ogdensburg New York facility. For the years
ended June 30, 1996 and June 30, 1997, respectively, sales of mozzarella,
ricotta and provolone cheese products manufactured at such facilities accounted
for approximately 58.9% and 54.7%, 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. Each of the
three facilities serve as distribution 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.


                                      -2-
<PAGE>


     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,
Price Costco, BJ's, Foodtown, Stop'N Shop, Safeway, D'Agostino's, Super Valu,
and Giant.

     For the fiscal years ended June 30, 1996 and June 30, 1997, sales of cheese
products to retailers accounted for approximately 15% and 10%, respectively, of
the Company's revenues; sales to food service companies accounted for
approximately 73% and 83%, respectively, of the Company's revenues; and sales to
food manufacturers accounted for approximately 12% and 7% respectively, of the
Company's revenues.

     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, and for the fiscal year ended June 30, 1996, Lisanti Foods of New
Jersey and A&J Cheese Company accounted for 13% and 12% 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 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

                                      -3-
<PAGE>


orders and inspecting merchandise on supermarket shelves. To achieve greater
market penetration, the Company intends to continue to strengthen and expand its
sales force and food broker network. The Company also employs a Senior 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 years ended June 30, 1996 and June 30, 1997, approximately 19% and
7%, 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.

     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.


                                      -4-
<PAGE>


     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, 1996
and June 30, 1997, approximately 81% and 93%, respectively, of the Company's
supply requirements were manufactured by the Company or purchased from domestic
sources.

     For the fiscal years ended June 30, 1996 and June 30, 1997, the Company's
largest supplier, a milk cooperative, accounted for approximately 33% and 31%,
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.


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 agencies to monitor and prevent unfair or
deceptive trade practices.


                                      -5-
<PAGE>


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 September 11, 1997, the Company had 192 full-time employees of which
8 are employed in executive capacities and management positions, 12 are engaged
in sales and marketing and administrative capacities and 172 are engaged in
production and operations. In June, 1997, the employees at the Company's
Manteca, California facility which represents approximately 55% of the total
workforce, elected to form a Union. The Company is currently under negotiations
to formalize a contract with the employees. The Company considers its relations
with its employees to be good. While management is hopeful that these
negotiations will


                                      -6-
<PAGE>


be resolved successfully, there can be no assurance that these negotiations will
be successful. The failure to reach an agreement could have a material adverse
affect on the Company.


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. This building 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 was renewed in December 1994 and expires on August 31,
2005, and which may be extended at the option of the Company for two (2)
additional five-year periods. 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


                                      -7-
<PAGE>


processing facilities, subject to lease agreements currently providing for
annual aggregate payments of approximately $2,300,000.

     The Company believes that the current facilities are sufficient for its
needs for the foreseeable future.


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, 1997.


                                      -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, 1995

         First Quarter                                   2 11/16         2 1/8
         Second Quarter                                  3 3/8           2 3/8
         Third Quarter                                   3 3/4           2 1/2
         Fourth Quarter                                  3 5/8           2 25/32

Fiscal Year ending June 30, 1996

         First Quarter                                   6               2 13/16
         Second Quarter                                  6 1/4           4 1/4
         Third Quarter                                   6 1/8           4 1/4
         Fourth Quarter                                  6 3/4           5 1/8


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

     The closing price of the Common Stock on September 11, 1997 was 3 3/4.

     As of September 11, 1997, 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.


                                      -9-
<PAGE>


     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 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 this 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 exercise of the options were
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>


Item 6. 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.

                                           Years Ended June 30,
                              ------------------------------------------------  
                              1997       1996       1995       1994       1993
                              ----       ----       ----       ----       ----
                                   (In thousands, except per share data)
Earnings Statement
  Data:

  Net Sales                  $88,311    $65,104    $52,109    $31,996    $27,399
 Earnings before
   cumulative
   effect of
   accounting
   change                        121      1,409        912        504        621

  Net Earnings                   121      1,409        912        429        621

  Earnings Per
   Share before
   cumulative
   effect of
   accounting
   change                        .02        .40        .32        .23        .28

  Earnings per                   .02        .40        .32        .20        .28
  share

  Weighed Average              5,040      3,195      2,369      2,191      2,213
   Common Shares
   Outstanding(1)


                                                 June 30,
                               -----------------------------------------------  
                               1997       1996      1995       1994       1993
                               ----       ----      ----       ----       ----
                                               (In thousands)
Balance Sheet
  Data:

Total Assets                 $47,043    $41,663    $27,212    $16,746    $12,610

Working Capital               32,546     19,374     11,209      8,384      2,447

Long Term                     23,772     18,482     13,310      7,099      1,776
Obligations
 (including
  capital lease
  obligations


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

Total                         31,754     27,577     19,811     11,600      8,296
 Liabilities
Stockholders'                 15,289     14,086      7,401      5,146      4,313
 Equity

----------

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


                                      -11-
<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.

                                                   Percentage of Revenues
                                               --------------------------------
                                                 Year       Year          Year
                                                Ended       Ended        Ended
                                               June 30,    June 30,     June 30,
                                                 1997        1996        1995
                                                ------      ------       -----
Net Sales ................................      100.0%      100.0%       100.0%
Cost of sales ............................       83.0        78.9         77.4
                                                -----       -----        ----- 
Gross margin .............................       17.0        21.1         22.6
Selling and shipping
expenses .................................       10.4        12.5         15.6

General and administrative
expenses .................................        2.5         2.8          3.7

Interest expense .........................        2.5         2.8          1.3

Other (Income)/Expense ...................        1.4         (.5)        (1.0)
                                                -----       -----        -----

Earnings before income
taxes ....................................         .2         3.7          3.0
Income taxes .............................         .1         1.5          1.2
                                                -----       -----        -----
Net Income ...............................         .1         2.2          1.8
                                                =====       =====        =====

     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

                                      -12-

<PAGE>

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 the 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.

     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

                                      -13-

<PAGE>

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.

     Year Ended June 30, 1996 Compared to Year Ended June 30, 1995. Revenues for
the fiscal year ended June 30, 1996 were approximately $65,104,000, as compared
to approximately $52,109,000 for the fiscal year ended June 30, 1995, an
increase of approximately $12,995,000, or 24.9%. This increase reflects higher
sales volume for food service and food ingredient products manufactured by the
Company's Manteca California facility.

     The Company's gross margin as a percentage of revenues decreased from 22.6%
in the year ended June 30, 1995 to 21.1% in the year ended June 30, 1996. The
decrease in gross margin as a percentage of revenues was due to higher than
normal costs during the second quarter of fiscal 1996 associated with the
start-up of the mozzarella manufacturing operations in Manteca accompanied by
the continued shift to lower margin sales associated with the food service and
food ingredient markets. Also higher raw material costs during the fourth
quarter of fiscal year 1996, which the Company elected to absorb rather than
pass on to customers, had a negative impact on the gross profit for such period.

     Selling and shipping expenses decreased by approximately $8,000 from
approximately $8,133,000 during the fiscal year ended June 30, 1995 to
approximately $8,125,000 during the fiscal year ended June 30, 1996. As a
percentage of revenues, selling and shipping expenses decreased from 15.6% for
the fiscal year ended June 30, 1995 to 12.5% for the fiscal year ended June 30,
1996. This decrease is primarily due to the Company's increased revenue growth
as well as a decrease in commission expenses.

     General and administrative ("G&A") expenses decreased from approximately
$1,911,000 in fiscal 1995 to approximately $1,807,000 in fiscal 1996, or
$104,000. As a percentage of sales, G&A expenses decreased from 3.7% in fiscal
1995 to 2.8% in fiscal 1996. This decrease is primarily due to the Company's
increased revenue growth during the fiscal year ended June 30, 1996.

     Net interest expense increased to approximately $1,812,000 for the year
ended June 30, 1996 from approximately $690,000 for the year ended June 30,
1995. 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 manufacturing facility.

                                      -14-

<PAGE>

     Other income decreased from approximately $520,000 in fiscal year 1995 to
approximately $412,000 in fiscal year 1996, 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 an approximate
$378,000 gain on the sale of excess production equipment and deferred income of
approximately $105,000 during fiscal year 1995.

     The provision for income taxes for the year ended June 30, 1996 increased
by approximately $371,000 compared to fiscal year 1995 as a result of increased
taxable income.

     Net earnings applicable to common stock increased to approximately
$1,263,000 in fiscal year 1996 from approximately $762,000 in fiscal year 1995,
or approximately $501,000. This increase is primarily due to the increase in
gross margin, as a result of increased revenues, and to a lesser extent,
decreases in both selling and shipping charges and general and administrative
expenses, partially offset by increases in net interest expense and a decrease
in other income.

Liquidity and Capital Resources

     At June 30, 1997, the Company had working capital of approximately
$32,546,000 as compared with approximately $19,374,000 in June 1996, an increase
of approximately $13,172,000. The increase in working capital is the result of
cash proceeds of $3,700,000 related to the sale-leaseback of the Company's
machinery and equipment, the proceeds from the stock offering of $1,024,000 and
increased borrowings under the line of credit of $7,850,000. The cash was
invested in the increased accounts receivable and inventory levels in support of
the Company's increased sales volume, as well as decreases in accounts payable
and income taxes.

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

     The Company has a bank revolving credit facility that, in January 1997, was
amended and increased the bank's potential commitment to $20,000,000 through
October 1998. 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 October 31, 1998. Advances under this facility are
initially limited to 80% of eligible accounts receivable, 40% of all inventory
except packaging material, as

                                      -15-

<PAGE>

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 September 30, 1997, the Company is in compliance with these
covenants. At June 30, 1997, the Company had $15,589,856 outstanding under the
long-term revolving credit facility with approximately $4,010,000 remaining as
available to borrow under the 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 was approximately $5,500,000 and net proceeds to the Company was
approximately $4,481,000. The Company received no proceeds from the shares sold
by the selling shareholders. In association with the 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 from the issuance were approximately $1,237,500 and net proceeds to the
Company were approximately $1,024,000.

     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 is
secured by a subordinated security interest in substantially all of the assets
of the Company. The loan is subordinated to the loan of the Company's senior
lender, Natwest Bank, N.A. The loan bears interest at 11.75% per annum. The
principal amount of the loan is payable in twelve consecutive quarterly
installments commencing January 1, 1999. In addition, in connection with the
execution and delivery of the Loan and Security agreement, the Company delivered
a Warrant to the fund exercisable for nominal additional consideration, for
354,990 shares of the Company's Common Stock. The warrant is exercisable until
September 30, 2001 and the shares issuable upon exercise of the Warrant are
subject to two demand registration rights on the part of the Fund and piggyback
registration rights. In addition, after October 1, 2000, or upon the occurrence
of certain other events, the Fund has the right to put the Warrant to the
Company on a formula basis. The Warrant was recorded at its relative fair market
value. The corresponding debt discount will be amortized over the life of the
loan on the interest rate method.

                                      -16-

<PAGE>

     In March, 1996, the Company purchased its Paterson production facility
which it previously had leased financed by a mortgage from Natwest 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,
1997, the Company had obligations of approximately $1,005,000 under the
mortgage.

     The Company typically financed equipment purchases through capital lease
financing transactions. At June 30, 1997, the Company had obligations of
approximately $2,873,000 under capital leases, representing primarily capital
leases entered into in fiscal year 1997. The decrease in capital lease
obligations is due to the extinguished capital lease obligations associated with
the sale leaseback transaction discussed above. The additional capital lease
obligations entered into in fiscal year 1997 is in connection with the expansion
of the Company's Manteca California as well as capital improvements for the
Company's Paterson, New Jersey and Ogdensburg, New York facilities.

     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, 1997 was
approximately $8,148,000, as compared with approximately $7,287,000 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 volume
and decreases in accounts payable and income taxes payable, partially offset by
net earnings as adjusted for non-cash expenses, and decreases in prepaid
expenses and other current assets, other assets and accrued liabilities. The
cash used in operations was financed through cash flow from financing
activities. Net cash used in investing activities for the year ended June 30,
1997 was approximately $2,852,000 as compared with $1,607,000 in the prior year.
This increase is a result of 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, 1997, the Company had cash
of $480,225, as compared to $528,865 for the prior year.

     As of September 5, 1997, the Company has made no additional commitments for
capital expenditures.

Foreign Currency

                                      -17-

<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. 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 February 1997, FASB issued SFAS No. 128, "Earnings Per Share." SFAS 128
replaces the presentation of primary and fully diluted earnings per share with
basic and diluted earnings per share, respectively. Basic earnings per share are
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share are computed similarly to fully diluted earnings per share. The standard
is effective for financial statements for periods ending after December 15,
1997, with earlier application not permitted. For the year ended June 30, 1997,
basic earnings per share would have been $.03, under the provisions of SFAS 128
and diluted earnings per share would have been $.02.

     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. Both 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.



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.

                                      -18-

<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 1997 which will be filed on or before October 12, 1997 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 1997 which will be filed on or before October 12, 1997 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 1997 which will be filed on or before October 12, 1997 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 1997 which will be filed on or before October 12, 1997 and is
incorporated herein by reference.

                                      -19-

<PAGE>

                                     PART IV

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

(a)  1.   Financial Statements Page

          Report of Independent Certified Public Accountants                 F-1

          Consolidated Balance Sheets - June 30, 1997 and 1996               F-2

          Consolidated Statements of Earnings -
            For the Years Ended June 30, 1997, 1996 and 1995                 F-3

          Consolidated Statements of Stockholders' Equity -
            For the Years Ended June 30, 1997, 1996 and 1995                 F-4

          Consolidated Statements of Cash Flows -
            For the Years Ended June 30, 1997, 1996 and 1995                 F-5

          Notes to Consolidated Financial Statements                  F-6 - F-16


(a)  2.   Financial Statement Schedules

          Report of Independent Certified Public Accountants on
            Supplemental Schedule                                           F-17

          Schedule II - Valuation and Qualifying Accounts and
            Reserves - For the Years Ended June 30, 1997,
            1996 and 1995                                                   F-18


                                      -20-

<PAGE>

(a)    3.     Exhibits

       3.     Articles of Incorporation and By-Laws

       3.1    Certificate of Incorporation, as amended*

       3.2    By-laws of the Registrant*
              Amendment to Certificate of Incorporation.

       10.    Material Contracts

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

       10.1   Stock Option Plan*

       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.*****

--------
*      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.

***    Incorporated by reference to the registrant's Annual Report on Form 10-K
       for the year ended June 30, 1992.

****   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.

                                      -21-

<PAGE>

       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.

       21.    Subsidiaries of the Registrant

       23.1   Consent of Independent Certified Public Accountants

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

                                      -22-


<PAGE>

                                   SIGNATURES

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

                                                    SUPREMA SPECIALTIES, INC.

                                                    By: /s/ Mark Cocchiola
                                                       -------------------------
                                                       Mark Cocchiola, President

Dated:  September 23, 1997

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

Name            Title                                         Date
----            -----                                         ----

/s/ Mark Cocchiola                                            September 23, 1997
-----------------------
Mark Cocchiola,
Chairman of the Board,
President, Chief
Executive Officer and
Director (Principal
Executive Officer)

/s/ Paul Lauriero                                             September 23, 1997
-----------------------
Paul Lauriero,
Executive Vice President
and Director

/s/ Steven Venechanos                                         September 23, 1997
Steven Venechanos
Chief Financial Officer, and
Secretary

/s/ Marco Cocchiola                                           September 23, 1997
-----------------------
Marco Cocchiola,
Director

/s/ Rudolph Acosta                                            September 23, 1997
-----------------------
Rudolph Acosta,
Director

/s/ Paul DeSocio                                              September 23, 1997
-----------------------
Paul DeSocio,
Director

/s/ William Gascoigne                                         September 23, 1997
-----------------------
William Gascoigne,
Director

                                      -23-

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995



<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, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.



                                               BDO Seidman, LLP

Woodbridge, New Jersey

August 20, 1997

                                      F-1

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                  ============================================

                                                              June 30,
                                                      --------------------------
                                                          1997           1996
                                                          ----           ----
                                     ASSETS
Current:
   Cash                                               $   480,225    $   528,865
   Accounts receivable, net of allowances of
     $470,290 and $508,290 at June 30, 1997
     and 1996, respectively                            14,667,008      8,805,801
   Inventories                                         22,462,421     16,901,355
   Income taxes receivable                                921,243           --
   Prepaid expenses and other current assets              679,781      1,954,589
   Deferred income taxes                                  168,348        183,548
                                                      -----------    -----------
       TOTAL CURRENT ASSETS                            39,379,026     28,374,158

PROPERTY, PLANT AND EQUIPMENT, net                      6,135,082     11,444,496

OTHER ASSETS                                            1,528,434      1,843,905
                                                      -----------    -----------
                                                      $47,042,542    $41,662,559
                                                      ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
   Accounts payable                                  $ 5,411,478     $ 6,504,476
   Current portion of long-term obligations              402,877       1,562,953
   Mortgage payable - current                             39,875          36,588
   Income taxes payable                                     --           244,413
   Accrued expenses and other
     current liabilities                                 805,754         569,502
   Deferred income taxes                                 172,653          82,154
                                                     -----------     -----------
       TOTAL CURRENT LIABILITIES                       6,832,637       9,000,086

DEFERRED INCOME TAXES                                    420,952         522,133
REVOLVING CREDIT LOAN                                 15,589,856       7,740,000
SUBORDINATED DEBT                                      4,303,670       4,061,468
LONG-TERM CAPITAL LEASES                               2,470,599       4,077,386
MORTGAGE PAYABLE                                         964,870       1,004,745
                                                     -----------     -----------
                                                      30,582,584      26,405,818
                                                     -----------     -----------

WARRANTS (subject to mandatory redemption)             1,171,000       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, 1997 and 1996                --            --
   Common stock, $.01 par value, 10,000,000
     shares authorized, 4,562,800 and
     4,300,193 shares issued and outstanding at
     June 30, 1997 and 1996, respectively                   45,628        43,002
   Additional paid-in capital                           11,243,347    10,163,537
   Retained earnings                                     3,999,983     3,879,202
                                                       -----------   -----------
       TOTAL STOCKHOLDERS' EQUITY                       15,288,958    14,085,741
                                                       -----------   -----------
                                                       $47,042,542   $41,662,559
                                                       ===========   ===========

          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,
                                                -----------------------------------
                                                1997           1996            1995
                                                ----           ----            ----
<S>                                        <C>             <C>             <C>         
Net sales                                  $ 88,311,454    $ 65,103,914    $ 52,109,014
Cost of sales                                73,263,129      51,358,460      40,350,333
                                           ------------    ------------    ------------
       Gross margin                          15,048,325      13,745,454      11,758,681
                                           ------------    ------------    ------------

Expenses:
   Selling and shipping expenses              9,175,567       8,125,052       8,133,382
   General and administrative expenses        2,180,576       1,807,275       1,910,899
                                           ------------    ------------    ------------
                                             11,356,143       9,932,327      10,044,281
                                           ------------    ------------    ------------

Income from operations                        3,692,182       3,813,127       1,714,400
Other income (expense):
   Interest - net                            (2,231,820)     (1,812,342)       (690,026)
   Other                                     (1,259,081)        412,500         520,165
                                           ------------    ------------    ------------
                                             (3,490,901)     (1,399,842)       (169,861)
                                           ------------    ------------    ------------

Earnings before income taxes                    201,281       2,413,285       1,544,539
Income taxes                                     80,500       1,004,000         633,000
                                           ------------    ------------    ------------

Net earnings                               $    120,781    $  1,409,285    $    911,539
                                           ============    ============    ============

Preferred Stock Dividends                          --          (146,250)       (150,000)

Net earnings applicable to common stock         120,781       1,263,035         761,539

Net earnings per share applicable to
   common stockholders                     $        .02    $        .40    $        .32
                                           ============    ============    ============

WEIGHTED AVERAGE SHARES OUTSTANDING USED
   TO COMPUTE NET EARNINGS PER SHARE          5,039,995       3,195,358       2,369,093
                                           ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  ============================================

<TABLE>
<CAPTION>
                                              Series A
                                           Preferred stock                   Common stock              Additional
                                    -----------------------------     ----------------------------      paid-in          Retained
                                       Shares           Amount           Shares          Amount         capital          earnings
                                    ------------     ------------     ------------    ------------    ------------     ------------
<S>                                    <C>           <C>                <C>           <C>             <C>              <C>
Balance, June 30,
  1994                                    89,468     $    199,171        2,250,000    $ 22,500,171    $  3,069,528     $  1,854,628

Issuance of shares in
   satisfaction of
   trade payables                           --               --            200,000           2,000         582,000             --

Net proceeds from
   preferred stock                       410,532          909,806             --              --              --               --

Dividends on
   preferred stock                          --               --               --              --              --           (150,000)

Net earnings                                --               --               --              --              --            911,539
                                    ------------     ------------     ------------    ------------    ------------     ------------
Balance, June 30,
 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 public
   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
                                    ============     ============     ============    ============    ============     ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  ============================================

<TABLE>
<CAPTION>
                                                                                                Years ended June 30,
                                                                                 ----------------------------------------------
                                                                                 1997                 1996                 1995
                                                                                 ----                 ----                 ----
<S>                                                                          <C>                  <C>                  <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings                                                              $    120,781         $  1,409,285         $    911,539
   Adjustments to reconcile net earnings to
     net cash used in operating activities:
       Depreciation and amortization                                            2,027,080            1,997,949              485,452
       Provision for doubtful accounts                                               --                 82,030              680,500
       Loss on sale leaseback transaction                                       1,259,085                 --                   --
       Gain on disposal of property and equipment                                    --                   --               (370,608)
       Write-off of prepaid commissions/licensing fees                            943,863                 --                   --
       Deferred income taxes                                                     (199,500)             301,000             (268,000)
       Other income                                                                  --               (412,500)            (150,000)
       (Increase) decrease in assets:
          Accounts receivable                                                  (5,861,207)          (3,537,008)          (1,378,275)
          Inventories                                                          (5,561,066)          (6,548,379)          (4,567,988)
          Prepaid expenses and other current assets                               330,945              124,788             (259,880)
          Prepaid income taxes                                                   (717,225)                --                   --
          Other assets                                                            609,907           (2,381,571)              43,812
       Increase (decrease) in liabilities:
          Accounts payable                                                     (1,092,998)           1,763,990            2,351,973
          Income taxes payable                                                   (244,413)            (291,319)             276,469
          Accrued expenses and other current
            liabilities                                                           236,252              204,690              183,198
                                                                             ------------         ------------         ------------
          Net cash used in operating activities                                (8,148,496)          (7,287,045)          (2,061,808)
                                                                             ------------         ------------         ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of fixed assets                                                --                   --                531,679
   Payments for purchase of
     property and equipment                                                    (2,852,287)          (1,606,755)          (1,070,062)
                                                                             ------------         ------------         ------------
          Net cash used in investing activities                                (2,852,287)          (1,606,755)            (538,383)
                                                                             ------------         ------------         ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from revolving credit loan                                         36,791,000           18,175,000            3,775,000
   Repayment of revolving credit loan                                         (28,941,144)         (18,135,000)          (1,525,000)
   Proceeds from subordinated loan                                                   --              5,000,000                 --
   Proceeds from mortgage                                                            --              1,050,000                 --
   Proceeds from secondary offering/options                                     1,082,436            4,481,350                 --
   Principal payments of mortgage                                                 (36,588)              (8,667)                --
   Principal payments of capital leases                                        (6,420,125)          (2,125,428)            (808,595)
   Proceeds from sale-leaseback                                                 9,565,000                 --                   --
   Costs in connection with sale-leaseback                                     (1,088,436)                --                   --
   Proceeds from note receivable                                                     --                637,500              337,500
   Payment of preferred dividend                                                     --               (146,250)            (150,000)
   Proceeds from preferred stock                                                     --                   --              1,036,600
                                                                             ------------         ------------         ------------
          Net cash provided by financing activities                            10,952,143            8,928,505            2,665,505
                                                                             ------------         ------------         ------------
NET INCREASE (DECREASE) IN CASH                                                   (48,640)              34,705               65,314
CASH, beginning of period                                                         528,865              494,160              428,846
                                                                             ------------         ------------         ------------
CASH, end of period                                                          $    480,225         $    528,865         $    494,160
                                                                             ============         ============         ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the period for:
     Interest (net of amount capitalized of $340,000 in
       1997, $51,996 in 1996 and $253,000 in 1995)                           $  2,403,700         $  1,900,630         $    744,797
     Income taxes                                                               1,233,187            1,019,439              693,817
   Noncash investing and financing transactions:
     Purchases of property and equipment through
       capital leases                                                           3,653,262            2,156,010            4,769,609
     Satisfaction of accounts payable through the
       issuance of common stock                                                      --                   --                584,000
     Decrease in prepaid expenses related to place-
       ment of preferred stock                                                       --                   --                161,685
     Decrease in accrued expenses related to place-
       ment of preferred stock                                                       --                   --                 34,338
     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") manufactures, processes and markets 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. (See Note 5)

Product Introduction Costs

Certain product introduction costs, included in prepaid expenses and other
current assets, are capitalized and amortized over the stated program period,
generally ranging from one to twelve months.

Advertising Cost

The Company expenses advertising costs as incurred and cooperative advertising
costs when related revenue is recognized. Advertising costs amounted to
$3,004,028, $3,431,408 and $2,662,000 in 1997, 1996 and 1995, respectively.

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.

                                      F-6

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Options

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." The Company adopted this pronouncement by making the
required pro forma note disclosures only. Therefore, the adoption of SFAS No.
123 did not have an effect on the Company's results of operations or financial
condition.

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 June, 1997, the employees at the Company's Manteca, California facility of
Suprema Specialties West, Inc. which represent approximately 55% of the total
workforce, elected to form a union. The Company is currently under negotiations
to formalize a contract with the employees. The Company considers its relations
with its employees to be good. While management is hopeful that these
negotiations will be resolved successfully, there can be no assurance that these
negotiations will be successful. The failure to reach an agreement could have a
material adverse affect on the Company.

Effect of New Accounting Pronouncements

In February 1997, FASB issued SFAS No. 128, "Earnings Per Share." SFAS 128
replaces the presentation of primary and fully diluted earnings per share with
basic and diluted earnings per share, respectively. Basic earnings per share are
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share are computed similarly to fully diluted earnings per share. The standard
is effective for financial statements for periods ending after December 15,
1997, with earlier application not permitted. For the year ended June 30, 1997,
basic earnings per share would have been $.03 under the provisions of SFAS 128
and diluted earnings per share would have been $.02.

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. Both statements are effective for the Company's 1999 fiscal
year. The Company will be reviewing these pronouncements to determine their
applicability, if any, to the Company.

NOTE 3 - INVENTORIES

Inventories consist of the following:

                                                           June 30,
                                               ---------------------------------
                                                  1997                  1996
                                                  ----                  ----

Raw materials                                  $ 2,236,541           $ 2,497,204
Finished goods                                  19,293,624            13,582,636
Packaging                                          932,256               821,515
                                               -----------           -----------
                                               $22,462,421           $16,901,355
                                               ===========           ===========

                                      F-7

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

                                                              June 30,
                                                   -----------------------------
                                                       1997             1996
                                                       ----             ----

Property and plant                                 $ 1,525,705       $   936,370
Equipment                                            4,205,016        10,257,875
Leasehold improvements                               1,158,797           839,589
Furniture and fixtures                                 176,687           357,757
Delivery equipment                                      48,179            48,179
Construction in progress                                 4,242         1,875,931
                                                   -----------       -----------
                                                     7,118,626        14,315,701
Less: Accumulated depreciation and
   amortization                                        983,544         2,871,205
                                                   -----------       -----------
                                                   $ 6,135,082       $11,444,496
                                                   ===========       ===========

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 $2,347,517 resulted from this
transaction. In accordance with FASB 13 and its interpretations a loss of
$1,259,081 was recorded, representing the excess of the net book value of the
related assets over fair market value, which is reflected as other expense. The
balance of $1,088,436 have been included in other assets and will be amortized
over eight years, the life of the lease which is being reflected as an operating
lease.

Included in property, plant and equipment are plant and equipment acquired under
capital leases with an initial cost of $3,087,041 and $9,409,403 and accumulated
amortization of $26,828 and $1,914,210 as of June 30, 1997 and 1996,
respectively.

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. The Company was required to pay
these commissions without any set-off, notwithstanding any termination of the
agreements. In addition, two of the agreements provided that after an initial
period (as defined in the agreements) under certain conditions, 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, 1996 and 1995, commission expenses related to the marketing
agreements, were approximately $794,000, $598,100 and $743,500, 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 has been reflected in other assets and is
being amortized over the remaining term of the related agreements, as the
applicable sales revenue is recorded.

                                      F-8

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================

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. The balance at June 30, 1995 amounted to $622,500. In December
1995, an additional $300,000 was prepaid as final settlement of the remaining
agreements. This amount will be charged to expense over the remaining three
years of the related agreements as the applicable sales revenue is 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 are exercisable at $3.00 per share and terminate
on June 30, 1998.

During the fourth quarter of fiscal 1997, as a result of a review of the
Company's retail cheese business, it was determined, in accordance with FASB
121, the remaining amounts, $943,863, no longer had continuing value as a result
of declining relevance of these product lines. These amounts have been included
in selling and shipping expenses.

NOTE 6 - INCOME TAXES

The provision for income taxes consists of the following:

                                                   June 30,
                                 -----------------------------------------------
                                     1997             1996             1995
                                    ----              ----             ----
Current taxes:
   Federal                       $   223,000       $   555,000      $   698,000
   State                              57,000           148,000          203,000
                                 -----------       -----------      -----------
                                     280,000           703,000          901,000
Deferred taxes                      (199,500)          301,000         (268,000)
                                 -----------       -----------      -----------
                                 $    80,500       $ 1,004,000      $   633,000
                                 ===========       ===========      ===========

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

<TABLE>
<CAPTION>
                                                         June 30,
                                          ----------------------------------------
                                              1997          1996           1995
                                              ----          ----           ----

<S>                                       <C>            <C>           <C>        
Computed tax expense at statutory rates   $    68,000    $   821,000   $   525,000
State taxes, net of federal tax benefit        10,500        109,000        97,000
Travel and entertainment expenses not
   deductible                                   2,000         67,000         8,000
Officers life insurance not deductible          3,500          7,000         3,000
Other, net                                     (3,500)          --            --
                                          -----------    -----------   -----------
                                          $    80,500    $ 1,004,000   $   633,000
                                          ===========    ===========   ===========
</TABLE>

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, 1997 and 1996:

                                                             June 30,
                                                    ---------------------------
                                                       1997             1996
                                                       ----             ----

Depreciation                                        $  40,000         $ 522,000
Product introduction costs                            118,200            82,000
Deferred sale leaseback costs                         435,400            82,000
                                                    ---------         ---------
                                                      593,600           604,000
Accounts receivable reserve                          (168,300)         (183,000)
                                                    ---------         ---------
                                                    $ 425,300         $ 421,000
                                                    =========         =========

                                      F-9

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================


NOTE 7 - LONG-TERM DEBT

Revolving Credit Loan

In January 1997, the long-term revolving credit facility (the "Facility")
between the Company and a bank was amended to increase the line for up to
$20,000,000 through October 1998. 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, 1997). 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 and 40% of all inventory except packaging
material, as defined in the Facility agreement. The Facility agreement contains
three 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, 1997, the Company was in compliance with these
covenants.

At June 30, 1997, the Company had approximately $4,010,000 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 is secured
by a subordinated security interest in substantially all of the assets of the
Company. The loan is subordinated to the loan of the Company's senior lender.
The loan bears interest at 11 3/4% per annum. The principal amount of the loan
is payable in 12 consecutive quarterly installments commencing September 30,
1998. In addition, 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. The
Warrant is exercisable until September 30, 2001 and the shares issuable upon
exercise of the Warrant are subject to two demand registration rights on the
part of the Fund and piggyback registration rights. In addition, after October
1, 2000, or upon the occurrence of certain other rights, the Fund has 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 will be 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.

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-10

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================


NOTE 7 - LONG-TERM DEBT (continued)

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

     1998                                                            $    39,875
     1999                                                             16,466,647
     2000                                                              1,714,029
     2001                                                              2,540,726
     2002                                                                833,324
                                                                     -----------
     Total principal payments                                         21,594,601
     Less: Discount on subordinated debt                                 696,330
                                                                     -----------
                                                                     $20,898,271
                                                                     ===========

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,
1997, the Company's future minimum lease payments under capital leases are as
follows:

     1998                                                             $  723,350
     1999                                                                723,350
     2000                                                                719,465
     2001                                                                719,465
     2002                                                                561,578
     Thereafter                                                          622,759
                                                                      ----------
     Total minimum lease payments                                      4,069,967
     Less: amount representing interest                                1,196,491
                                                                      ----------
     Present value of minimum lease payments                           2,873,476
     Less: current portion                                               402,877
                                                                      ----------
     Long-term portion of capital leases                              $2,470,599
                                                                      ==========

NOTE 9 - LEASE COMMITMENTS

The Company rents warehouse space and certain equipment under lease arrangements
classified as operating leases including the equipment in the sale-leaseback
transaction. (See Note 4) The lease for the production facilities in Manteca,
California, which was renewed in December 1994 and expires on August 31, 2005
and which may be extended at the option of the Company for two (2) additional
five-year periods. 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
$922,447, $731,875 and $362,703 for the years ended June 30, 1997, 1996 and
1995, respectively. Future minimum rental payments under non-cancelable
operating leases are: 1998 - $2,189,364; 1999 - $2,363,837; 2000 - $2,395,561;
2001 - $2,395,560; 2002 - $2,347,560 and thereafter - $6,779,810.

NOTE 10 - STOCKHOLDERS' EQUITY

Stock Issuance

In December 1994, the Company issued 200,000 shares of its $0.01 par value,
common stock to a supplier. The net proceeds from the sale of these shares,
which amounted to $584,000, were used in partial satisfaction of the accounts
payable due to the supplier.

                                      F-11

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================


NOTE 10 - STOCKHOLDERS' EQUITY (continued)

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.

In 1996, 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. Quarterly dividends were payable in cash which
commenced September 30, 1994 at an annual dividend rate of 10% and are
cumulative.

As of June 30, 1994 the Company received gross proceeds from the private
placement of $268,400 on subscriptions for 89,468 shares which was presented as
a component of stockholders' equity in the accompanying financial statements,
net of a proportional amount of related expenses totalling $69,229. The
remaining proceeds amounting to $909,806 for 410,532 shares was received in July
and August 1994 net of related expenses totaling $321,794.

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.

                                      F-12

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================

NOTE 10 - STOCKHOLDERS' EQUITY (continued)

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, 1994                    108,500           $   3.55
    Granted                                     154,000           $   3.00
    Exercised                                      --          
    Forfeited                                   (13,500)          $   3.50
                                                -------        
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
                                                =======           ========
                                                               
Options exercisable at June 30, 1997            213,033           $   3.51
                                                =======           ========
                                                               
Weighted - average fair value of                               
    options granted during fiscal 1996          105,000           $   2.38
                                                =======           ========
                                                               
Weighted - average fair value of                               
    options granted during fiscal 1997          176,000           $   2.08
                                                =======           ========
                                                            
The following table summarizes information about stock options outstanding at
December 31, 1996:


<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 ($)              at 6/30/97           tractual Life           Price ($)       at 6/30/96            price ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                  <C>                     <C>             <C>                   <C> 
    2.50 to 4.00               388,500              8.0 years               3.45            175,048               3.27

    4.00 to 5.63               120,000              8.3 years               4.65             37,985               4.64
-------------------------------------------------------------------------------------------------------------------------
    2.50 to 5.63               508,500              8.1 years               3.73            213,033               3.51
=========================================================================================================================
</TABLE>

                                      F-13

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================


NOTE 10 - STOCKHOLDERS' EQUITY (continued)

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:

                                                             December 31,
                                                      --------------------------
                                                         1996            1997
                                                         ----            ----
Net earnings - as reported                            $1,409,285       $120,781
Net earnings (loss) - pro forma                        1,344,770        (25,500)
Net earnings per share - as reported                         .40            .02
Net earnings per share - pro forma                           .38           --

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%, risk free interest rate
of 5.9% in 1996 and 6.7% in 1997; 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, 1997, these warrants are
exercisable at prices ranging from $3.00 to $5.08 per share.

As discussed in Notes 5 and 7, in September 1994 and October 1995, the Company
granted warrants to purchase 50,000 and 354,990 shares of common stock
exercisable at $3.00 and $.01 per share through June 30, 1998 and September
2001, respectively.

NOTE 11 - EARNINGS PER SHARE

The earnings per share were computed by dividing the net earnings applicable to
common stockholders by the weighted average number of shares outstanding during
each period. Fully diluted earnings per share computations have not been
disclosed because the effect is antidilutive.

The earnings per share computation for the year ended June 30, 1995 was based
upon 2,250,000 shares outstanding at the beginning of the year, plus 200,000
shares arising from the issuance of common stock in partial satisfaction of a
trade payable and includes the assumed conversion of all outstanding options and
warrants using the treasury stock method.

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.

                                      F-14

<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, 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 a proration of 37,607 shares issued for exercise of stock options and
includes the assumed conversion of all outstanding options and warrants using
the treasury stock method.

NOTE 12 - OTHER COMMITMENTS

On November 21, 1994, the board of directors of the Company revised and extended
the President and Executive Vice President employment agreement through June 30,
1997. Each agreement provides for an annual salary of $250,000, subject to a
cost of living increase, and an annual bonus equal to 5% of the Company's
pre-tax profits in excess of $650,000. Both of the employment agreements provide
for employment on a full-time basis and contain a provision that the employee
will not compete with the Company during the term of his employment or for a
period of one year following termination by either party for any reason. Both
agreements also provide that if the employee's employment is terminated under
certain circumstances, including a change of control, the employee will be
entitled to receive severance pay equal to the highest of (i) $250,000 ($450,000
in the event of a change of control) or (ii) the total compensation received
from the Company during the one-year period (three-year period in the event of a
change of control) prior to the date of termination. For the years ended June
30, 1996 and 1995, the President and Executive Vice President waived the annual
bonus.

NOTE 13 - 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, 1997 and
1996, approximately 98% of the Company's cash was held in one major bank.

NOTE 14 - MAJOR CUSTOMERS

During the fiscal year ended June 30, 1997, the Company had sales to two major
customers of $12,125,000 and $9,099,000 representing approximately 14% and 10%
of net sales, respectively.

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

During the fiscal year ended June 30, 1995, the Company had sales to a major
customer of $6,117,000 representing approximately 12% of net sales.

                                      F-15

<PAGE>

                   SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  ============================================


NOTE 15 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of quarterly results of operations for the 1997, 1996
and 1995 fiscal years (in thousands of dollars except per share data):

                                     First      Second       Third      Fourth
1997                                Quarter     Quarter     Quarter     Quarter
--------------------------------------------------------------------------------
Net sales                          $ 21,922    $ 22,307    $ 21,786    $ 22,296
Gross profit                          3,945       3,724       3,971       3,408
Income from operations                1,053       1,815       1,298        (474)
Net Earnings                            308         417         388        (992)
Net earnings per share                  .06         .08         .08        (.20)

1996
--------------------------------------------------------------------------------
Net sales                            14,899      15,329      16,302      18,574
Gross profit                          3,160       3,063       3,662       3,861
Income from operations                  678         775       1,123       1,237
Net Earnings                            257         431         367         355
Net earnings per share                  .08         .13         .10         .09

                                      F-16

<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 20, 1997 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, 1997, 1996 and 1995 financial statement schedule II Valuation and Qualifying
Accounts and Reserves. 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 20, 1997

                                      F-17

<PAGE>

                                                                     Schedule II

SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JUNE 30, 1995, 1996 AND 1997


<TABLE>
<CAPTION>
                                           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, 1995
   Accounts receivable
      allowance                             $140,500         $680,500         $000,000         $440,710         $380,290
                                            ========         ========         ========         ========         ========

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
                                            ========         ========         ========         ========         ========
</TABLE>


(1)  To increase accounts receivable allowance.

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

                                      F-18