SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                   Annual Report Under Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

For the fiscal year ended June 30, 1998          Commission file number:  0-5223

                             CUTCO INDUSTRIES, INC.
                 (Name of Small Business Issuer in its Charter)

       New York                                   11-1771806              
(State of Incorporation)              (I.R.S. Employer Identification No.)

6900 Jericho Turnpike, Syosset, New York                           11791   
(Address of Principal Executive Offices)                        (Zip Code)

Issuer's telephone number, including area code:  (516) 677-0320

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.10 per share
                                (Title of Class)

Check whether the Issuer (sometimes hereinafter called the "Registrant"): (1)
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period that
the Issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_  No ___

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

State Issuer's revenues for its most recent fiscal year.  $8,770,228

State the aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant, computed by reference to the price at which
the stock was sold, or the average bid and asked prices of such stock, as of a
specified date within 60 days prior to the date of filing:
$3,829,094 as of September 17, 1998.

There were 806,125 shares of Common Stock outstanding as of September 17, 1998.

Transitional Small Business Disclosure Format (check one). Yes ___      No _X_

                       DOCUMENTS INCORPORATED BY REFERENCE
None.


<PAGE>


                     CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
                                   FORM 10-KSB
                        FOR THE YEAR ENDED JUNE 30, 1998

INFORMATION REQUIRED IN ANNUAL REPORT OF SMALL BUSINESS ISSUERS

                                     PART I

Item 1. Description of Business.

     CutCo Industries, Inc. (the "Company") is a New York corporation organized
in 1955. It is engaged primarily in the operation of hair care salons under the
names "Haircrafters" and "Great Expectations Precision Haircutters" and
franchising activities, including the franchising of hair care salons under such
names. The Company also presently owns and operates, through wholly-owned
subsidiaries, a Natisse International full service hair care and beauty salon,
in Fort Worth, Texas, and directly owns and operates hair care salons in
California under the name "Freestyle." As of September 17, 1998, the Company
owned and operated 40 and franchised 191 hair care salons.

     In November 1993, the Company, through its subsidiaries, Four Star
Restaurant Management Corporation ("Management Corp.") and Four Star Pizza
Franchising Corp. ("Franchising Corp."), sold to a third party substantially all
of the assets of the Company's Four Star Pizza business, which involved the
operation and franchising of a take-out and delivery pizza shop chain under the
"Four Star" name, including all existing franchise agreements and all rights in
and to the "Four Star" service mark within the territory of the United States,
the United States Virgin Islands, Puerto Rico and Canada. In addition, the
Company licensed the rights to use the proprietary information and know-how used
in the franchising and operation of the Four Star Pizza business in the United
States. In August 1998, the Company sold all remaining licensing rights to the
"Four Star" name and service mark.

Narrative Description of Business

     The Company's principal businesses are operating hair care salons under two
of its trade names, and franchising activities, including the franchising of
hair care salons under its proprietary names. Its Haircrafters ("Haircrafters")
program caters to economy-minded clientele at salons located largely in shopping
centers. Its Great Expectations Precision Haircutters ("Great Ex") program is
designed to appeal to fashion-conscious individuals at salons located mainly in
shopping malls. The Company has existing area distributor relationships with
several of its franchisees under which they are licensed to grant subfranchises
under the Company's proprietary names.

     In September 1996, the Company acquired a cosmetology technical training
school in Easley, South Carolina, which operated in a 3,000 square foot retail
location at an annual rental of $12,000 under a lease expiring December 31,
1998. This operation was discontinued in June 1998. The facilitly is currently
used as a training center for employees and franchisees.

     As of September 17, 1998, the Company owned and operated 28 Haircrafters
salons, 9 Great Ex salons, 2 Freestyle salons, and 1 Natisse salon in the United
States, including salons in California, Florida, Georgia, Illinois, New
Hampshire, New Jersey, Oklahoma, South Carolina and Texas.


                                      I - 1


<PAGE>


     As of September 17, 1998, the Company's franchisees (including
subfranchisees) operated 191 licensed salons, which included 148 Haircrafters
salons, 41 Great Ex salons and 2 Natisse salons in the United States and Canada.

     The Company's standard franchise agreement grants a franchisee the right to
use the Company's proprietary names and marks in accordance with the Company's
system, which includes standards and specifications related to products and
services sold, maintenance of premises and employee conduct. A franchisee is
required to pay an initial fee, currently $20,000 for the Haircrafters and Great
Ex programs, and a weekly royalty, currently 6% of gross sales from the
franchisee's salon. The Company also presently offers a variety of discount
programs under which a franchisee operating multiple salons may be entitled to
discounts of 25% of the initial franchise fee on any additional franchises he
may purchase. The franchise agreement has an initial term of 15 years, with
three five-year renewal options. The Company shares the initial franchise fees
and royalties received on account of subfranchises sold by its area
distributors, who perform continuing services for such subfranchisees. In fiscal
1998, the Company granted one franchise for a hair care salon under the
Haircrafters name.

     In 1992 the Company introduced a New Area Development program, under which
qualified existing franchisees could acquire an exclusive territory for the
operation of existing and additional salons, in consideration of an initial fee
(which could be financed over four years) based on a percentage of sales of the
franchisee's existing salons and the franchisee's agreement to open and maintain
a minimum number of additional salons within the exclusive territory. The
additional salons would be opened by the franchisee at a reduced license fee,
and the royalties payable by the franchisee with respect to any salon operated
within the exclusive territory (including existing salons) would be reduced by
50%. At September 17, 1998, there were 40 licensed salons operating under the
New Area Development Program. The Company no longer offers this program.

     The Company provides its franchisees with site-location assistance,
training, and promotional and advertising assistance. In addition, the Company
sells products and equipment (including fixtures, hair sprays, wave set
solutions, shampoos, etc.) primarily for use or resale by its franchisees. Some
of the products and equipment are manufactured according to the Company's
specifications and sold under its proprietary names and marks. While the Company
manufactures none of the products it sells, all are available in sufficient
quantities to satisfy the Company's needs. The Company promotes its product and
equipment sales to franchisees through direct mailings, but does not actively
seek other markets for such products and equipment, except through the sale of
such products from the Company-owned salons. In certain cases, the Company or
one of its subsidiaries will construct a salon for a new franchisee, on a "cost
plus" basis.

     The number of the Company's franchised hair care salons has been steadily
decreasing for the last several years.

     In addition to the Haircrafters and Great Ex programs, the Company is
engaged in the hair care and beauty salon business through the two Company-owned
and operated Freestyle salons, both of which are located in California. In
addition, the Company, through a wholly-owned subsidiary, presently owns and
operates one Natisse International salon in Fort Worth, Texas.


                                      I - 2


<PAGE>


     From June 1989 until November 1993, the Company, through Four Star Pizza
Franchising Corp. ("Pizza Franchising"), a wholly-owned subsidiary of Four Star
Restaurant Management Corporation ("Management Corp."), wholly owned by the
Company, was engaged in the business of franchising a take-out and delivery
pizza chain under the "Four Star" name, principally in western Pennsylvania,
West Virginia and Ohio. In November 1993, the Company sold substantially all of
the assets of the Four Star Pizza business, including all of its right, title
and interest in and to the trade and service mark "Four Star" (registered in
1985 and acquired by the Company in 1989), which the Company had used in its
Four Star Pizza business. In August 1998, the Company sold all remaining
licensing rights to the "Four Star" name and service mark.

     The Company's franchise activities in the United States are regulated by
the Federal Trade Commission ("FTC") and various states. The FTC requires that,
before offering or selling a franchise, a franchisor provide a prospective
franchisee with an offering circular containing detailed information about the
franchisor (including audited financial statements), its franchise program and
agreements. Thirteen states require that a franchisor register and provide
prospective franchisees with a similar document before offering or selling
franchises to persons connected with those states. The FTC and the
aforementioned states require that a franchisor amend such document annually,
and more frequently, if necessary, upon any material change in the information
disclosed therein. The Company seeks to comply with the disclosure requirements
to which it is subject and the registration requirements in all states requiring
registration and in which the Company desires to sell franchises. The Company
does not plan to sell franchises in those states requiring registration, but in
which the Company's offering circular is not registered.

     The Company's ability to register and protect its proprietary marks is
important to the success of both Company-operated and franchised salons and to
the marketability of its franchises. The Company's principal proprietary marks
in the hair salon and hair care business (and the year of the first Federal
registration of each) include: "Haircrafters International" (1978); "Great
Expectations Precision Haircutters" (registered as a trade name in 1976 and a
logotype in 1978); "Great Ex" (1981); "Haircrafters" (1984); and "Natisse"
(1990). In addition, the Company acquired the mark "Freestyle" (1975) in 1989
from Freestyle, Inc. Federal service mark registrations in effect prior to
November 1989 remain effective for twenty years, subject to their remaining in
use, and are renewable for additional ten year terms. Federal service mark
registrations initially registered during or after November 1989 remain
effective for an initial ten year period subject to their remaining in use, and
are renewable for additional successive ten year terms. The Company is of the
opinion that its proprietary marks afford sufficient protection for its
purposes.

     The Company encounters competition in each of its major business activities
from many firms, some of which are larger and more diversified and have greater
assets and resources. The hair care business and the franchising business are
highly competitive. The Company sells hair care products and equipment to
franchisees, but the Company's franchisees also purchase hair care products and
equipment from unrelated third parties. Data upon which the Company reliably can
estimate its relative competitive position is unavailable in the hair salon
industry because many of the Company's competitors are privately held and do not
publish financial information.


                                      I - 3


<PAGE>


     The Company made no material expenditures on Company-sponsored research and
development or customer-sponsored research activities relating to products,
services or techniques during fiscal 1997 or fiscal 1998.

     As of September 17, 1998, the Company employed approximately 325 persons,
including employees of its subsidiaries, approximately 230 of whom are full time
employees.

     The Company does not expect that compliance with federal, state and local
laws, rules and regulations, enacted or adopted, relating to the discharge of
materials into the environment, will materially affect the Company's capital
expenditures, earnings or competitive position.

Item 2. Description of Property.

     The Company's principal executive offices are located in approximately
5,400 square feet of office space at 6900 Jericho Turnpike, Syosset, New York,
under a lease expiring in February 1999. The current annual rental payable by
the Company is approximately $75,000.

     In addition, the Company leases approximately 5,000 square feet of
warehouse space in Jericho, New York, under a lease expiring in June 1999 at an
annual rental of $50,000.

     Wholly-owned subsidiaries of the Company lease the premises for each of the
40 Company-owned salons in existence at September 17, 1998. These leases expire
at various times up to 2007 and some contain options to renew.

     Wholly-owned subsidiaries of the Company also lease the premises of
approximately 38 salons that are subleased to franchisees at the primary lease
rental cost together, in certain cases, with an administrative fee. Neither the
Company nor its subsidiaries have any other liability with respect to, or
interest in, any of the leases on the premises of the Company's other franchised
outlets.

     The Company's leases in most cases provide for payment of the costs of
insurance, utilities, real estate tax escalation and related lease charges, in
addition to rent.

Item 3.  Legal Proceedings.

     As a result of normal and routine business operations, the Company and its
subsidiaries are, from time to time, parties to legal proceedings incidental to
their businesses. In the opinion of management, none of such presently pending
proceedings will have a material effect on the Company's financial condition.

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

     Not applicable.



                                      I - 4


<PAGE>


                                     PART II



Item 5.  Market Price for Common Equity
         and Other Shareholder Matters 

     (a) Through March 31, 1998, the Company's Common Stock was quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"). Effective with the close of business on that date, the Company was
delisted from The NASDAQ Stock Market. Since that date, the Company's Common
Stock has traded on the OTC Bulletin Board. The prices in the table below
represent the range of high and low closing bid quotations as reported by NASDAQ
for each quarterly period during the last two fiscal years until March 31, 1998
and, after such date, as reported on the OTC Bulletin Board. The quotations
represent prices between dealers, do not include retail markups, markdowns or
commissions and may not represent actual transactions.

                                        Year ended                Year ended
                                       June 30, 1998             June 30, 1997 
                                     -----------------         -----------------
                                     High         Low          High         Low
--------------------------------------------------------------------------------
1st Quarter                          1.38         1.12         2.00         1.32

2nd Quarter                          1.46         1.12         1.50         1.32

3rd Quarter                          1.25         1.00         1.50         1.13

4th Quarter                          1.25         1.00         1.38         1.13


     (b) As of September 17, 1998, the Company had approximately 247 security
holders of record, not including owners whose holdings are in single accounts of
clearing houses or broker nominees.

     (c) The Company did not pay any dividends in fiscal 1998 or fiscal 1997.


Item 6.  Management's Discussion and Analysis
         of Financial Condition and
         Results of Operation.               

Liquidity and Capital Resources:

     Cash and cash equivalents were $754,000 at June 30, 1998, as compared to
$551,000 at June 30, 1997. In addition, the Company had marketable securities of
$153,000 at June 30, 1998, as compared to $499,000 at June 30, 1997. In fiscal
1998, the primary source of the Company's liquidity and capital resources was
net cash provided by operating activities of $50,000, as compared to $39,000 in
fiscal 1997. Capital expenditures in 1998 were $26,000, as compared to $496,000
in fiscal 1997 because of reduced new salon openings.


                                     II - 1

<PAGE>


     The Company had a current ratio of 2.59 at June 30, 1998, as compared to
1.87 at June 30, 1997.

     At June 30, 1998, commitments for capital expenditures and other
investments did not exceed $150,000. Such commitments were for salon
acquisitions and replacements. The Company believes its cash resources are
adequate for its present short and long-term business requirements.

Results of Operations:

     In fiscal 1998, revenues from Company-owned salon operations decreased by
10%, or $766,000, as compared to the prior year. The decrease in revenues was
mainly attributable to a decrease in the average number of Company-owned salons
operating during fiscal 1998, as well as a decrease in same store sales of 7.5%.
As of June 30, 1998, there were 40 Company-owned salons, as compared to 44 at
June 30, 1997 and 41 at June 30, 1996. In fiscal 1998, direct costs of
Company-owned salons decreased by 9.6%, or $690,000, over such total costs for
fiscal 1997. These variances are largely attributable to costs that fluctuate in
direct relation to sales. During fiscal 1998, the Company closed four (4)
salons.

     Management will continue to close existing salons that do not meet its cash
flow criteria.

     Sales of equipment and products remained relatively constant. For fiscal
1998, there was a slight increase of 3.7%.

     Royalties and service fees decreased by 11.1% in fiscal 1998, as compared
to a decrease of 5.1% in fiscal 1997. This decrease is due to a decline in the
number of franchised hair salons. The number of franchised hair salons has been
steadily decreasing for several years (303 at June 30, 1995, 292 at June 30,
1996, 276 at June 30, 1997 and 191 at June 30, 1998). The decline in franchised
salons resulted from non-renewal of franchise agreements, as well as lease
terminations in franchised salons. The Company granted two new franchises in
fiscal 1994, one in 1995, four in 1996, one in 1997 and one in 1998.

     The Company expects the decline in royalties and franchise fees to continue
as a result of attrition of existing licensees, without replacements with new
licensees. The Company does not anticipate significant hair care franchise sales
from new locations for fiscal 1999, due to increased competition for new
locations, coupled with a longer period from a salon's opening until it achieves
profitable operations. In fact, the Company expects a further decline in
royalties for fiscal 1999 in light of franchise contract and lease contract
terminations that occurred at the end of fiscal 1998.

     Franchise fee income reported in fiscal 1998 resulted from realization of
area license fees contracted for in prior years. Fees realized in fiscal 1998
were $11,000, as compared to $36,000 in fiscal 1997. Franchise fees, which are
principally related to the Company's discontinued New Area Development Program,
will continue to decline unless new franchised salons are opened by existing
licensees and such new salons exceed attrition of other salons resulting from
lease terminations and franchise contract expirations. The Company believes that
the number of franchised salons, and franchise fee income and royalty income,
will continue to decrease in the foreseeable future. In addition, franchise fee
income is expected to decrease as payments to the Company under notes obtained
in connection with that Program cease at the varying maturities of such notes.


                                     II - 2

<PAGE>


     In fiscal 1998, selling, general and administrative expenses decreased by
9.2%, or $221,000, from $2,390,000 in fiscal 1997 to $2,170,000 in fiscal 1998.
The decreases were mainly due to lower lease occupancy and payroll costs.

     Losses on salon terminations increased from $46,000 in fiscal 1997 to
$151,000 in the current fiscal year. Four salons were closed in fiscal 1998 and
five salons were closed in fiscal 1997. The increase in net realizable loss for
1998 resulted from higher undepreciated costs for newer salons.

     Other net income increased from $75,000 in fiscal 1997 to $229,000 in
fiscal 1998. The increases resulted from contractual payments due from certain
licensees.

     There were state income tax charges of $17,000 in fiscal 1998 as compared
to $20,000 in fiscal 1997. Since the Company files separate subsidiary state
income tax returns, rather than consolidated state income tax returns, the
Company was not able to offset certain subsidiary losses against other
subsidiary income in fiscal 1998 and 1997. The Company has not recognized the
future tax benefit of its net operating loss carryforwards, because presently
the Company cannot reasonably estimate the benefits that may be realized upon
profitable future operations.

     The Company's salons and franchising activities, including its sales of
franchises, are not materially affected by seasonal fluctuations in the volume
of business. Furthermore, inflation has not materially affected the Company's
revenues and income during the past two fiscal years.

     The Company has retained a software consultant to analyze the software
changes that need to be made in order to render the Company's computer systems
Year 2000 compliant. The Company is unable at present to estimate the cost of
any needed revisions to its computer systems, but does not believe that it will
experience material difficulties in attaining such compliance. The Company does,
however, rely on vendors, franchisees and others to render their systems Year
2000 compliant. Any failure on their part to ensure such compliance in a timely
manner may have a material adverse effect on the Company's ability to obtain
goods and/or services necessary to the operation of its business or to receive
timely payments and/or accurate reports from its franchisees.

Item 7. Financial Statements.

        (Response begins on page numbered F-1, which follows page II-4.)

Item 8. Changes in and Disagreements with Accountants.

     As previously reported in the Company's Current Report on Form 8-K for an
event of June 10, 1998, on that date the Company terminated Grant Thornton LLP
("Grant Thornton") as the Company's independent auditors. The termination, which
was approved by the Board of Directors of the Company, resulted solely from the
Company's desire to curtail expenses for professional services. Grant Thornton's
reports on the financial statements of the Company for the past two years did
not contain an adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or


                                     II - 3

<PAGE>


accounting principles. There were no disagreements with Grant Thornton on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement(s), if not resolved to the
satisfaction of Grant Thornton, would have caused Grant Thornton to make
reference to the subject matter of such disagreement(s) in connection with its
report during either of the Company's two most recent fiscal years or any
subsequent interim period preceding the dismissal of Grant Thornton as the
Company's independent auditors. On June 10, 1998, the Company's Board of
Directors approved the selection of Nussbaum Yates & Wolpow, P.C. ("NY&W") as
its new independent auditors. On the same date, NY&W accepted such appointment.
The Company had not previously consulted with NY&W regarding any accounting
matters.



                   [Balance of page left blank intentionally.]


                                     II - 4

<PAGE>

                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                       YEARS ENDED JUNE 30, 1998 AND 1997

                       FINANCIAL STATEMENTS AND REPORT OF
                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


<PAGE>




                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                       YEARS ENDED JUNE 30, 1998 AND 1997





                                    CONTENTS


                                                                       Page
                                                                       ----

  Reports of Independent Certified Public Accountants                F-2 - F-3


  Consolidated financial statements:

      Balance sheets                                                 F-4 - F-5

      Statements of operations                                         F-6

      Statements of shareholders' equity                               F-7

      Statements of cash flows                                      F-8 - F-9

      Notes to consolidated financial statements                   F-10 - F-21


                                      F-1
<PAGE>



               Report of Independent Certified Public Accountants


Board of Directors
CutCo Industries, Inc. and Subsidiaries
Syosset, New York

We have audited the accompanying consolidated balance sheet of CutCo Industries,
Inc. and Subsidiaries as of June 30, 1998 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended. 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 audit. 

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CutCo Industries,
Inc. and Subsidiaries as of June 30, 1998, and the results of their operations
and their consolidated cash flows for the year then ended, in conformity with
generally accepted accounting principles.e



/s/ NUSSBAUM YATES & WOLPOW, P.C.

NUSSBAUM YATES & WOLPOW, P.C.

Melville, New York
September 4, 1998


                                      F-2
<PAGE>




                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS


Board of Directors
   CutCo Industries, Inc.


We have audited consolidated balance sheet of CutCo Industries, Inc. and
Subsidiaries as of June 30, 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. 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 audit.

We conducted our audit 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 presenting. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CutCo Industries,
Inc. and Subsidiaries as of June 30, 1997, and the consolidated results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.



GRANT THORNTON LLP

/s/ GRANT THORNTON LLP

Melville, New York
August 29, 1997


                                      F-3
<PAGE>


                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                           CONSOLIDATED BALANCE SHEETS

                             JUNE 30, 1998 AND 1997


                                     ASSETS


                                                            1998         1997  
                                                         ----------   ----------

Current assets:
   Cashand cash equivalents                              $  753,658   $  550,840
   Marketable securities                                    153,376      499,383
   Notes and accounts receivable, net                       343,267      377,514
   Merchandise inventory                                    364,185      376,797
   Deferred income taxes                                    130,000      120,000
   Prepaid expenses, taxes and miscellaneous
     receivables                                             85,259      131,211
   Assets held for sale                                     100,000         --  
                                                         ----------   ----------

           Total current assets                           1,929,745    2,055,745
                                                         ----------   ----------

Property and equipment:
   Furniture, fixtures and equipment                      1,841,077    2,137,829
   Leasehold improvements                                    70,944       95,944
                                                         ----------   ----------
                                                          1,912,021    2,233,773
   Less accumulated depreciation and amortization         1,095,843    1,010,791
                                                         ----------   ----------

                                                            816,178    1,222,982
                                                         ----------   ----------

Other assets :
   Notes receivable, non-current, net                        77,246       78,574
   Deferred charges and other                                63,570      287,639
   Deposits                                                  74,733      105,885
                                                         ----------   ----------

                                                            215,549      472,098
                                                         ----------   ----------

                                                         $2,961,472   $3,750,825
                                                         ==========   ==========



                                   (Continued)

                       See notes to financial statements.



                                      F-4
<PAGE>


                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                             JUNE 30, 1998 AND 1997


                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                             1998           1997   
                                                         -----------    ------------
<S>                                                      <C>            <C>        
Current liabilities:
   Accounts payable and accrued expenses                 $   567,381    $   823,323
   Current portion of long-term debt                           6,860        167,558
   Accrued and withheld taxes, other than income taxes       146,669         75,167
   Income taxes payable                                       25,073         31,453
                                                         -----------    -----------

           Total current liabilities                         745,983      1,097,501
                                                         -----------    -----------

Long-term debt                                                  --            6,860
                                                         -----------    -----------

Deposits payable                                              31,369         62,499
                                                         -----------    -----------

Deferred income                                               43,121         45,709
                                                         -----------    -----------

Deferred income taxes                                        130,000        120,000
                                                         -----------    -----------

Commitments and contingencies

Shareholders' equity:
   Common stock, $.10 par value, authorized
     5,000,000 shares, issued 1,883,706 shares               188,371        188,371
   Additional paid-in capital                              4,185,250      4,185,250
   Retained earnings                                       1,118,970      1,526,227
                                                         -----------    -----------

                                                           5,492,591      5,899,848

Less common stock held in treasury, at cost,
   1,103,081 shares                                       (3,481,592)    (3,481,592)
                                                         -----------    -----------

                                                           2,010,999      2,418,256
                                                         -----------    -----------

                                                         $ 2,961,472    $ 3,750,825
                                                         ===========    ===========
</TABLE>

                       See notes to financial statements.

                                      F-5
<PAGE>


                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                       YEARS ENDED JUNE 30, 1998 AND 1997


                       See notes to financial statements.


<TABLE>
<CAPTION>
                                                          1998             1997     
                                                      -------------    ------------
<S>                                                    <C>             <C>         
Revenues:
   Owned retail stores                                 $  6,896,700    $  7,662,343
   Sales of equipment and products                          199,542         192,510
   Royalties and service fees                             1,663,193       1,871,050
   Franchise fee income                                      10,793          36,126
                                                       ------------    ------------

                                                          8,770,228       9,762,029
                                                       ------------    ------------

Costs and expenses:
   Direct costs of owned retail stores                    6,512,973       7,202,762
   Cost of equipment and products sold                      149,440         156,106
   Depreciation and amortization                            466,412         462,774
   Selling, general and administrative expenses           2,169,554       2,390,029
   Provision for (recovery of) doubtful accounts
     and notes receivable                                   (14,946)         35,000
                                                       ------------    ------------

                                                          9,283,433      10,246,671
                                                       ------------    ------------

Loss from operations                                       (513,205)       (484,642)
                                                       ------------    ------------

Other income (loss):
   Interest and dividend income                              51,309          79,215
   Interest expense                                          (6,536)        (19,323)
   Loss on sale/abandonment of assets                      (150,589)        (45,546)
   Other income, net                                        228,611          74,610
                                                       ------------    ------------

                                                            122,795          88,956
                                                       ------------    ------------

Loss before income taxes                                   (390,410)       (395,686)

Income tax provision                                         16,847          20,000
                                                       ------------    ------------

Net loss                                               ($   407,257)   ($   415,686)
                                                       ============    ============

Basic net loss per common share                        ($       .52)   ($       .53)
                                                       ============    ============

Weighted average number of common shares outstanding        780,625         780,625
                                                       ============    ============
</TABLE>


                       See notes to financial statements.


                                      F-6
<PAGE>


                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                 CONSOLDIATED STATEMENTS OF SHAREHOLDERS' EQUITY

                       YEARS ENDED JUNE 30, 1998 AND 1997



<TABLE>
<CAPTION>

                                                                Additional                       Treasury Stock  
                                          Common Stock           Paid-in      Retained        --------------------
                                     Shares         Amount       Capital      Earnings        Shares        Amount          Total 
                                     ------         ------       -------      --------        ------        ------          ----- 

<S>                                 <C>         <C>           <C>           <C>              <C>         <C>            <C>        
Balance at June 30, 1996            1,883,706   $   188,371   $ 4,185,250   $ 1,941,913      1,103,081   ($3,481,592)   $ 2,833,942

Net loss                                 --            --            --        (415,686)        --            --           (415,686)
                                   -----------  -----------   -----------   -----------    -----------   -----------    -----------

Balance at June 30, 1997            1,883,706       188,371     4,185,250     1,526,227      1,103,081    (3,481,592)     2,418,256

Net loss                                 --            --            --        (407,257)        --            --           (407,257)
                                   -----------  -----------   -----------   -----------    -----------   -----------    -----------

Balance at June 30, 1998            1,883,706   $   188,371   $ 4,185,250   $ 1,118,970      1,103,081   ($3,481,592)   $ 2,010,999
                                  ===========   ===========   ===========   ===========    ===========   ===========    ===========
</TABLE>



                       See notes to financial statements.


                                      F-7
<PAGE>




                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                       YEARS ENDED JUNE 30, 1998 AND 1997



<TABLE>
<CAPTION>
                                                                          1998          1997  
                                                                        ---------    ---------
<S>                                                                     <C>          <C>       
Cash flows from operating activities:
   Net loss                                                             ($407,257)   ($415,686)
                                                                        ---------    ---------
   Adjustments to reconcile net loss to net cash provided by
     operating activities:
       Depreciation and amortization of property and equipment            282,232      322,837
       Amortization of intangibles                                        182,181      139,937
       Provision for (recovery of) doubtful accounts and notes
         receivable, net                                                  (14,946)      35,000
       Loss on sale and abandonment of property
         and equipment, net                                               150,589       45,546
     Changes in operating assets and liabilities, net of effect
       of acquisition and disposition in 1997:
         Notes and accounts receivable                                     (7,591)      76,349
         Merchandise inventory                                             12,612       34,409
         Prepaid expenses, taxes and miscellaneous receivables             45,952      (16,196)
         Deposits and other                                                31,152       12,273
         Accounts payable and accrued expenses                           (255,942)    (138,408)
         Accrued and withheld taxes, other than income taxes               71,502      (84,136)
         Income taxes payable                                              (6,380)      10,232
         Deposits payable                                                 (31,130)       6,862
         Deferred income                                                   (2,588)       9,995
                                                                        ---------    ---------

                                                                          457,643      454,700
                                                                        ---------    ---------

                  Net cash provided by operating activities                50,386       39,014
                                                                        ---------    ---------

Cash flows from investing activities:
   Purchases of property and equipment                                    (26,017)    (496,484)
   Proceeds from sale of property and equipment                              --          9,720
   Sale of marketable securities, net                                     346,007       66,342
   Expenditures for start-up and other deferred costs                        --         (3,309)
   Payments for businesses acquired                                          --        (45,000)
                                                                        ---------    ---------

                  Net cash provided by (used in) investing activities     319,990     (468,731)
                                                                        ---------    ---------
</TABLE>




                                   (Continued)

                       See notes to financial statements.


                                      F-8
<PAGE>




                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


<TABLE>
<CAPTION>
                                                                                  1998           1997   
                                                                               -----------    -----------
<S>                                                                            <C>            <C>         
Cash flows from financing activities:
   Principal payments on loans                                                 ($  167,558)   ($   54,838)
                                                                               -----------    -----------

           Net cash used in financing activities                                  (167,558)       (54,838)
                                                                               -----------    -----------

           Net increase (decrease) in cash and cash equivalents                    202,818       (484,555)

   Cash and cash equivalents, beginning of year                                    550,840      1,035,395
                                                                               -----------    -----------

   Cash and cash equivalents, end of year                                      $   753,658    $   550,840
                                                                               ===========    ===========



Supplemental disclosures of cash flow information: Cash paid during the year
    for:
      Interest                                                                 $     6,536    $    14,310
                                                                               ===========    ===========
      Income taxes                                                             $    15,847    $    23,256
                                                                               ===========    ===========

    Non-cash investing and financing activities:
      Notes and accounts receivable received in connection
        with sale of salons                                                    $      --      $    20,000
                                                                               ===========    ===========
</TABLE>



                       See notes to financial statements.


                                      F-9
<PAGE>


                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       YEARS ENDED JUNE 30, 1998 AND 1997


1.   Summary of Significant Accounting Policies

     Description of Business

     CutCo Industries, Inc. and Subsidiaries (the "Company") are primarily
     engaged in the operation and franchising of hair care salons.

     Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
     CutCo Industries, Inc. and its subsidiaries, all of which are wholly-owned.
     All significant intercompany balances and transactions have been
     eliminated.

     Investments in Marketable Securities

     Investments in marketable securities at June 30, 1998 and 1997, consisting
     of U.S. treasury Notes due within one year (approximately $100,000 and
     $450,000) and mutual funds (approximately $53,000 and $49,000), have been
     classified as `available for sale securities" and are reported at fair
     value which approximates cost. Changes in the fair value of "available for
     sale securities" are classified as a separate component of shareholders'
     equity, net of any related tax effects. As of June 30, 1998 and 1997, fair
     value approximates cost.

     Merchandise Inventories

     Inventory, consisting primarily of merchandise held for resale, is stated
     at the lower of cost or market. Cost is determined using the first-in,
     first out method.

     Property and Equipment

     Property and equipment are stated at cost. Depreciation and amortization
     are provided for in amounts sufficient to related the cost of depreciable
     assets to operations over their estimated service lives (generally 5 to 10
     years on a straight-line basis). Leasehold improvements and leasehold costs
     are amortized over the term of the lease or service lives of the
     improvements, whichever is shorter. The costs of additions and improvements
     which substantially extend the useful life of a particular asset are
     capitalized. Repair and maintenance costs are charged to expense.


                                      F-10
<PAGE>


                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997



1.   Summary of Significant Accounting Policies (Continued)

     Intangible and Other Assets

     The excess of cost over the fair value of net assets acquired (goodwill) is
     amortized on a straight-line basis over 10 or 15 years. On an ongoing
     basis, management reviews the valuation and amortization of goodwill and
     other intangible assets to determine possible impairment by comparing the
     carrying value to the undiscounted future cash flows of the related assets.

     Revenues

     Income from sales of franchises is recognized when the Company has
     substantially fulfilled its related obligations under the franchise
     agreement. Until such time, fees are deferred, net of related direct costs.
     Royalties from franchisees are reported as revenue as the fees are earned
     and become receivable from the franchisee.

     Income Taxes

     Deferred income taxes are recognized for temporary differences between
     financial statements and income tax bases of assets and liabilities, net
     operating loss carryforwards and tax credit carryforwards, for which income
     tax expenses or benefits are expected to be realized in future years. A
     valuation allowance has been established to reduce the deferred tax assets
     as it is more likely than not that such portion of the deferred tax assets
     will not be realized. The effect on deferred taxes of a change in tax rates
     is recognized in income in the period that includes the enactment date.

     Earnings Per Share

     For the year ended June 30, 1998, the Company adopted Statement of
     Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share,"
     which replaces the presentation of primary earnings per share ("EPS") and
     fully diluted EPS with a presentation of basic EPS and diluted EPS. Basic
     EPS excludes common stock equivalents and is computed by dividing net
     income (loss) available to common stockholders by the weighted average
     number of common shares outstanding for the period. Diluted EPS reflects
     the potential dilution that could occur if common stock equivalents such as
     stock options were exercised. The effect of stock options on the
     calculation of earnings per common share was anti-dilutive in 1998 and
     1997. Conforming of the data for the year ended June 30, 1997 did not
     result in a change to the reported loss per share.


                                      F-11
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


1.   Summary of Significant Accounting Policies (Continued)

     Stock-Based Compensation Plans

     The Company maintains two stock option plans, as more fully described in
     Note 6 to the financial statements, accounted for using the "intrinsic
     value" method pursuant to the provisions of Accounting Principles Board
     Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
     adopted the disclosure provisions of SFAS No. 123, "Accounting for
     Stock-based Compensation".

     Statement of Cash Flows

     The Company considers all highly liquid investments with an original
     maturity of three months or less to be cash equivalents.

     Business Concentrations and Financial Instruments

     Financial instruments which subject the Company to concentration of credit
     risk consist principally of accounts and notes receivables relating to the
     Company's franchising operations. Concentrations consist of multiple
     location franchisees who are located in specific geographic areas. The
     Company routinely addresses the financial strength of its franchisees and
     provides for an allowance for estimated uncollectible amounts.

     The Company's principal financial instruments consist of investments in
     marketable securities, accounts and notes receivable and long-term debt.
     The Company believes that the carrying amount of such instruments
     approximates fair value.

     Use of Estimates

     In preparing financial statements in conformity with generally accepted
     accounting principles, management is required to make estimates and
     assumptions that affect the reported amounts of assets and liabilities, the
     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. The significant estimates include, but are not limited to, the
     allowance for doubtful accounts, inventory valuation, deferred charges and
     income taxes.


                                      F-12
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


1.   Summary of Significant Accounting Policies (Continued)

     Recently Issued Accounting Pronouncements

     In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
     "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
     Segments of an Enterprise and Related Information." These statements, which
     are effective for fiscal years beginning after December 15, 1997, expand or
     modify disclosures and will have no impact on our consolidated financial
     position, results of operations or cash flows.


2.   Acquisitions

     During fiscal 1997, the Company acquired a cosmetology technical training
     school ("school") for $45,000 in cash. The excess over fair value of assets
     acquired of $20,000 was recorded in connection with this acquisition. The
     remaining carrying value of $18,680 related to this acquisition was written
     off in fiscal 1998 as the school was closed.

     This acquisition has been accounted for as a purchase and, accordingly, the
     operating results of the acquired salons are included in the Company's
     consolidated results of operations from the date of acquisition. The
     Company allocates the total consideration to the assets acquired based on
     their estimated fair value. Consolidated pro forma operating results as
     though the school was acquired at the beginning of 1997 are not presented
     as the pro forma results are not materially different from those of the
     Company.

     In addition, the Company is obligated, on certain prior acquisitions, to
     make contingent payments based upon profits, as defined, expiring through
     2004.



                                      F-13
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


3.   Notes and Accounts Receivable

     Notes and accounts receivable consist of the following:

                                                                June 30, 
                                                        -----------------------
                                                          1998           1997  
                                                        --------       --------
     Notes receivable                                   $508,107       $315,240
     Less non-current portion                            229,487        172,574
                                                        --------       --------
     
     Notes receivable, current portion                   278,620        142,666
     Accounts receivable                                 250,501        493,889
                                                        --------       --------
     
                                                         529,121        636,555
     Less allowance for doubtful accounts
       and notes                                         185,854        259,041
                                                        --------       --------
     
                                                        $343,267       $377,514
                                                        ========       ========
     
     Notes receivable, non-current                      $229,487       $172,574
     Less allowance for doubtful notes                   152,241         94,000
                                                        --------       --------
     
     Notes receivable, non-current, net                 $ 77,246       $ 78,574
                                                        ========       ========

     Through fiscal 1994, the Company received notes aggregating $895,119 in
     connection with the sale of area franchise rights. The notes are receivable
     in 48 equal installments with interest, and the related franchise fee
     income will be recognized as the notes are collected. During fiscal 1998
     and 1997, the Company recognized $1,087 and $30,626, respectively, of
     franchise fee income relating to the collection of such notes. At June 30,
     1997, the franchise fee income relating to the outstanding balance of
     $1,087 included in notes receivable had been deferred.


                                      F-14
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


4.   Deferred Charges and Other

     Deferred charges and other consist of the following:

<TABLE>
<CAPTION>
                                                                          June 30,                Amortization
                                                                 ---------------------------     period (straight-
                                                                  1998              1997          line method)   
                                                                 --------          ---------     ----------------
     <S>                                                        <C>                <C>             <C> 
     Deferred costs relating to area distributorships           $ 11,357           $ 11,357          10 years
     Goodwill                                                     74,470             94,470        10 - 15 years
     Intangible assets - licensing rights (a)                       --              451,841           6 years
     Non-competition covenants                                      --              190,000           5 years
     Other                                                         5,118             33,870           Various
                                                                 --------          ---------
                                                                  90,945            781,538
     Less accumulated amortization                                27,375            493,899
                                                                 --------          ---------
     
                                                                $ 63,570           $287,639
                                                                 ========          ========= 
</TABLE>


     (a)  The Company sold its Four Star Pizza business as of November 8, 1993
          for the initial consideration of $50,000 in cash and $150,000 in 8%
          promissory notes payable monthly over six years. In addition, the
          Company was entitled to future monthly royalties equal to 25% of
          initial franchise fees collected and 1.25% of gross sales generated by
          Four Star Pizza licensees. In August 1998, the Company received
          $90,000 and a promissory note of $10,000 in consideration for
          terminating the license agreement. Notes receivable of $58,112 and the
          remaining net realizable value of the licensing rights of $41,888 are
          included as assets held for sale. In connection therewith, the
          licensing rights were reduced by approximately $45,000 which is
          included in amortization expense.



                                      F-15
<PAGE>


                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


5.   Long-Term Debt

     Long-term debt consists of the following:

                                                             June 30,     
                                                    ---------------------------
                                                      1998                1997 
                                                    --------           --------
     Promissory notes                               $  6,860           $174,418
     Less current portion                              6,860            167,558
                                                    --------           --------
     
                                                    $   --             $  6,860
                                                    ========           ========
     
     On April 12, 1993, the Company issued two unsecured promissory notes of
     $190,000 and $160,000 in connection with an acquisition of eight salons.
     These notes are payable in 59 equal monthly installments consisting of
     principal and interest (8.5%) in the amounts of $2,985 and $2,513,
     respectively, which commenced on May 12, 1993 and mature on April 12, 1998,
     with final payments of $66,500 and $56,000, respectively. Annually, in the
     event the prime rate exceeds 7%, such notes shall bear interest at the
     prime rate, and the remaining balance of the note shall be amortized in
     equal monthly payments as if the original maturity date was April 12, 2000.
     The notes were fully paid in April 1998.

     On September 25, 1995, the Company issued a $20,000 promissory note in
     connection with the acquisition of one salon. This note is payable in 48
     monthly installments consisting of principal and interest (7%) of $479,
     with final payment in September 1999.


6.   Stock Option Plans

     The Company has incentive stock option plans, as amended, which became
     effective in 1987 and 1990. The exercise price of options granted under the
     plan shall not be at less than the fair value at date of grant. Subject to
     termination of employment, options granted expire up to ten years from date
     of grant, and are non-transferable other than on death. Options become
     exercisable at the rate of twenty-five percent per year, commencing with
     the date of grant. Options for persons who attain fifteen years of service
     with the Company are fully exercisable on the date granted.



                                      F-16
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


6.   Stock Option Plans (Continued)

     The following summarizes the changes in options outstanding under the
     Company's stock options plans for the two years ended June 30, 1998:

<TABLE>
<CAPTION>
                                                                                     Weighted-
                                                                                     Average
                                                   Number         Option Price       Exercise
                                                  Of Shares         Per Share        Price   
                                                  ---------         ---------        --------
     <S>                                           <C>             <C>                 <C>  
     Outstanding at June 30, 1996 and 1997         132,000         $1.25 - 3.03        $1.63
     
     Canceled                                      (24,000)        $1.25 - 2.75        $1.50
                                                  --------
     
     Outstanding at June 30, 1998                  108,000         $1.25 - 3.03        $1.66
                                                  ========
     Options exercisable at June 30, 1997          105,000         $1.25 - 3.03        $1.73
                                                  ========
     
     Options exercisable at June 30, 1998           99,500         $1.25 - 3.03        $1.70
                                                  ========
</TABLE>


     At June 30, 1998 and 1997, the Company had 60,000 and 52,000 shares
     available for grant.

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

<TABLE>
<CAPTION>
                                            Options Outstanding                          Options Exercisable
                              ------------------------------------------------    --------------------------------
                                                   Weighted-
                                                    Average          Weighted-                        Weighted-
     Range of                                      Remaining         Average                          Average
     Exercise                    Number           Contractual        Exercise        Number           Exercise
     Prices                   Outstanding        Life (Months)        Price        Outstanding         Price    
     ------                   -----------        -------------        -----        -----------         -----    

<S>   <C>                        <C>                  <C>             <C>             <C>               <C>  
      $1.25 - $1.375             84,000               29              $1.31           75,500            $1.32
      $2.75 - $3.03              24,000                3              $2.89           24,000            $2.89
</TABLE>


                                      F-17
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


6.   Stock Option Plans (Continued)

     If the Company had elected to recognize compensation expense based upon the
     fair value at the grant dates for awards under these plans consistent with
     the methodology prescribed by SFAS No. 123, the Company's reported net loss
     and loss per share would be reduced to the pro forma amount indicated below
     for the years ended June 30:
     
                                              1998                1997   
                                           ---------           ----------
     
     Net loss:
       As reported                         ($407,257)          ($415,686)
       Pro forma                            (409,795)           (418,224)
     
     Basic loss per common share:
       As reported                             ($.52)              ($.53)
       Pro forma                                (.52)               (.54)
     
     These pro forma amounts may not be representative of future disclosures
     because they do not take into effect pro forma compensation expense related
     to grants made before fiscal 1996. The fair value of these options was
     estimated at the date of grant using the Black-Scholes option-pricing model
     with the following weighted-average assumptions for the fiscal years ended
     June 30, 1997 and 1998: expected volatility of 30%; risk-free interest rate
     of 5.7%; and expected term of 5 years for both years.

     The Black-Scholes option valuation model was developed for use in
     estimating the fair value of traded options which have no vesting
     restrictions and are fully transferable. In addition, option valuation
     models require the use of highly subjective assumptions including the
     expected stock price volatility. Because the Company's employee stock
     options have characteristics significantly different from those of traded
     options, and because changes in the subjective assumptions can materially
     affect the fair value estimate, in management's opinion, the existing
     models do not necessarily provide a reliable single measure of the fair
     value of its employee stock options.


7.   Income Taxes

     The Company and its subsidiaries file a consolidated Federal income tax
     return and separate state and local returns. Income tax expense for the
     years ended June 30, 1998 and 1997 is composed of state and local taxes.


                                      F-18
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


7.   Income Taxes (Continued)

     The reasons for the difference between the total tax provision and the
     amount computed by applying the statutory Federal income tax rate to the
     loss before income taxes are as follows:

                                                             June 30, 
                                                   -----------------------------
                                                      1998              1997   
                                                   ---------          ---------
     Expected tax benefit                          ($133,000)         ($135,000)
     State and local income taxes, net of
       Federal income tax benefit                     11,000             13,000
     Increase in valuation allowance                 155,000            146,000
     Other                                           (16,153)            (4,000)
                                                   ---------          ---------
     
                                                   $  16,847          $  20,000
                                                   =========          =========
     
     Deferred tax assets (liabilities) are comprised of the following:
     
                                                      1998               1997  
                                                   ---------          ----------

     Gross deferred tax liability,
       depreciation                                ($130,000)         ($120,000)
                                                   ---------          ---------
     
     Gross deferred tax assets:
       Bad debt reserves                             115,000            120,000
       Net operating loss carryforward               558,000            394,000
       Tax credits                                    49,000             45,000
       Other                                           8,000              6,000
                                                   ---------          ---------
     
                                                     730,000            565,000
     
     Valuation allowance                             600,000           (445,000)
                                                   ---------          ---------
     
               Net deferred tax assets               130,000            120,000
                                                   ---------          ---------

               Net deferred tax liability          $    --            $    --   
                                                   =========          =========

     The Company has net operating loss and tax credit carryforwards of
     approximately $1,640,000 and $49,000, respectively, expiring through 2013.


                                      F-19
<PAGE>



                     CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


8.   Franchising Information

     The Company operates a chain of its own hair care salons and has granted
     franchises for hair care salons throughout the United States. As of June
     30, 1998, there were 40 Company-owned salons in operation, compared to 44
     at June 30, 1997. The number of franchised salons was 191 and 276 at June
     30, 1998 and 1997. During the year ended June 30, 1998, the Company closed
     4 salons and the cosmetology technical training school. During the year
     ended June 30, 1997, the Company closed 5 salons, sold 1 salon, opened 9
     new salons, and acquired a cosmetology technical training school. The
     Company did not record any initial franchise fees during the year ended
     June 30, 1998 and 1997.

9.   Commitments and Contingencies

     The Company leases office and salon facilities and also leases certain
     equipment under operating leases that expire through 2007. The leases
     provide for minimum annual rentals and, in most cases, for percentage
     rentals based on sales in excess of specified minimum amounts, real estate
     taxes and other expenses. Certain of the leased premises are sublet to
     licensees at rentals equal to those paid by the Company. Certain of the
     leases contain options to renew.

     The following is a schedule of approximate minimum rentals and subrental
     income under non-cancelable operating leases having an initial or remaining
     term of more than one year as of June 30, 1998:

<TABLE>
<CAPTION>
                                                                          Minimum
                                                                        Amounts to be              Net
                                                       Minimum          Received from            Minimum
                                                       Rentals            Subleases               Rentals 
                                                       -------            ---------               ------- 
                 <S>                                  <C>                 <C>                  <C>       
                 Year ending June 30,

                         1999                         $1,809,000          $  901,000           $  908,000
                         2000                          1,416,000             792,000              624,000
                         2001                          1,097,000             672,000              425,000
                         2002                            799,000             507,000              292,000
                         2003                            467,000             317,000              150,000
                      Thereafter                         706,000             605,000              101,000
                                                    ------------        ------------         ------------

                                                      $6,294,000          $3,794,000           $2,500,000
                                                      ==========          ==========           ==========
</TABLE>


                                      F-20
<PAGE>

                    CUTCO INDUSTRIES, INC. AND SUBSIDIAIRES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                       YEARS ENDED JUNE 30, 1998 AND 1997


9.   Commitments and Contingencies (Continued)

     The following is a schedule of approximate rental expense (net of sublease
     rental income) for the years ended June 30, 1998 and 1997:

                                                      1998               1997   
                                                   ----------         ----------
     
     Minimum rentals                               $  984,000         $1,095,000
     Percentage rentals, real estate taxes            195,000            276,000
                                                   ----------         ----------
     
                                                   $1,179,000         $1,371,000
                                                   ==========         ==========
     
10.  Other Income
     
     Other income for 1998 includes the fourth quarter collection of $180,000 of
     past due royalties that were previously written off. 
     
     
11.  Advertising

     Advertising costs were approximately $110,000 and $165,000 for the years
     ended June 30, 1998 and 1997.


                                      F-21

<PAGE>


                                    PART III


Item 9.  Directors, Executive Officers,
         Promoters and Control Persons;
         Compliance with Section 16(a).

     The following list sets forth information as of September 17, 1998, as to
all directors and executive officers of the Company during its 1998 fiscal year:

     MARVIN W. MARCUS, age 73, has been Chairman of the Board of Directors of
the Company since October 1, 1986 and Vice President-Financial Planning since
May 1984. Mr. Marcus has also been a director of the Company since 1970. From
1970 until April 1984, he served as Secretary/Treasurer and Chief Financial
Officer of the Company. In May 1998, Mr. Marcus resumed his duties as Treasurer
and Chief Financial Officer, upon the resignation of Michael P. Kramer from
those positions. He is a certified public accountant and for more than twenty
years has been a principal in the accounting firm of Gettry, Marcus, Stern &
Lehrer, CPA, P.C., formerly known as Gettry, Marcus & Co., located in New York,
New York.

     DON VONLIEBERMANN, age 60, has been President of the Company since October
1, 1986, and a director since 1975. Mr. vonLiebermann had been Vice President,
and thereafter Executive Vice President, of the Company from 1970 until he
became President of the Company. In May 1998, Mr. vonLiebermann assumed certain
of the operational duties previously handled by Mr. Kramer, who resigned in May
1998.

     MICHAEL P. KRAMER, age 53, served as Vice President-Finance and Treasurer
of the Company from May 1984, and as a director of the Company from November
1984, until his resignation as an officer, director and employee of the Company,
effective April 30, 1998.

     JOHN H. DANIELS, age 70, a partner in the Mineola, New York law firm of
John H. Daniels since 1958, served as a director of the Company for more than
five years before his resignation in May 1998. Mr. Daniels is a director and
past president of the Nassau Lawyers Association and owns and manages commercial
real estate in New York State. Mr. Daniels is the brother-in-law of Marvin W.
Marcus.

     RICHARD C. ANTHONY, age 60, currently a private investor and real estate
consultant, served as a director of the Company for more than five years before
his resignation in May 1998. He has served as Executive Vice President of The
Peregrine White Company, Inc., engaged in the real estate business, from 1987 to
1993.

     VINCENT K. DEPIERRO, age 61, an independent publisher sales representative
since April 1995, served as a director of the Company for more than five years
before his resignation in May 1998. From February 1987 through April 1995, he
served as the Associate Publisher of Parents Magazine, Division of Gruner Plus
Jahr.

     IRA H. GOLDBERG, age 61, served as a director of the Company for more than
five years before his resignation in May 1998. Mr. Goldberg is a certified
public accountant and for more than twenty years has been a

                                     III - 1


<PAGE>


principal in the accounting firm of Gettry, Marcus, Stern & Lehrer, CPA, P.C.,
formerly known as Gettry, Marcus & Co., located in New York, New York.  Marvin
W. Marcus is also a principal of such firm.

Compliance with Section 16(a) of the Exchange Act.

     Based solely upon a review of any Forms 3 and 4 and amendments thereto
furnished to the Registrant under Rule 16a-3(d) during its most recent fiscal
year and any Form 5 and amendments thereto furnished to the Registrant with
respect to its most recent fiscal year, and any written representations that no
such Forms 3, 4, 5 or amendments to any of them, was required during the most
recent fiscal year, the Registrant believes that no person who at any time
during the fiscal year was a director, officer, or beneficial owner of more than
10% of any class of equity securities of the Registrant, failed to file on a
timely basis reports required by Section 16(a) during the most recent fiscal
year or prior years.

Item 10. Executive Compensation.

     The following table shows information regarding compensation for services
rendered in all capacities to the Company and its subsidiaries during the fiscal
years ended June 30, 1996, 1997 and 1998, to the three (3) highest paid persons
who are, or at some point during the fiscal year ended June 30, 1998 were,
officers or directors of the Company (being the only such persons whose
aggregate annual compensation exceeds $100,000). A fee of $500 per meeting is
paid to non-employee members of the Board for attendance in person at Board
meetings.


                           Summary Compensation Table
                           --------------------------

                                                      Securities
      Name and                         Salary ($)     Underlying   Other Compen-
Principal Position            Year      (1)(2)       Option Grant     sation   
------------------            ----      ------       ------------     ------   
Don vonLiebermann,            1998      202,000            --           (3)
President                     1997      202,000            --           (3)
                              1996      202,000          20,000         (3)
                                                     
Marvin W. Marcus,             1998      184,500            --           (3)
Chairman of the Board         1997      184,500            --           (3)
and Treasurer                 1996      184,500          20,000         (3)
                                                     
Michael P. Kramer             1998      143,573            --           (3)
Vice President -              1997      143,573            --           (3)
Finance                       1996      143,573          20,000         (3)
                                                  
----------
(1)  The current annual salary for each of Messrs. Marcus and vonLiebermann is
     $184,500 and $202,000, respectively. Mr. Kramer resigned as an officer,
     director and employee of the Company effective April 30, 1998. Mr. Kramer
     and the Company entered into a severance agreement in connection with his
     resignation. The terms of the severance agreement obligate the Company to
     pay to Mr. Kramer his salary for the months of May and June, 1998, as well
     as that portion of fiscal 1999 that

                                     III - 2


<PAGE>

     commences July 1, 1998 and ends December 31, 1998. The amount of salary set
     forth above for Mr. Kramer for fiscal 1998 includes that portion of the
     severance payments that were due and paid for periods during fiscal 1998.
     (See Employment Agreements, below, for information concerning deferrals by
     Messrs. Marcus and vonLiebermann with respect to salary increases.)

(2)  Does not include $32,400, $32,400 or $32,400 paid to the accounting firm of
     Gettry, Marcus, Stern & Lehrer, CPA, P.C. (formerly known as Gettry, Marcus
     & Co.), in which Mr. Marcus is a principal, for services rendered by the
     firm during the fiscal years ended June 30, 1998, 1997 and 1996,
     respectively, in the preparation of federal, state and local tax returns
     and performance of other accounting services for the Company and its
     subsidiaries, inclusive of disbursements.

(3)  The Company provided and maintained automobiles for use by Marvin W.
     Marcus, Don vonLiebermann and Michael P. Kramer in connection with Company
     business during each of fiscal years 1996, 1997 and 1998. The aggregate
     annual cost to the Company for these automobiles in each year was
     approximately $48,000. To the extent these automobiles were used for other
     than Company business, the cost of rental and maintenance may be considered
     compensation to the above-named individuals. No value for personal use of
     automobiles by such individuals has been included in the aggregate
     remuneration table set forth above.

Employment Agreements

     Each of Messrs. Marcus, vonLiebermann and Kramer entered into an Employment
Agreement with the Company dated April 24, 1991, each of which has been amended
from time to time. Mr. Kramer's employment agreement, which had most recently
been amended on June 16, 1997 by written agreement, terminated effective April
30, 1998. The employment agreements of Messrs. Marcus and vonLiebermann were
most recently amended on July 27, 1998 by written agreement. Each of the
Employment Agreements for Messrs. Marcus and vonLiebermann is now scheduled to
expire on July 31, 1999. Those Employment Agreements provided for initial annual
salaries of $246,582 for both of Messrs. Marcus and vonLiebermann (subject to
cost of living increases during certain years of the terms thereof). Effective
January 1, 1996, pursuant to an oral modification to each of the Employment
Agreements that was made on November 16, 1995 (and subsequently memorialized in
written amendments dated August 14, 1996), each of Messrs. Marcus and
vonLiebermann agreed to reduce the amount of their annual salary, prospectively,
by $75,000 and $40,000, respectively. Prior to such reductions, the adjusted
annual salaries of Messrs. Marcus and vonLiebermann were $222,000 and $222,000,
respectively (which reflected a prior agreed-upon salary reduction). Pursuant to
the August 14, 1996 amendments to the Employment Agreements, the monthly
installments of salary payable to Messrs. Marcus and vonLiebermann were
increased, effective August 1, 1996, by $3,125 and $1,667, respectively, which,
on an annualized basis, represents fifty (50%) percent of the annual reductions
to which each of Messrs. Marcus and vonLiebermann previously had agreed.

     Each of Messrs. Marcus and vonLiebermann had deferred receipt of $55,435 of
annual salary, which amount represents the aggregate of the cost of living
adjustments to which they are entitled for the period from August 1991 through
October 31, 1994. Under prior understandings between the Company and its
executive officers, such deferred salary had accrued interest at a rate equal to
the prime rate offered from time to time by the Company's primary

                                     III - 3


<PAGE>


bank lender. Such deferred salary with interest would have been payable upon the
termination of the deferring party's employment with the Company. The Company
and Messrs. Marcus and vonLiebermann agreed that, effective January 1, 1996, all
interest would cease to accrue on such deferred compensation, and each of
Messrs. Marcus and vonLiebermann would receive such deferred compensation,
together with previously accrued interest, for an aggregate amount of $65,628
owing to each of them, in twelve (12) consecutive equal monthly installments of
$5,469 each, the first of which was paid by the Company on January 31, 1996 and
the last of which was paid in January 1997.

     The Employment Agreements contain customary provisions for benefits
(including retirement and severance payments), reimbursement of expenses,
disability, non-disclosure and non-competition. Under the January 1, 1996
amendments to the Employment Agreements, each of Messrs. Marcus and
vonLiebermann agreed to terminate, effective January 1, 1996, his rights, under
his respective Employment Agreement, to (i) terminate the Employment Agreement
in the event of a change in control of the Company (as defined in the Employment
Agreement), unless he is offered continued employment pursuant to a written
employment agreement on terms and at a compensation level at least as favorable
to him as those set forth in Employment Agreement, (ii) receive, in the event of
such a termination by reason of a change in control of the Company, a lump sum
severance payment from the Company in an amount equal to 2.99 times the
employee's average annual compensation over the five taxable years preceding the
year in which the change of control occurs, and (iii) continued medical
insurance coverage under the Company's existing policies (to the extent that the
value thereof is not deemed income to the employee under the Internal Revenue
Code of 1986, as amended), for a period of three years after termination of
employment. Those waivers of rights, effective January 1, 1996, were
memorialized in the August 14, 1996 amendments to the Employment Agreements.
Neither Mr. Marcus nor Mr. vonLiebermann is entitled to any vested pension
benefits.

Stock Option Plans

     The Company had a stock option plan for officers, directors and employees
of the Company and its subsidiaries that was adopted on October 16, 1987 (the
"1987 Plan"). Since September 30, 1997, options may no longer be granted under
the 1987 Plan. The Company also has a stock option plan for officers, directors
and employees of the Company and its subsidiaries that was adopted on November
15, 1990 (the "1990 Plan").

     Options granted under the 1990 Plan to employees may be either incentive
stock options or non-qualified stock options at the discretion of the Board.
Options granted under the 1990 Plan to non-employee directors must be
non-qualified stock options. Non-qualified stock options are not intended to
qualify for incentive stock option plan treatment.

     The 1990 Plan gives sole discretion to the Board to grant options to
purchase the Company's Common Shares at not less than the market value of the
shares on the date of grant. Options granted under the 1990 Plan must expire no
later than ten years (five years, if the grantee is a director or holder of 10%
of the voting stock of the Company), after the date of grant.

     During fiscal 1998, no options were exercised under any of the Plans.
During fiscal 1998, no options to acquire shares of the Company's Stock
previously granted under the Plans expired. Furthermore, during fiscal


                                     III - 4


<PAGE>


1998, no options to purchase shares were granted under the 1987 Plan, and no
options to purchase shares were granted under the 1990 Plan.

     As of June 30, 1998, there were 60,000 shares available as the subject of
options to purchase under the 1990 Plan.

Item 11. Security Ownership of Management and Certain Security Holders.

Voting Securities.

     The following table sets forth information at September 17, 1998 concerning
ownership of the Company's Common Shares by (i) the two (2) highest paid persons
who are officers and directors of the Company (at September 17, 1998, there were
only two executive officers and directors), (ii) all officers and directors of
the Company, as a group, and (iii) each person who owns of record, or is known
to the Company to own beneficially, more than 10% of the Company's Common
Shares.

 Name and Address             Amount and Nature of            Percent
of Beneficial Owner           Beneficial Ownership(1)         of Class
-------------------           -----------------------         --------
                      Sole Voting and    Shared Voting and
                      Investment Power   Investment Power 
                      ----------------   ---------------- 

Marvin W. Marcus            - 0 -            338,713(2)        39.5%
 P.O. Box 265
 Jericho, New York

Don vonLiebermann           - 0 -            338,713(2)        39.5%
 P.O. Box 265
 Jericho, New York

Cutco Acquisition Corp.     - 0 -            106,200           13.2%
 2401 PGA Boulevard
 Palm Beach Gardens, FL

All officers and
  directors as a group
  (2 persons)               - 0 -            338,713(2)        39.5%

----------
(1)  Each named person or group is deemed to be the beneficial owner of
     securities that may be acquired within sixty days through the exercise of
     options, warrants and rights, if any, and such securities are deemed to be
     outstanding for the purpose of computing the percentage of the class
     beneficially owned by such person or group. Such securi ties are not deemed
     to be outstanding for the purpose of computing the percentage of the class
     beneficially owned by any other person or group. Accordingly, the indicated
     number of shares includes shares issuable upon exercise of options
     (including employee stock options) held by such person or group.

(2)  Messrs. Marcus and vonLiebermann entered into an agreement pursuant to
     which they agreed to vote all of the shares owned by either of them upon
     mutual agreement with respect to matters relating to an

                                    III - 5

<PAGE>

     acquisition of the Company. Accordingly, this number includes 166,866
     shares owned by Mr. vonLiebermann individually and 117,241 shares owned by
     Mr. Marcus individually. Also includes 26,000 Common Shares and 26,000
     Common Shares issuable upon exercise of currently exercisable options held
     by Messrs. vonLiebermann and Marcus, respectively. Also includes 1,000
     shares, representing Mr. Marcus' pro rata portion of shares owned by a
     partnership in which Mr. Marcus is a partner. Also includes an aggregate of
     606 shares held by Mr. vonLiebermann as custodian for his children in which
     he has voting and investment power, but no present economic interest. Mr.
     vonLiebermann disclaims beneficial ownership of these shares. Includes
     1,000 shares owned directly or indirectly by Mr. Marcus' wife but does not
     include 3,400 shares owned by Mr. Marcus' adult children or 29,234 shares
     owned by other relatives of Mr. Marcus, in all of which shares Mr. Marcus
     has no present economic interest or voting power and as to which he
     disclaims beneficial ownership.

Fiscal Year End Option Values

     The following table sets forth information at the 1998 fiscal year end,
concerning the number of securities underlying unexercised options held by the
executive officers and directors of the Company identified in the Summary
Compensation Table:

                                     Number of Securities
                                    Underlying Unexercised
Name of Holder                Options/SARs at Fiscal Year End (#)
--------------                -----------------------------------
                               Exercisable           Unexercisable
                               -----------           -------------

Marvin W. Marcus                 26,000                   0

Don vonLiebermann                26,000                   0

Item 12. Certain Relationships and Related Transactions

     See footnote (3) of the aggregate annual remuneration table under
"Aggregate Annual Remuneration," for a discussion of amounts paid by the Company
during fiscal 1997 to Gettry, Marcus, Stern & Lehrer, CPA, P.C., a New York City
accounting firm in which Mr. Marcus, a shareholder, director and executive
officer of the Company, and Mr. Goldberg, formerly a director of the Company,
are partners.

     With respect to the fees paid by the Company for services, as described in
the preceding paragraph, Management believes that such fees are substantially
comparable to the fees that would have been paid to unaffiliated parties
providing such services to the Company.




                                     III - 6


<PAGE>


Item 13. Exhibits, List and Reports on Form 8-K.

     (a) Index to Exhibits.                                             

                                                                            Page
                                                                            ----
(3)       The Registrant's Restated Certificate of
          Incorporation is incorporated by reference to
          Exhibit 3(a) to the Registrant's Registration
          Statement on Form S-1 filed on October 25, 1968
          (File No. 2-30569).                                                N/A

(3.1)     A Certificate of Amendment to the Registrant's
          Certificate of Incorporation, dated October 26,
          1981, is incorporated by reference to Exhibit 3.1
          to the Registrant's Annual Report on Form 10-K for
          its 1982 fiscal year.                                              N/A

(3.1.1)   A Certificate of Amendment to the Registrant's
          Certificate of Incorporation, dated December 6,
          1983, is incorporated by reference to Exhibit 3 to
          the Registrant's Quarterly Report on Form 10-Q for
          the quarter ended December 31, 1983.                               N/A

(3.1.2)   A Certificate of Amendment to the Registrant's
          Certificate of Incorporation, dated December 21,
          1987 is incorporated by reference to Exhibit 3.1.2
          to the Registrant's Annual Report on Form 10-K for
          its 1988 fiscal year.                                              N/A

(3.1.3)   A Certificate of Change to the Registrant's
          Certificate of Incorporation, dated November 10,
          1993, is incorporated by reference to Exhibit 3(i)
          to the Registrant's Quarterly Report on Form
          10-QSB for the quarter ended March 31, 1994.                       N/A

(3.1.4)   Certificate of Merger of CutCo Holdings Corp. into
          the Registrant dated June 11, 1987 is incorporated
          by reference to Exhibit 3.1.3 to the Registrant's
          Annual Report on Form 10-K for its 1987 fiscal
          year.                                                              N/A

(3.1.5)   Agreement and Plan of Merger dated December 30,
          1986 by and among the Registrant, CutCo Holdings
          Corp. and CutCo Merger Corp. is incorporated by
          reference to Exhibit 3.1.4 to the Registrant's
          Annual Report on Form 10-K for its 1987 fiscal
          year.                                                              N/A


                                III - 7


<PAGE>


Exhibits (Continued)                                                       Page
                                                                           ----

(3.2)     The Registrant's By-laws, as amended to date are
          incorporated by reference to Exhibit 3.1.3 to the
          Registrant's Annual Report on Form 10-K for its
          1990 fiscal year.                                                  N/A

(10.1)    The Registrant's form of franchise agreement for
          use in the United States is incorporated by
          reference to Exhibit 10.1 to the Registrant's
          Annual Report on Form 10-KSB for the 1995 fiscal
          year.                                                              N/A


(10.2.1)* The Registrant's 1987 Stock Option Plan is
          incorporated by reference to Exhibit B to the
          Registrant's Proxy Statement dated October 23,
          1987, and mailed to shareholders on or about that
          date in connection with the Registrant's annual
          meeting of shareholders held on December 3, 1987.                  N/A

(10.2.2)* The Registrant's 1990 Stock Option Plan is
          incorporated by reference to Exhibit A to the
          Registrant's Proxy Statement dated December 3,
          1990, and mailed to shareholders on or about that
          date in connection with the Registrant's annual
          meeting of shareholders held on January 11, 1991.                  N/A

(10.3)    Asset Purchase Agreement between Four Star Pizza
          Franchising Corporation ("Franchising") and
          Rolling Winds Corporation, dated November 11,
          1993, is incorporated by reference to Exhibit 10.1
          to the Registrant's current Report on Form 8-K for
          an Event of November 11, 1993 ("November 1993 Form
          8-K").                                                             N/A

(10.3.1)  Management's Master License Agreement with Rolling
          Winds Corporation, dated as of November 11, 1993,
          is incorporated by reference to Exhibit 10.3 to
          the Registrant's November 1993 Form 8-K.                           N/A

(10.3.2)  Sale Agreement for sale of "Four Star" Licensing
          rights.                                                            E-1

(10.4)*   Employment Agreement dated as of April 24, 1991
          between the Registrant and Marvin W. Marcus, as
          amended by letter dated May 15, 1992 is
          incorporated by reference to Exhibit 10.9 to the
          Registrant's Annual Report on Form 10-K for the
          1992 fiscal year.                                                  N/A


                                III - 8


<PAGE>


Exhibits (Continued)                                                       Page
                                                                           ----

(10.4.1)* Employment Agreement dated as of April 24, 1991
          between the Registrant and Don vonLiebermann, as
          amended by letter dated May 15, 1992 is
          incorporated by reference to Exhibit 10.9.1 to the
          Registrant's Annual Report on Form 10-K for the
          1992 fiscal year.                                                  N/A

(10.4.2)* Employment Agreement dated as of April 24, 1991,
          between the Registrant and Michael Kramer, as
          amended by letter dated May 15, 1992, is
          incorporated by reference to Exhibit 10.9.2 to the
          Registrant's Annual Report on Form 10-K for the
          1992 fiscal year.                                                  N/A

(10.5)*   Letter agreement dated June 22, 1994, amending
          Employment Agreement dated as of April 24, 1991
          between the Registrant and Marvin W. Marcus, is
          incorporated by reference to Exhibit 10.6 to the
          Registrant's Annual Report on Form 10-K for the
          1994 fiscal year.                                                  N/A

(10.5.1)* Letter agreement dated June 22, 1994, amending
          Employment Agreement dated as of April 24, 1991
          between the Registrant and Don vonLiebermann, is
          incorporated by reference to Exhibit 10.6.1 to the
          Registrant's Annual Report on Form 10-K for the
          1994 fiscal year.                                                  N/A

(10.5.2)* Letter Agreement dated June 22, 1994, amending
          Employment Agreement as of April 24, 1991 between
          the Registrant and Michael Kramer, is incorporated
          by reference to Exhibit 10.6.2 to the Registrant's
          Annual Report on Form 10-KSB for the 1994 fiscal
          year.                                                              N/A

(10.6)*   Letter agreement dated as of August 14, 1996,
          amending Employment Agreement dated as of April
          24, 1991 between the Registrant and Marvin W.
          Marcus.                                                            N/A

(10.6.1)* Letter agreement dated as of August 14, 1996,
          amending Employment Agreement dated as of April
          24, 1991 between the Registrant and Don
          vonLiebermann.                                                     N/A

(10.6.2)* Letter agreement dated as of August 14, 1996,
          amending Employment Agreement dated as of April
          24, 1991 between the Registrant and Michael
          Kramer.                                                            N/A


                                III - 9


<PAGE>


Exhibits (Continued)                                                        Page
                                                                            ----

(10.7)*   Letter agreement dated as of July 27, 1998,
          amending Employment Agreement dated as of April
          24, 1991 between the Registrant and Marvin W.
          Marcus.                                                            E-5

(10.7.1)* Letter agreement dated as of July 27, 1998,
          amending Employment Agreement dated as of April
          24, 1991 between the Registrant and Don
          vonLiebermann.                                                     E-6

(10.7.2)* Severance agreement dated as of April 24, 1998,
          between the Registrant and Michael Kramer.                         E-7

(21)      Subsidiaries of the Registrant.                                   E-14

(23)      Consent of Independent Certified Public
          Accountants.                                                      E-15


          (b) Reports on Form 8-K.

          The following two Reports on Form 8-K were filed
          by Registrant during the last quarter of the
          fiscal year covered by this Report. Neither of the
          Reports for a Current Event included financial
          statements.

          1.   Report on Form 8-K/A for an event of June 10,
               1998 (change of auditors)

          2.   Report on Form 8-K for an Event of March 31,
               1998 (NASDAQ delisting)

-------
*    Denotes management contract or compensatory plan or arrangement.


                                    III - 10


<PAGE>


                                   SIGNATURES

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


                                           CUTCO INDUSTRIES, INC.

                                           By:   s/ Don vonLiebermann       
                                                 -------------------------------
                                                    Don vonLiebermann,
                                                   President and Director
Dated:  October 13, 1998


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

       Title                  Name and Signature             Date

Chairman of the Board,
 Treasurer and
 Principal Financial
 Officer and Principal
 Accounting Officer        /s/ Marvin W. Marcus         October 13, 1998
                        --------------------------
                           (Marvin W. Marcus)
President, Chief
  Executive Officer,
  Director                 /s/ Don vonLiebermann        October 13, 1998
                        --------------------------
                            (Don vonLiebermann)