SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

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

For the fiscal year ended June 30, 1997           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 Act:  None

Securities registered under Section 12(g) of the 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.  $9,762,029

State the aggregate market value of the voting 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: $602,340 as of September 8, 1997.

There were 780,625 shares of Common Stock outstanding as of September 8, 1997.

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, 1997

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 8, 1997, the Company
owned and operated 44 and franchised 277 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 has licensed the rights to use the proprietary information and know-how
used in the franchising and operation of the Four Star Pizza business in Arizona
and all states located east of the Mississippi River. The licensee has the right
to extend the terms of its license to additional areas and to purchase the
property that is the subject of that license agreement upon expiration of the
six year license term, for a nominal payment. Prior to such transfer of assets,
the Company, through its subsidiaries, had licensed pizza shops under the "Four
Star" name principally in Western Pennsylvania, West Virginia and Ohio.

Narrative Description of Business

     The Company's principal business is operating hair care salons under two of
its tradenames 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 operates in a 3,000 square foot retail
location at an annual rental of $12,000 under a lease expiring December 31,
1998.

     As of September 8, 1997, the Company owned and operated 30 Haircrafters
salons, 10 Great Ex salons, 3 Freestyle salons, and 1 Natisse


                                      I - 1


<PAGE>



salon in the United States, including salons in California, Florida, Georgia,
Illinois, New Hampshire, New Jersey, Oklahoma, South Carolina and Texas.

     As of September 8, 1997, the Company's franchisees (including
subfranchisees) operated 221 Haircrafters salons, 54 Great Ex salons and 2
Natisse salon 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
1997, 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 8, 1997, 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
quantity 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 three
Company-owned and operated Freestyle salons, all of which are located in
California. In addition, the Company, through a wholly-owned subsidiary,


                                      I - 2


<PAGE>



presently owns and operates one Natisse International salon in Fort Worth,
Texas.

     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.

     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. In November 1993, the Company, through Management Corp.,
transferred 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. 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 is highly competitive, as is the
franchising business generally. 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 1996 or fiscal 1997.

     As of September 8, 1997, the Company employed approximately 350 persons,
including employees of its subsidiaries, approximately 235 of whom are full time
employees.

     The Company does not expect that compliance with federal, state and local
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
44 Company-owned salons in existence at September 8, 1997. 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 46 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.

                   [Balance of page left blank intentionally.]



                                      I - 4


<PAGE>


                                     PART II



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


     (a) The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). 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.
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, 1997            June 30, 1996
                      -------------------         ----------------
                      High            Low         High        Low
 
------------------------------------------------------------------
1st Quarter           2.00            1.32       $1.25       $1.25

2nd Quarter           1.50            1.32       $1.25       $ .75

3rd Quarter           1.50            1.13       $1.38       $ .75

4th Quarter           1.38            1.13       $1.63       $1.38

     (b) As of September 8, 1997, the Company had approximately 269 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 1997 or fiscal 1996.


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

Liquidity and Capital Resources:

     Cash and cash equivalents were $550,840 at June 30, 1997, as compared to
$1,035,395 at June 30, 1996. In addition, the Company had marketable securities
of $499,383 at June 30, 1997, as compared to $565,725 at June 30, 1996. In
fiscal 1997, the primary source of the Company's liquidity and capital resources
was net cash provided by operating activities of $39,000, as compared to
$596,000 in fiscal 1996. In fiscal 1997, the Company had net sales of marketable
securities of $66,000, as compared to net purchases of $298,000 in fiscal 1996.
In fiscal 1997, the Company invested $496,000 to purchase property, plant and
equipment, and cash of $45,000 to acquire a cosmetology technical training
school, as compared to total



                                     II - 1

<PAGE>



expenditures of $287,000 and cash of $15,000 to purchase a salon business,
respectively, in fiscal 1996.

     The Company had a current ratio of 1.87 at June 30, 1997, as compared to
2.22 at June 30, 1996.

     At June 30, 1997, commitments for capital expenditures and other
investments did not exceed $100,000. Such commitments were for acquisition or
construction of salons, salon refurbishing and other investments. The Company
believes its cash resources and liquidity are adequate for its present short and
long-term business requirements.

Results of Operations:

     In fiscal 1997, revenues from Company-owned salon operations decreased by
17.7%, or $1,646,000, over revenues for fiscal 1996. The decrease in revenues
was mainly attributable to a decrease in the average number of Company-owned
salons operating during fiscal 1997. The decrease also reflects the closing in
January 1997 of a high volume salon whose lease was not renewed by the Company.
As of June 30, 1997, there were 44 Company- owned salons, as compared to 41 at
June 30, 1996 and 53 at June 30, 1995. Comparable store sales operating
throughout the entire years ended June 30, 1997 and June 30, 1996 declined by
4.3% in 1997 from 1996. In fiscal 1997, direct costs of Company-owned salons
decreased by 17.3%, or $1,506,000, over such total costs for fiscal 1996. These
variances are largely attributable to costs that fluctuate in direct relation to
sales. During fiscal 1997, the Company opened 9 salons, sold 1 salon, closed 5
salons, and acquired one cosmetology technical training school.

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

     Sales of equipment and products decreased by 9.8% or $21,000 in fiscal
1997, as compared to fiscal 1996. Correspondingly, cost of equipment and
products sold decreased by 10.9% or $19,000, reflecting higher margins. The
decrease in sales is due in part to the decreased number of franchised salons.

     Royalties and service fees decreased by 5.2% or $102,000, in fiscal 1997,
as compared to 1996. 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 and 276
at June 30, 1997). The Company granted two new franchises in fiscal 1994, one in
1995, four in 1996 and one in 1997.

     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 1998, due to increased competition for new
locations, coupled with a longer period from a salon's opening until it achieves
profitable operations.

     Franchise fee income decreased in fiscal 1997 by $162,000, as compared to
fiscal 1996. Franchise fees, which are principally related to the Company's
discontinued New Area Development Program, will continue to decline



                                     II - 2

<PAGE>



as payments to the Company under notes obtained in connection with that Program,
cease at the varying maturities of such notes.

     The number of franchised salons has been steadily decreasing for several
years and management believes that such decreases will continue for the
foreseeable future. It is likely that the downward trend in franchise- related
revenues will continue for as long as the downward trend in the number of
franchised salons continues.

     Inflation has not materially affected the Company's revenues and income
during the past two fiscal years.

     In fiscal 1997, selling, general and administrative expenses decreased by
5.3%, or $135,000, from $2,525,000 in fiscal 1996 to $2,390,000 in fiscal 1997,
due to lower payroll costs.

     There was a decrease in the net loss on sale/abandonment of assets of
$154,000 from fiscal 1996 to fiscal 1997, which is primarily associated with the
closing of 5 salons in fiscal 1997, as compared to the closing of fourteen (14)
salons in fiscal 1996.

     There was an income tax charge of $20,000 in fiscal 1997 on a loss of
$396,000, which consists of $20,000 of state income taxes, net of an increase in
the valuation allowance of $146,000. There was an income tax charge of $8,000 in
fiscal 1996, on a loss of $369,000, which represents $25,000 of state income
taxes, net of a decrease in the valuation allowance of $17,000. 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 1997 and
1996. 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.


Item 7.  Financial Statements.


          (Response begins on next page, numbered F-1.)


Item 8.  Changes in and Disagreements with Accountants.

          Not applicable.


                                     II - 3


<PAGE>



                                 C O N T E N T S


                                                                     Page
                                                                     ----


Report of Independent Certified Public Accountants                    F-2


Financial Statements

      Consolidated Balance Sheets                                     F-3

      Consolidated Statements of Operations                           F-5

      Consolidated Statement of Shareholders' Equity                  F-6

      Consolidated Statements of Cash Flows                           F-7

      Notes to Consolidated Financial Statements                   F-9 - F-21



                                      F-1
<PAGE>


                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS


Board of Directors
    CutCo Industries, Inc.

We  have  audited  the  accompanying   consolidated   balance  sheets  of  CutCo
Industries,  Inc. and Subsidiaries as of June 30, 1997 and 1996, and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
the years 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 audits.

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

In our opinion,  the 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 1996, and the consolidated results
of their operations and their  consolidated  cash flows for the years then ended
in conformity with generally accepted accounting principles.


/s/ GRANT THORNTON LLP

Melville, New York
August 29, 1997


                                      F-2

<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                    June 30,

                                    ASSETS 

                                                          1997           1996
                                                       ----------     ----------

CURRENT ASSETS
    Cash and cash equivalents                          $  550,840     $1,035,395
    Marketable securities                                 499,383        565,725
    Notes and accounts receivable, net                    377,514        426,539
    Merchandise inventory                                 376,797        415,236
    Deferred income taxes                                 120,000        105,000
    Prepaid expenses, taxes and miscellaneous
       receivables                                        131,211        115,015
                                                       ----------     ----------

           Total current assets                         2,055,745      2,662,910


PROPERTY AND EQUIPMENT - AT COST
    Furniture, fixtures and equipment                   2,137,829      2,305,969
    Leasehold improvements                                 95,944        158,230
                                                       ----------     ----------

                                                        2,233,773      2,464,199
    Less accumulated depreciation and
       amortization                                     1,010,791      1,373,794
                                                       ----------     ----------

                                                        1,222,982      1,090,405


OTHER ASSETS
    Notes receivable, noncurrent, net                      78,574        120,898
    Deferred charges and other                            287,639        410,914
    Deposits                                              105,885        116,677
                                                       ----------     ----------

                                                          472,098        648,489
                                                       ----------     ----------

                                                       $3,750,825     $4,401,804
                                                       ==========     ==========


The accompanying notes are an integral part of these statements.


                                       F-3

<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS (continued)

                                    June 30,


                 LIABILITIES AND SHAREHOLDERS' EQUITY 

<TABLE>
<CAPTION>
                                                              1997           1996
                                                          -----------    -----------
<S>                                                       <C>            <C>      
CURRENT LIABILITIES
    Accounts payable and accrued expenses                 $   823,323    $   961,731
    Current portion of long-term debt                         167,558         54,826
    Accrued and withheld taxes, other than
       income taxes                                            75,167        159,303
    Income taxes payable                                       31,453         21,221
                                                          -----------    -----------

         Total current liabilities                          1,097,501      1,197,081

LONG-TERM DEBT                                                  6,860        174,430

DEPOSITS PAYABLE                                               62,499         55,637

DEFERRED INCOME                                                45,709         35,714

DEFERRED INCOME TAXES                                         120,000        105,000

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                                       1,526,227      1,941,913
                                                          -----------    -----------

                                                            5,899,848      6,315,534

    Less common stock held in treasury - at cost           (3,481,592)    (3,481,592)
                                                          -----------    -----------

                                                            2,418,256      2,833,942
                                                          -----------    -----------

                                                          $ 3,750,825    $ 4,401,804
                                                          ===========    ===========
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

                     CutCo Industries, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                               Year ended June 30,

<TABLE>
<CAPTION>
                                                               1997            1996
                                                           ------------    ------------
<S>                                                        <C>             <C>         
Revenues
    Owned retail stores                                    $  7,662,343    $  9,308,571
    Sales of equipment and products                             192,510         213,371
    Royalties and service fees                                1,871,050       1,972,821
    Franchise fee income                                         36,126         197,784
                                                           ------------    ------------

                                                              9,762,029      11,692,547
                                                           ------------    ------------

Costs and expenses
    Direct costs of owned retail stores                       7,202,762       8,708,585
    Cost of equipment and products sold                         156,106         175,190
    Depreciation and amortization                               462,774         573,377
    Selling, general and administrative expenses              2,390,029       2,524,784
    Provision for doubtful accounts and notes receivable         35,000          20,000
                                                           ------------    ------------

                                                             10,246,671      12,001,936
                                                           ------------    ------------

         Loss from operations                                  (484,642)       (309,389)
                                                           ------------    ------------

Other income (loss)
    Interest and dividend income                                 79,215          87,953
    Interest expense                                            (19,323)        (32,158)
    Loss on sale/abandonment of assets                          (45,546)       (199,274)
    Other income, net                                            74,610          83,680
                                                           ------------    ------------

                                                                 88,956         (59,799)
                                                           ------------    ------------

         Loss before income taxes                              (395,686)       (369,188)

Income tax provision                                             20,000           8,000
                                                           ------------    ------------

         NET LOSS                                          $   (415,686)   $   (377,188)
                                                           ============    ============

    Net loss per common share                              $       (.53)   $       (.48)
                                                           ============    ============

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


The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                       Years ended June 30, 1997 and 1996


<TABLE>
<CAPTION>
                         Common stock            Additional                      Treasury stock
                  --------------------------      paid-in       Retained    -------------------------
                     Shares         Amount        capital       earnings      Shares         Amount         Total
                  -----------    -----------    -----------   -----------   -----------   -----------    -----------
<S>                 <C>          <C>            <C>           <C>             <C>         <C>            <C>        
Balance at June
   30, 1995         1,883,706    $   188,371    $ 4,185,250   $ 2,319,101     1,103,081   $(3,481,592)   $ 3,211,130

Net loss                                                         (377,188)                                  (377,188)
                  -----------    -----------    -----------   -----------   -----------   -----------    -----------


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


The accompanying notes are an integral part of this statement.


                                      F-6
<PAGE>

                     CutCo Industries, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                               Year ended June 30,

<TABLE>
<CAPTION>
                                                                        1997         1996
                                                                      ---------    ---------
<S>                                                                   <C>          <C>       
Cash flows from operating activities
    Net loss                                                          $(415,686)   $(377,188)
                                                                      ---------    ---------
    Adjustments to reconcile net loss to net cash
      provided by operating activities
         Depreciation and amortization of property
           and equipment                                                322,837      412,681
         Amortization of intangibles                                    139,937      160,696
         Provision for doubtful accounts and notes
           receivable                                                    35,000       20,000
         Loss on sale and abandonment of
           property and equipment, net                                   45,546      199,274
         Deferred income tax benefit                                                 (17,000)
         Changes in operating assets and liabilities, net of effect
           of acquisitions and disposition
              Notes and accounts receivable                              76,349      317,554
              Merchandise inventory                                      34,409      104,946
              Prepaid expenses, taxes and miscellaneous receivables     (16,196)      64,201
              Deposits and other                                         12,273        6,890
              Accounts payable and accrued expenses                    (138,408)     (35,439)
              Accrued and withheld taxes, other than income taxes       (84,136)     (44,864)
              Income taxes payable                                       10,232      (10,055)
              Deposits payable                                            6,862       (9,223)
              Deferred income                                             9,995     (196,748)
                                                                      ---------    ---------

                                                                        454,700      972,913
                                                                      ---------    ---------

         Net cash provided by operating activities                       39,014      595,725
                                                                      ---------    ---------

Cash flows from investing activities
    Purchases of property, plant and equipment                         (496,484)    (286,987)
    Proceeds from sale of property, plant and equipment                   9,720       34,956
    (Purchase) sale of marketable securities, net                        66,342     (298,139)
    Expenditures for start-up and other deferred costs                   (3,309)      (2,489)
    Payments for businesses acquired                                    (45,000)     (15,000)
                                                                      ---------    ---------

         Net cash used in investing activities                         (468,731)    (567,659)
                                                                      ---------    ---------
</TABLE>



                                      F-7
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                               Year ended June 30,




<TABLE>
<CAPTION>
                                                                  1997           1996
                                                              -----------    -----------
<S>                                                           <C>            <C>         
Cash flows from financing activities
    Principal payments on loans                               $   (54,838)   $   (89,464)
                                                              -----------    -----------

         Net cash used in financing activities                    (54,838)       (89,464)
                                                              -----------    -----------

         NET DECREASE IN CASH AND CASH EQUIVALENTS               (484,555)       (61,398)

 Cash and cash equivalents at beginning of year                 1,035,395      1,096,793
                                                              -----------    -----------

 Cash and cash equivalents at end of year                     $   550,840    $ 1,035,395
                                                              ===========    ===========



 Supplemental  disclosures of cash flow  information:
   Cash paid during the year for:
       Interest                                               $    14,310    $    26,901
       Income taxes                                                23,256         14,171

    Noncash investing and financing activities:
       Notes payable issued in connection with acquisition
          of salons                                                               20,000
       Notes and accounts receivable forgiven in connection
          with acquisition of salons                                              49,960
       Notes and accounts receivable received in connection
          with sale of salons                                      20,000         59,600
</TABLE>



The accompanying notes are an integral part of these statements.



                                      F-8
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             June 30, 1997 and 1996



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CutCo Industries, Inc. and Subsidiaries (the "Company") are primarily
     engaged in the operation and franchising of hair care salons. A summary of
     the significant accounting policies applied in the preparation of the
     accompanying consolidated financial statements follows:

     1.   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.

     2.   Investments in Marketable Securities

          Investments in marketable securities at June 30, 1997, consisting of
          U.S. Treasury Notes due within one year (approximately $450,000) and
          mutual funds (approximately $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, 1997 and 1996,
          fair value approximates cost.

     3.   Merchandise Inventory

          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.

     4.   Property and Equipment

          Property and equipment are stated at cost. Depreciation and
          amortization are provided for in amounts sufficient to relate 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-9
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE A (continued)

     5.   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.

     6.   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.

     7.   Income Taxes

          Deferred income taxes are recognized for temporary differences between
          financial statement 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.

     8.   Net Loss Per Common Share

          Net loss per common share is based upon the weighted average number of
          common shares outstanding during the year. The effect of stock options
          on the calculation of net income per common share was antidilutive in
          1997 and 1996.


                                      F-10
<PAGE>

                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE A (continued)

     9.   Stock-Based Compensation Plans

          The Company maintains two stock option plans, as more fully described
          in Note F 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
          Statement of Financial Accounting Standards No. 123, "Accounting for
          Stock-Based Compensation").

     10.  Statement of Cash Flows

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

     11.  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.

     12.  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 and disclosure of contingent assets and liabilities at
          the date of the financial statements, as well as 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 and the valuation of deferred charges.



                                      F-11
<PAGE>

                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE A (continued)

     13.  Accounting Pronouncements Not Yet Adopted

          In February 1997, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards No. 128, "Earnings Per
          Share," which is effective for financial statements for both interim
          and annual periods ending after December 15, 1997. Early adoption of
          the new standard is not permitted. The standard eliminates primary and
          fully diluted earnings per share and requires presentation of basic
          and diluted earnings per share together with disclosure of how the per
          share amounts were computed. The adoption of this new standard is not
          expected to have a material impact on the disclosure of earnings per
          share in the consolidated financial statements.

NOTE B - ACQUISITIONS

     During fiscal 1997, the Company acquired a cosmetology technical training
     school for $45,000 in cash. The excess cost over fair value of assets
     acquired of $20,000 was recorded in connection with this acquisition.

     During fiscal 1996, the Company acquired one salon from a licensee in
     exchange for $15,000 in cash, the cancellation of $49,960 of accounts and
     notes receivable and the issuance of a $20,000, four-year, 7% promissory
     note payable. The excess cost over the fair value of assets acquired of
     $48,845 was recorded in connection with this acquisition (see Note D).

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

     These acquisitions have been accounted for as purchases, 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 salons were acquired at the beginning of the respective fiscal
     years are not presented as the pro forma results are not materially
     different from those of the Company.



                                      F-12
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE C - NOTES AND ACCOUNTS RECEIVABLE

     Notes and accounts receivable consist of the following:

                                                              June 30,
                                                       -----------------------
                                                         1997           1996
                                                       --------       --------
     
     Notes receivable                                  $315,240       $394,735
     Less noncurrent portion                            172,574        244,898
                                                       --------       --------
     
     Notes receivable, current portion                  142,666        149,837
     Accounts receivable                                493,889        488,606
                                                       --------       --------
     
                                                        636,555        638,443
     Less allowance for doubtful accounts
         and notes                                      259,041        211,904
                                                       --------       --------
     
                                                       $377,514       $426,539
                                                       ========       ========
     
     Notes receivable, noncurrent                      $172,574       $244,898
     Less allowance for doubtful notes                   94,000        124,000
                                                       --------       --------
     
     Notes receivable, noncurrent, net                 $ 78,574       $120,898
                                                       ========       ========
     
     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 1997
     and 1996, the Company recognized $30,626 and $170,034, respectively, of
     franchise fee income relating to the collection of such notes. At June 30,
     1997 and 1996, the franchise fee income relating to the outstanding
     balances of $1,087 and $31,714, respectively, included in notes receivable
     has been deferred.




                                      F-13
<PAGE>

                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE D - DEFERRED CHARGES AND OTHER

     Deferred charges and other consist of the following:

<TABLE>
<CAPTION>
                                                                                                           Amortization
                                                                                                              period
                                                                                June 30,                    (straight-
                                                                      ------------------------------
                                                                         1997               1996           line method)
                                                                      -----------         ----------       ------------

<S>                                                                     <C>               <C>               <C>     
       Deferred costs relating to area distributorships                  $ 11,357          $ 11,357             10 years
       Goodwill                                                            94,470            85,950         10 -15 years
       Intangible assets - licensing rights (a)                           451,841           451,841              6 years
       Noncompetition covenants                                           190,000           190,000              5 years
       Other                                                               33,870           133,493              Various
                                                                         --------          --------

                                                                          781,538           872,641
       Less accumulated amortization                                      493,899           461,727
                                                                         --------          --------

                                                                         $287,639          $410,914
                                                                         ========          ========
</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 is 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 (excluding certain existing licensees) over
          a period of six years.

          The Company believes that the initial proceeds from the sale,
          including the estimated future royalties, will be sufficient to
          recover the value of the Four Star Pizza net assets sold and licensed.
          The initial consideration of $200,000 has been first applied to reduce
          tangible assets sold and then to reduce other intangible assets. The
          remaining asset, principally the master license agreement in the
          amount of $451,841, is being amortized on a straight-line basis over
          its remaining useful life through June 1999. No gain or loss was
          recognized for this transaction.



                                      F-14
<PAGE>

                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE E - LONG-TERM DEBT

     Long-term debt consists of the following:

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

     Promissory notes                        $ 174,418               $229,256
     Less current portion                      167,558                 54,826
                                             ---------               --------

                                             $   6,860               $174,430
                                             =========               ========


     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.

     On September 23, 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.

     Maturities of long-term debt are as follows:

            Year ended June 30,
                     1998                           $167,558
                     1999                              5,439
                     2000                              1,421
                                                    --------

                                                    $174,418
                                                    ========


                                      F-15
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE F - 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
     plans 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 nontransferable 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.

     The following summarizes the changes in options outstanding under the
     Company's stock option plans for the two years ended June 30, 1997:

<TABLE>
<CAPTION>
                                                                                                               Weighted-
                                                                                         Option                 average
                                                                    Number               price                 exercise
                                                                   of shares            per share               price
                                                                   ---------            ---------               -----

<S>                                                                 <C>               <C>                       <C>  
       Outstanding at June 30, 1995                                  31,000           $1.75 -  3.03             $2.82
          Cancelled                                                  (5,000)           1.25 -  2.75              1.95
          Granted                                                   106,000            1.25 -  1.38              1.30
                                                                    -------

       Outstanding at June 30, 1996                                 132,000           $1.25 -  3.03             $1.63
                                                                    =======

       Outstanding at June 30, 1997                                 132,000           $1.25 -  3.03             $1.63
                                                                    =======                                          

       Amounts exercisable at
          June 30, 1997                                             105,000           $1.25 -  3.03             $1.73
                                                                    =======
</TABLE>

     At June 30, 1997 and 1996, the Company had 52,000 shares available for
     grant.

     The following table summarizes information concerning currently outstanding
     and exercisable stock options:

                                                     Weighted-
                                      Number          average         Weighted-
                                    outstanding      remaining         average
                                        and         contractual       exercise
     Range of exercise prices       exercisable    life (months)        price
     ------------------------       -----------    -------------        -----

         $1.25 - $1.375                77,000         101              $1.32

         $2.75 - $3.03                 28,000          75               2.87



                                      F-16
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE F (continued)

     The weighted-average option fair value on the grant date was $.48 for
     options issued during the years ended June 30, 1996 and 1997.

     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
     earnings and earnings per share would be reduced to the pro forma amount
     indicated below for the years ended June 30:

                                                   1996                 1997
                                               ------------          ---------

        Net loss
            As reported                           $(377,188)        $(415,686)
            Pro forma                              (379,726)         (418,224)
        Loss per common share
            As reported                               $(.48)            $(.53)
            Pro forma                                  (.49)             (.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, 1996 and 1997: 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.



                                      F-17
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE G - INCOME TAXES

     The Company and its subsidiaries file a consolidated Federal income tax
     return and separate state and local returns.

     The components of the provision for income taxes are as follows:

                                                     Year ended June 30,
                                                  1997                  1996
                                                  ----                  ----
         Current
            State                               $20,000              $  25,000

         Deferred
             Federal                                                   (17,000)
                                                -------              ---------
 
                                                $20,000              $   8,000
                                                =======              =========

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

                                                        Year ended June 30,
                                                   --------------------------
                                                      1997             1996
                                                   ---------        ---------

     Expected tax benefit                          $(135,000)       $(126,000)
     State and local income taxes, net of
         Federal income tax benefit                   13,000           17,000
     Increase in valuation allowance                 146,000          136,000
     Other                                            (4,000)         (19,000)
                                                   ---------        ---------

     Income tax provision                          $  20,000        $   8,000
                                                   =========        =========



                                      F-18
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE G (continued)

     Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
                                                            1997             1996
                                                          ---------        ---------
     
<S>                                                       <C>              <C>       
     Gross deferred tax liability
         Depreciation                                     $(120,000)       $(105,000)
                                                          ---------        ---------
     
     Gross deferred tax assets
         Deferred compensation expense                                        23,000
         Bad debt reserves                                  120,000          104,000
         Net operating loss carryforward                    394,000          247,000
         Tax credits                                         45,000           23,000
         Other                                                6,000            7,000
                                                          ---------        ---------
     
                                                            565,000          404,000
     
     Valuation allowance                                   (445,000)        (299,000)
                                                          ---------        ---------
     
              Net deferred tax assets                       120,000          105,000
                                                          ---------        ---------
     
              Net deferred tax liability                  $    --          $    --
                                                          =========        =========
</TABLE>
     
     The  Company  has net  operating  loss  and  tax  credit  carryforwards  of
     $1,159,000 and $45,000, respectively, expiring through 2012.

NOTE H - 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, 1997, there were 44 Company-owned salons in operation, compared to 41
     at June 30, 1996. The number of franchised salons at June 30, 1997 was 276,
     compared to 292 at June 30, 1996. During the year ended June 30, 1997, the
     Company closed 5 salons, sold 1 salon, opened 9 new salons and acquired one
     cosmetology technical training school. The Company did not record any
     initial franchise fees during the year ended June 30, 1997 and recorded
     fees relating to two hair care salons during the year ended June 30, 1996.



                                      F-19
<PAGE>

                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE I - COMMITMENTS AND CONTINGENCIES

     1.   The Company leases office and salon facilities and also leases certain
          equipment under operating leases that expire through 2005. 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 noncancellable operating leases having an
          initial or remaining term of more than one year as of June 30, 1997:

<TABLE>
<CAPTION>
                                                                                 Minimum
                                                                                amounts to
                                                                                be received                Net
                                                         Minimum                   from                   minimum
                                                         rentals                 subleases               rentals
                                                         -------                 ---------               -------
     Year ending June 30,
         <S>                                            <C>                     <C>                    <C>       
         1998                                           $2,405,000              $1,128,000             $1,277,000
         1999                                            2,040,000                 963,000              1,077,000
         2000                                            1,429,000                 736,000                693,000
         2001                                            1,097,000                 608,000                489,000
         2002                                              802,000                 511,000                291,000
         Thereafter                                        835,000                 593,000                242,000
                                                        ----------              ----------             ----------

                                                        $8,608,000              $4,539,000             $4,069,000
                                                        ==========              ==========             ==========
</TABLE>


         The  following  is a schedule of  approximate  rental  expense  (net of
         sublease rental income) for the years ended June 30, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                                  1997                    1996
                                                                               ----------              ----------
<S>                                                                            <C>                     <C>       
     Minimum rentals                                                           $1,095,000              $1,265,000
     Percentage rentals, real estate taxes
         and other expenses                                                       276,000                 353,000
                                                                               ----------              ----------

                                                                               $1,371,000              $1,618,000
                                                                               ==========              ==========
</TABLE>


                                      F-20
<PAGE>


                     CutCo Industries, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                             June 30, 1997 and 1996



NOTE I (continued)

     2.   The Company has been named as a defendant in various lawsuits.
          Management believes, after consultation with counsel, that the
          disposition of such litigation will not have a material effect on the
          Company's financial position or results of operations.

     3.   During the year ended June 30, 1990, the Company entered into various
          consulting and noncompetition agreements expiring in 1999, with the
          former principals of two businesses acquired. The agreements provide
          for monthly payments and various fees as defined in the agreements.
          During fiscal 1997 and 1996, approximately $27,000 and $31,000,
          respectively, has been charged to expense for these agreements.


NOTE J - RETIREMENT PLAN

     During the fiscal year ended June 30, 1996, the Company implemented a
     401(k) Plan that is available to substantially all employees, to which the
     Company may elect to contribute to the Plan as determined by the Board of
     Directors. For the year ended June 30, 1997, the Company did not contribute
     to the Plan and contributed approximately $14,000 in the year ended June
     30, 1996.



                                      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 8, 1997, as to
all directors and executive officers of the Company during its 1997 fiscal year:

     MARVIN W. MARCUS, age 72, 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. 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 59, 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.

     MICHAEL P. KRAMER, age 52, has served as Vice President-Finance and
Treasurer of the Company since May 1984 and as a director of the Company since
November 1984.

     JOHN H. DANIELS, age 69, has been a partner in the Mineola, New York law
firm of John H. Daniels since 1958. 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 59, is currently a private investor and real estate
consultant. 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 60, has been an independent publisher sales
representative since April 1995. From February 1987 through April 1995, he
served as the Associate Publisher of Parents Magazine, Division of Gruner Plus
Jahr.

     IRA H. GOLDBERG, age 60, 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. Marvin W. Marcus is also a principal of such firm.

     LOUISE BATES, age 48, has been Secretary of the Company since November
1995. She also has been Executive Assistant to the President of the


                                     III - 1


<PAGE>



Company since 1988.  Previously, from 1984 through 1988, Ms. Bates was CutCo's
Director of Administrative Services.


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, 1995, 1996 and 1997, to the three (3) highest paid persons
who are 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.



                                     III - 2


<PAGE>



                           Summary Compensation Table



                                       Securities
      Name and                  Salary ($)       Underlying        Other Compen-
Principal Position      Year     (2)(3)         Option Grants        sation
------------------      ----     ------         -------------        ------

Don vonLiebermann,      1997     202,000              --                (1)
President               1996     202,000            20,000              (1)
                        1995     240,796              --                (1)

Marvin W. Marcus,       1997     184,500              --                (1)
Chairman of the Board   1996     184,500            20,000              (1)
and Vice President -    1995     240,796              --                (1)
Financial Planning

Michael P. Kramer       1997     143,573              --                (1)
Vice President -        1996     143,573            20,000              (1)
Finance                 1995     155,756              --                (1)


(1)  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 1995, 1996 and 1997. 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.

(2)  The current annual salary for each of Messrs. Marcus, vonLiebermann, and
     Kramer is $184,500, $202,000 and $143,573, respectively. (See Employment
     Agreements, below, for information concerning deferrals by Messrs. Marcus
     and vonLiebermann with respect to salary increases.)

(3)  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, 1997, 1996 and 1995,
     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.



                                     III - 3


<PAGE>



Employment Agreements

     Each of Messrs. Marcus, vonLiebermann and Kramer has entered into an
Employment Agreement with the Company dated April 24, 1991, each of which has
been amended from time to time, as most recently amended on June 16, 1997 by
written agreement. Each of the Employment Agreements is now scheduled to expire
on July 31, 1998. Those Employment Agreements provided for initial annual
salaries of $246,582, $246,582, and $129,162, for Messrs. Marcus, vonLiebermann
and Kramer, respectively (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, vonLiebermann and Kramer agreed to reduce the
amount of their annual salary, prospectively, by $75,000, $40,000 and $25,000,
respectively. Prior to such reductions, the adjusted annual salaries of Messrs.
Marcus, vonLiebermann and Kramer were $222,000, $222,000 and $156,073,
respectively (which, in the case of Messrs. Marcus and vonLiebermann, reflected
a prior agreed-upon salary reduction). Pursuant to the August 14, 1996
amendments to the Employment Agreements, Mr. Kramer's salary was increased,
effective August 1, 1996, by increasing the monthly installments of salary
payable to Mr. Kramer by $1,041.67, which, on an annualized basis, represents
fifty (50%) percent of the $25,000 annual reduction to which Mr Kramer
previously had agreed. Similarly, the monthly installments of salary payable to
Marcus and vonLiebermann were increased, effective August 1, 1996, under those
August 14, 1996 amendments by $3,125 and $1,666.67, 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 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 shall receive such deferred compensation, together with
previously accrued interest, in twelve (12) consecutive equal monthly
installments of $5,469 each, the first of which was paid by the Company on
January 31, 1996. The aggregate of deferred compensation and accrued interest
payable to each of Messrs. Marcus and vonLiebermann prior to payment of that
first installment was $65,628.

     The Employment Agreements contain customary provisions for benefits,
reimbursement of expenses, disability, non-disclosure and non-competition
(except for Mr. Kramer's agreement, which has no non-competition provision).
Under the January 1, 1996 amendments to the Employment Agreements, each of
Messrs. Marcus, VonLiebermann and Kramer 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


                                     III - 4


<PAGE>



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.

Stock Option Plans

     The Company has 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") and 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 each Plan to employees may be either incentive stock
options or non-qualified stock options at the discretion of the Board. Options
granted under each 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.

     Each such 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 each Plan must expire no
later than ten years (five years, if the grant is on or after January 1, 1987
and the grantee is a director or holder of 10% of the voting stock of the
Company), after the date of grant.

     During fiscal 1997, no options were exercised under any of the Plans.
During fiscal 1997, no options to acquire shares of the Company's Stock
previously granted under the Plans expired. Furthermore, during fiscal 1997, 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, 1997, there were 2,000 shares available for option grants
under the 1987 Plan, and 50,000 shares were available as the subject of options
to purchase under the 1990 Plan. No options may be granted under the 1987 Plan
after September 30, 1997.

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

     Voting Securities.

     The following table sets forth information at September 8 1997 concerning
ownership of the Company's Common Shares by (i) the three (3) highest paid
persons who are officers and directors of the Company, (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.


                                     III - 5


<PAGE>




 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)        40.7%
 P.O. Box 265
 Jericho, New York

Don vonLiebermann           - 0 -            338,713(2)        40.7%
 P.O. Box 265
 Jericho, New York

Michael P. Kramer         26,646(3)             - 0 -           3.3%
P.O. Box 265
Jericho, New York

All officers and
  directors as a group
  (8 persons)             39,646(4)          340,913(5)        44.4%


(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 securities 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 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 31,034 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.


                                     III - 6


<PAGE>



(3)  Includes 16,000 Common Shares underlying presently exercisable options, and
     options exercisable within sixty (60) days, owned by Mr. Kramer.

(4)  Includes 2,250, 2,250, 2,250 and 2,250 Common Shares underlying presently
     exercisable options, and options exercisable within sixty (60) days, owned
     by each of Directors Anthony, Daniels, DePierro and Goldberg, respectively.
     Mr. Daniels and his spouse hold 4,000 shares as joint tenants.

(5)  Includes 2,200 Common Shares owned by Mr. Goldberg's wife and father-in-law
     as joint tenants with right of survivorship. Mr. Goldberg holds a
     power-of-attorney to vote those Common Shares, but disclaims beneficial
     ownership thereof.

Fiscal Year End Option Values

     The following table sets forth information at the 1997 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

Michael P. Kramer                16,000                 10,000

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, 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.


                   [Balance of page left blank intentionally]


                                     III - 7


<PAGE>


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

<TABLE>
<CAPTION>
                  (a)      Index to Exhibits.
                                                                                                               Page
                                                                                                               ----
<S>               <C>                                                                                           <C>   
(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

(3.2)             The Registrant's By-laws, as amended to date
                  are incorporated by reference to Exhibit
</TABLE>



                                     III - 8


<PAGE>



<TABLE>
<CAPTION>
Exhibits (Continued)                                                                                           Page
                                                                                                               ----
<S>               <C>                                                                                           <C>
                  3.1.3 to the Registrant's Annual Report on
                  Form 10-K for its 1990 fiscal year.                                                          N/A

(10.1)            [Don Florman to confirm no material changes.]
                  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

(10.4)*           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

(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
</TABLE>


                                     III - 9


<PAGE>



<TABLE>
<CAPTION>
Exhibits (Continued)                                                                                           Page
                                                                                                               ----


<S>               <C>                                                                                           <C>
                  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
</TABLE>


                                    III - 10


<PAGE>



<TABLE>
<CAPTION>
Exhibits (Continued)                                                                                           Page
                                                                                                               ----

<S>               <C>                                                                                           <C>
(10.7)*           Letter agreement dated as of June 16, 1997,
                  amending Employment Agreement dated as of
                  April 24, 1991 between the Registrant and
                  Marvin W. Marcus.                                                                             E-1

(10.7.1)*         Letter agreement dated as of June 16, 1997, amending
                  Employment Agreement dated as of April 24, 1991 between 
                  the Registrant and Don vonLiebermann.                                                         E-2

(10.7.2)*         Letter agreement dated as of June 16, 1997,
                  amending Employment Agreement dated as of
                  April 24, 1991 between the Registrant and
                  Michael Kramer.                                                                               E-3

(21)              Subsidiaries of the Registrant.                                                               E-4

(23)              Consent of Independent Auditors.                                                              E-5
</TABLE>


                  (b) Reports on Form 8-K.

     The Company filed no reports on Form 8-K during its fiscal quarter ended
June 30, 1997.

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


                                    III - 11


<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:  September 24, 1997


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


       Title                  Name and Signature             Date

Chairman of the Board,
 Vice President-Financial
 Planning                  /s/Marvin W. Marcus         September 24, 1997
                           ---------------------
                              (Marvin W. Marcus)
President, Chief
  Executive Officer,
  Director                 /s/Don vonLiebermann        September 24, 1997
                           ---------------------
                            (Don vonLiebermann)
Vice President-Finance
 and Treasurer, Director,
 Principal Financial
 Officer and Principal
 Accounting Officer        /s/Michael Kramer           September 24, 1997
                           ---------------------
                              (Michael Kramer)

Director                   /s/Richard Anthony          September 24, 1997
                           ---------------------
                             (Richard Anthony)

Director                   /s/John Daniels             September 24, 1997
                           ---------------------
                             (John Daniels)

Director                   /s/Ira Goldberg             September 24, 1997
                           ---------------------
                             (Ira H. Goldberg)

Director                                               September __, 1997
                           ----------------------
                             (Vincent K. DePierro)


                                    III - 12