SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997 Commission File Number 0-12977
PEGASUS INDUSTRIES, INC.
_________________________________________________
(Exact name of registrant as specified in charter)
Nevada 95-3599648
_____________________________ _______________________________________
(State or other jurisdiction) (I.R.S. Employer Identification Number)
400 N. St. Paul, Suite 950, Dallas, TX 75201
____________________________________________
(Address of principal executive offices)
(214) 520-8300
___________________________
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the re-
gistrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
As of September 30, 1997, there were 14,343,091 shares of Common Stock out-
standing.
1
PEGASUS INDUSTRIES, INC.
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial
Statements 3
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statement of
Income - Three Months Ended September 30, 1997
and September 30, 1996 6
Condensed Consolidated Statement of
Income - Nine Months Ended September 30, 1997
and September 30, 1996 6
Condensed Consolidated Statement of
Cash Flows - Nine Months Ended
September 30, 1997 and September 30, 1996 8
Item 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
2
PART I
ITEM I. PEGASUS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
In the opinion of management, the information set forth in the Condensed
Consolidated Balance Sheets is fairly stated in all material aspects in rela-
tion to the consolidated balance sheets from which it has been derived.
The Condensed Consolidated Balance Sheets as of September 30, 1997 reflect
the Company's liquidation of its wholly owned subsidiary Zearl T. Young, Incor-
porated ("ZTY"). The liquidation is reflected as a loss from discontinued ope-
rations. Management believes that while the unpaid liabilities and preferred
stockholders' equity are presented on these financial statements, those lia-
bilities remain solely the obligation of ZTY and are not the responsibility or
obligation of the parent corporation.
September 30, December 31,
1997 1996
(Unaudited) (Unaudited)
_____________ ____________
Current Assets:
Cash $ 48,513 $ 132,162
Financing Contract Receivables
Current Portion - 2,988,990
Inventories - 624,141
Prepaid Expenses and Other - 35,740
_____________ ____________
Total Current Assets 48,513 3,781,033
Property and Equipment, net of
accumulated depreciation of
$1,590 and $1,290 354 274,363
Financing Contracts Receivable -
non current portion - 1,102,395
Other Assets - 60,010
_____________ ____________
$ 48,867 $ 5,217,801
_____________ ____________
The accompanying notes are an integral part of
the Condensed Consolidated Balance Sheets
3
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
(Unaudited) (Unaudited)
______________ ____________
Current Liabilities:
Accounts Payable $ 687,103 $ 557,418
Accrued Expenses 136,931 516,243
Current maturities of long
term debt 4,063,759 6,584,128
______________ ____________
Total Current Liabilities 4,887,793 7,657,789
Long-term debt, less current maturities - -
______________ ____________
4,887,793 7,657,789
Preferred Stockholders' Equity in
Subsidiary 1,128,370 1,128,370
Stockholders' Equity
Common stock, $.01 par value,
50,000,000 shares authorized;
14,343,091 shares issued and
outstanding at September 30, 1997
and 14,343,091 shares issued and
outstanding at December 31, 1996 143,091 143,091
Additional Paid in Capital 58,536 58,536
Accumulated Loss (6,169,263) (3,770,325)
______________ ____________
(5,967,636) (3,568,358)
______________ ____________
48,867 5,217,801
______________ ____________
The accompanying notes are an integral part of
the Condensed Consolidated Financial Statements
4
CONSOLIDATED CONDENSED STATEMENT OF INCOME
The interim consolidated condensed statement of income contained herein
reflect all adjustments which, in the opinion of management, are necessary for
a fair statement of the results of operations for the periods presented. Ope-
rating results for the three month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Operating results of the Company for the period have been adjusted to re-
flect the operation of Zearl T. Young, Incorporated ("ZTY"), its wholly owned
subsidiary as losses from discontinued operations. The Company liquidated the
assets of ZTY under an agreement with its secured lender in the third quarter
of 1997.
For the Three Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
_____________ _____________
Collection Income $ 18,705 $ 25,469
Other Income 5,881 5,829
_____________ _____________
24,856 31,298
Operating Expenses 12,837 19,402
_____________ _____________
Operating Income 11,749 11,896
Interest Expense 4,334 4,634
_____________ _____________
Net Income/(Loss) 7,415 7,262
Loss from Discontinued Operations (1,904,583) (307,887)
_____________ _____________
(1,897,168) (300,625)
_____________ _____________
Income per Common Share
Before Discontinued Operations 0.00 0.00
_____________ _____________
Loss per Common Share from
Discontinued Operations (0.13) (0.07)
_____________ _____________
(0.13) (0.07)
_____________ _____________
Weighted Average Common Shares 14,343,091 14,343,091
_____________ _____________
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
5
CONSOLIDATED CONDENSED STATEMENT OF INCOME
The interim consolidated condensed statement of income contained herein
reflect all adjustments which, in the opinion of management, are necessary
for a fair statement of the results of operations for the periods presented.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Operating results of the Company for the period have been adjusted to re-
flect the operation of Zearl T. Young, Incorporated ("ZTY"), its wholly owned
subsidiary as losses from discontinued operations. The Company liquidated the
assets of ZTY under an agreement with its secured lender in the third quarter
of 1997.
For the Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
_____________ _____________
Financing Income $ 72,654 $ 106,788
Other Income 19,604 18,953
_____________ _____________
92,258 125,740
Operating Expenses 46,717 54,104
Operating Income 45,541 71,636
Interest Expense 12,101 24,526
_____________ _____________
Net Income/(Loss) 33,440 47,110
_____________ _____________
Loss from Discontinued Operations (2,432,378) (1,096,216)
_____________ _____________
(2,398,938) (1,049,106)
Income per Common Share
before Discontinued Operations 0.00 0.00
Loss per Common Share from
Discontinued Operations (0.17) (0.07)
_____________ _____________
(0.17) (0.07)
_____________ _____________
Weighted Average Common Shares 14,343,091 14,343,091
_____________ _____________
The accompanying notes are an integral part of the Condensed Consolidated
Statement of Cash Flow
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The financial statements are adjusted to reflect the liquidation of the
Company's wholly owned subsidiary Zearl T. Young, Incorporated ("ZTY"). ZTY
was liquidated in the third quarter of 1997. The income statements have been
adjusted to restate the results of ZTY's operations in 1997 and 1996 as loss
from discontinued operations to more fully present the Company's operating
results.
(2) Reflects consolidated restated stockholders equity after the effects of
the acquisition of ZTY as if the acquisition had occurred January 1, 1994.
(3) Reflects the preferred stockholders' equity interest in ZTY as a result
of a reorganization in 1994. The preferred stock issued as part of the re-
organization has a $5.00 par value and 5% cumulative dividend. The preferred
stock relates only to the assets of ZTY. The shareholders have no common or
preferred shares in the parent corporation.
7
For the Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
Cash flow provided by (used in)
operating activities:
Net income /(loss) 33,440 47,110
Net loss from discontinued operations (2,432,378) (1,096,216)
Adjustments to reconcile net cash
provided (used in) operating activities:
Depreciation and amortization 300 57,822
(Increase)decrease in finance contract
receivables 4,091,385 1,085,924
(Increase)decrease in inventories 624,141 (32,656)
(Increase)decrease in prepaid expenses 35,740 110,245)
Increase(decrease) in accounts payable 129,685 ( 40,895)
Increase(decrease) in accrued expenses (379,312) 52,853
__________ _________
Net cash provided by (used) in
operating activities 4,501,939 184,187
Cash flows (used in) investing activities:
(Increase)decrease in property and
equipment 273,709 63
(Increase)decrease in other assets 60,010 (8,039)
__________ __________
Net cash (used in) investing activities 333,719 (7,976)
Cash flows (used in) financing activities:
Increase(decrease) in long-term debt (2,520,369) (212,729)
__________ __________
Net cash (used in) financing
activities (2,520,369) (212,729)
__________ __________
Net Increase in Cash (83,644) (36,518)
Cash - beginning of period 132,162 73,782
__________ __________
Cash - end of period 48,513 37,264
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
All financial statements presented herein reflect the operations of the
Company and ZTY, a wholly owned subsidiary of the Company. ZTY was liquidated
in the third quarter of 1997 under a liquidation agreement with ZTY's primary
lender.
Under the agreement, ZTY was to sell the finance contracts receivable to a
third party at a price to be agreed to by ZTY, its lender and a third party
purchaser. On August 5, 1997, ZTY's management completed a sale of the finance
contracts for total consideration of $1,760,698.20 or 48.5% of the face amount
of the contracts. The value received represented 60.49% of the book value of
the accounts resulting in a $1,154,112 loss to the Company as a result of the
sale.
The Company initiated a liquidation of the remaining two stores in July
1997 when the finance contract purchaser had been located. Two public auctions
were conducted on August 23, 1997 and September 7, 1997 netting total proceeds
of $77,225 for ZTY's remaining inventory and equipment. The combined loss for
the quarter recognizing the loss for discontinued operations was $1,904,583.
The operating results have been restated for comparative purposes to
reflect only those operations of the Company reflecting ZTY's liquidation as a
loss from discontinued operations for 1997 and 1996.
The balance sheets for September 30, 1997 reflect approximately $4.7
million in liabilities of ZTY including $3.9 million of secured debt, $686,379
of accounts payable and $132,008 of accrued liabilities. The parent corporation
assumed no responsibility or liability for ZTY's obligations and consequently
management believes these obligations should have no impact on the Company's
ongoing operations.
The $1,128,370 of Preferred Stockholder's Equity also relates directly to
ZTY's preferred stock owned in ZTY, not the parent corporation and,
consequently, should have no impact on the Company's common shareholders.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1997 COMPARED TO
DECEMBER 31, 1996
During the nine months ended September 30, 1997 total assets decreased from
$5,217,801 at December 31, 1996 to $48,867 representing the liquidation of ZTY's
assets.
The remaining operations of the Company reflect continuing collections of
charge off finance
9
contracts purchased from ZTY in October 1995. The Company paid ZTY $300,000 for
the receivables which it financed with a third party lender. As of September
30, 1997 the loan balance had been reduced to $183,302. Cash at September 30,
1997 was $48,513. The Company assigned no value to the receivables purchased
from its subsidiary for financial reporting purposes.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996
Operating results exclude operations of ZTY, the Company's wholly owned
subsidiary, except as reflected as a loss from discontinued operations. The
Company reported revenues of $24,586 for the quarter ended September 30, 1997
compared to $31,298 for the same period the prior year. Operating expenses for
the three month period were $12,837 or $7,565 less than the prior year.
The losses from discontinued operations for ZTY were $1,904,583 for the
three month period ended September 30, 1997 compared to $307,887 for the same
period a year earlier. The losses are due to the liquidation of all assets of
ZTY. ZTY recorded a $1,154,112 loss on the sale of finance contracts in August
1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues for the nine months ended September 30, 1997 were $92,258 as
compared to $125,740 for the year earlier period. The 27% decrease is primarily
due to the closing of ZTY's stores which resulted in a relocation of the
Company's collection office. Operating expenses decreased $7,387 for the same
period.
The Company reported $33,440 net income for the nine months ended September
30, 1997 before the loss from discontinued operations as compared to $47,110 for
the same period the prior year.
The $2,432,378 loss from discontinued operations reflects the liquidation
of ZTY's assets in the third quarter of 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company's wholly owned subsidiary, ZTY, liquidated its assets as part
of a liquidation agreement with its secured lender, Norwest Bank Minnesota, N.A.
After liquidation, ZTY still owed Norwest approximately $3.9 million as a
deficiency. The parent corporation assumed none of the responsibilities or
obligations of ZTY in conjunction with the acquisition or its liquidation.
ZTY continues to be in default under the loan for nonpayment of the
outstanding deficiency.
10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Zearl T. Young, Incorported
Liquidation Agreement.............................................13
Norwest Letter - Sales of Accounts Receivable.....................18
(b) There are no reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 13, 1998.
PEGASUS INDUSTRIES, INC.
By: /s/ Robert W. Schleizer
------------------------------
Robert W. Schleizer, President
11
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 capacities and on the dates indicated.
/s/ Robert W. Schleizer
- -------------------------------
Robert W. Schleizer, President (1)
April 13, 1998
(1) Principal executive officer
12