SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996 Commission File Number 0-12977
PEGASUS INDUSTRIES, INC.
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(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
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(Address of principal executive offices)
(214) 520-8300
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(Registrant's telephone number)
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ---------------------- -------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $0.01 Outstanding as of March 31, 1996
- --------------------------------------- ---------------------------------------
(Title of Class) 14,352,151
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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrants knowledge [in definitive proxy or information state-
ments incorporated by reference in Part III this form 10-K or any amendment
to this form 10-K. [ X ]
<PAGE>
PEGASUS INDUSTRIES, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed consolidated financial statements 3
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statement of Income
Three Months Ended March 31, 1996 and
March 31, 1995 6
Condensed Consolidated Statement of Cash Flows --
Three Months Ended March 31, 1996 and
March 31, 1995 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
2
<PAGE>
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 re-
lation to the consolidated balance sheets from which it has been derived.
<TABLE>
<CAPTION>
Pro Forma
March 31, December 31,
1996 (1) 1995 (1)
----------- ------------
<S> <C> <C>
Current Assets:
Cash $ 69,242 $ 73,782
Financing Contract Receivables
Current Portion 4,137,719 4,456,621
Inventories 949,831 1,026,491
Prepaid Expenses and Other 179,620 219,645
---------- ----------
Total Current Assets 5,336,412 5,776,539
Property and Equipment, net of
accumulated depreciation of
$976,244 and $918,472 337,812 350,869
Financing Contracts Receivable 0
non current portion 2,228,002 2,625,230
Deferred Tax Benefits 60,152 60,152
Other Assets 118,012 61,420
----------- -----------
$8,080,390 $8,874,210
----------- -----------
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Balance Sheets.
3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Pro Forma
March 31, December 31,
1996 (1) 1995 (1)
----------- ------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 901,608 $ 795,324
Accrued Expenses 229,317 238,317
Current maturities of long
term debt 7,126,757 7,678,870
----------- ------------
Total Current Liabilities 8,242,182 8,712,511
Long-term debt, less current maturities 285,042 286,828
------------ ------------
8,547,224 8,999,339
Preferred Stockholders' Equity in
Subsidiary 1,128,370 (2) 1,128,370
Stockholders' Equity
Common stock, $.01 par value,
50,000,000 shares authorized;
14,352,151 shares issued and
outstanding at March 31, 1996 and
14,342,151 shares issued and out-
standing at December 31, 1995 143,521 143,521
Additional Paid in Capital 58,446 58,446
Accumulated Loss (1,797,171) (1,455,466)
------------- -------------
(1,595,204) (1,253,499)
------------- -------------
$8,080,390 $8,874,210
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Balance Sheets.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED BALANCE SHEET
(1) The unaudited condensed consolidated balance sheet represent the con-
solidated assets, liabilities and stockholders' equity of the Company and its
wholly owned subsidiary, Zearl T. Young, Incorporated ("ZTY").
(2) 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.
5
<PAGE>
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 three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Net Sales $ 832,964 $ 1,206,886
Cost of Sales 546,155 724,759
------------ ------------
Gross Profit 286,809 482,127
Financing Income 511,322 614,372
------------ ------------
798,131 1,096,499
Selling, General and
Administrative Expenses 923,490 996,929
------------ ------------
Operating Income (125,359) 99,570
Interest Expense 216,346 230,540
Net Income/(Loss) $ (341,705) $ (130,970)
------------ ------------
Loss per Common Share (0.024)(1) (0.009)(1)
------------ ------------
Weighted Average Common Shares 14,352,151 14,352,151
------------ ------------
</TABLE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flow provided by (used in)
operating activities:
Net income/(loss) (341,705) (130,970)
Adjustments to reconcile net cash
provided (used in) operating
activities:
Depreciation and amortization 13,058 63,139
(Increase)decrease in finance
contract receivables 716,130 650,926
(Increase)decrease in inventories 76,660 12,095
(Increase)decrease in prepaid
expenses 40,025 (26,773)
Increase(decrease) in accounts
payable 110,784 38,556
Increase(decrease) in accrued
expenses (9,000) (30,126)
------------ ------------
Net cash provided by (used) in
operating activities 605,952 576,847
Cash flows (used in) investing
activities:
(Increase)decrease in property
and equipment (56,592) (51,632)
(Increase)decrease in other
assets -0- -0-
------------ ------------
Net cash (used in) investing
activities (56,592) (51,632)
Cash flows (used in) financing
activities:
Increase(decrease) in long-term
debt (553,899) (528,629)
------------ ------------
Net cash (used in) financing
activities (610,492) (528,629)
------------ ------------
Net Increase in Cash (4,540) (3,414)
Cash - beginning of period 73,782 99,759
------------ ------------
Cash - end of period 69,242 96,345
------------ ------------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's business consists of the sale of retail consumer products,
primarily consumer durable goods such as furniture, appliances, carpet and
electronics and the related financing of those purchases with consumer
finance contracts.
Accordingly, the Company experiences the normal cyclical fluctuations of
most retailers with operations during the fourth quarter (October through
December) comprising a disproportionate portion of its annual revenues and
gross profits.
LIQUIDITY AND CAPITAL RESOURCES - MARCH 31, 1996 COMPARED TO DECEMBER 31, 1995
During the three months ended March 31, 1996, ZTY's current assets de-
creased by $440,127 primarily due to a decrease of $318,902 in the current
portion of finance contract receivables. The decrease is due to seasonal
increases in collections on Christmas season purchases during the first
quarter of each year and due to a 31% decrease in first quarter sales in 1996
as compared to 1995. The decrease during the same period for the prior year
was $454,876. Cash balances decreased $4,540 during the quarter.
Current liabilities decreased $470,329 during the three months ended
March 31, 1996. Trade accounts payable increased $106,284 while accrued
expenses decreased $30,126. Current maturities of long term debt decreased
$552,113 which consisted primarily of paydown of debt due to inventory liqui-
dation and reduction in finance contract receivable. ZTY is experiencing
liquidity shortages resulting in extended terms on trade credit.
The entire portion of ZTY's note payable to its primary lender is shown
as a current liability. It matures December 31, 1996. ZTY is currently in
default of its financial covenants which gives the lender the right to ac-
celerate the note at any time.
Long term debt decreased $1,786. Finance contracts receivable decreased
$716,130 and inventory decreased $76,660 during the three months ended March
31, 1996.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1995
The Company's consolidated statements of income and cash flows for the
three months ended March 31, 1996 and 1995 consist of the Company and of ZTY,
its wholly owned subsidiary.
8
<PAGE>
Net retail sales for the quarter ended March 31, 1996 decreased $373,922
or 31% while gross profits decreased $195,318 compared to the same period in
1995. The decrease is primarily due to the Company's working capital short-
ages which severely restricted its ability to purchase inventory. The Com-
pany was able to replace only limited merchandise on primarily COD terms due
to its inability to pay its vendors.
Financing income decreased $103,050 compared to the first quarter in
1996 primarily due to the decrease in outstanding finance contracts.
Selling, general and administrative expenses decreased $73,439 during
this quarter as compared to a year earlier. The decrease was primarily re-
lated to reduced staff resulting from slow sales.
The Company reported an operating loss of $125,359 for the first quarter
of 1996 as compared to a $99,570 operating profit in the first quarter of
1995. The net loss of $341,705 for the first quarter of 1996 compared to a
loss of $130,970 for the first quarter the prior year is due to reduced
sales, low inventories and an inability to further reduce overhead without
closing additional stores.
9
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
The Company filed a report on Form 8-K for the first quarter of 1996 to
report a change in the Company's independent auditors. Pegasus Industries,
Inc. ("Pegasus") has engaged William L. Clancy, CPA, ("Clancy") 4041 North
Central Avenue, Phoenix, Arizona 85011 as the independent accountant for Company
and its subsidiary the fiscal year ended December 31, 1995.
Duane V. Midgley ("Midgley"), CPA was dismissed by Pegasus as of March 12,
1996. Pegasus also dismissed Johnson, Miller & Co. ("Johnson") as the
independent accountant for Pegasus' wholly owned subsidiary Zearl T. Young,
Incorporated ("ZTY") as of March 12, 1996.
2. Midgley opinions during the part two years were unqualified and
included no disclaimers.
The opinions of Johnson were unqualified but included specific language as
to the requirements of ZTY to comply with certain provisions of its Plan of
Reorganization,
The change in accountants for Pegasus was approved by the Company's audit
committee. The change in accountants for ZTY was approved by its Board of
Directors.
4. Management has no disagreements with Midgley or Johnson regarding:
a) Accounting principles of practices
b) Financial statement disclosure
C) Auditing scope or procedure
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 March 6, 1998.
PEGASUS INDUSTRIES, INC.
/s/ Robert W. Schleizer
----------------------------------
By: Robert W. Schleizer, President
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 69,242
<SECURITIES> 0
<RECEIVABLES> 4,137,719
<ALLOWANCES> 0
<INVENTORY> 949,831
<CURRENT-ASSETS> 5,336,412
<PP&E> 337,812
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,080,390
<CURRENT-LIABILITIES> 8,242,182
<BONDS> 0
0
1,128,370
<COMMON> 143,521
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,080,390
<SALES> 832,964
<TOTAL-REVENUES> 832,964
<CGS> 546,155
<TOTAL-COSTS> 546,155
<OTHER-EXPENSES> 923,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,346
<INCOME-PRETAX> (341,705)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (341,705)
<EPS-PRIMARY> (0.024)
<EPS-DILUTED> (0.024)
</TABLE>
