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
<PAGE>
                    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

<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 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.

<TABLE>
<CAPTION>
                             
                                         September 30,       December 31, 
                                         1997                1996
                                         (Unaudited)         (Unaudited)  
                                         _____________       ____________  
<S>                                      <C>                 <C>
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
                                         _____________       ____________
</TABLE>

         The accompanying notes are an integral part of
           the Condensed Consolidated Balance Sheets

                                  3

<PAGE>

              LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                              
                                        September  30,       December 31,
                                        1997                 1996 
                                        (Unaudited)          (Unaudited)   
                                        ______________       ____________
<S>                                     <C>                  <C>
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
                                        ______________       ____________     
</TABLE>

           The accompanying notes are an integral part of
        the Condensed Consolidated Financial Statements

                                      4                                
<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.  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.

<TABLE>
<CAPTION>
                                          For the Three Months Ended
                                       September 30,      September 30, 
                                       1997               1996
                                       (Unaudited)        (Unaudited)    
                                       _____________      _____________   
<S>                                    <C>                <C>
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
                                       _____________      _____________
</TABLE>

The accompanying notes are an integral part of the Condensed Consolidated 
Financial Statements.

                                 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 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.

<TABLE>
<CAPTION>
                                           For the Nine Months Ended
                                        September 30,     September 30,
                                        1997              1996
                                        (Unaudited)       (Unaudited)      
                                        _____________     _____________     
<S>                                     <C>               <C>
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
                                        _____________     _____________
</TABLE>

The accompanying notes are an integral part of the Condensed Consolidated 
Statement of Cash Flow

                                    6
<PAGE>

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                                
                                
<PAGE>

<TABLE>
<CAPTION>
                                               For the Nine Months Ended
                                          September 30,            September 30,
                                          1997                     1996
                                          (Unaudited)              (Unaudited)
<S>                                       <C>                      <C>
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
                                          ==========                  ==========
</TABLE>

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
<PAGE>

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

<PAGE>
                  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                                
<PAGE>

     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
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