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 September 30, 1996          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)


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 September 30, 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 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       

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
          June 30, 1996 and December 31, 1995                    3

          Condensed Consolidated Statement of Income   
          Three Months Ended June 30, 1996 and
          June 30, 1995                                          6

          Condensed Consolidated Statement of Income --
          Six Months Ended June 30, 1996 and
          June 30, 1995                                          7
     
          Condensed Consolidated Statement of Cash
          Flows   Six Months Ended June 30, 1996 and
          June 30, 1995                                          8

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                    9

PART II.  OTHER INFORMATION                                      11


          Signatures                                             11


                                                                           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 relation
to the consolidated balance sheets from which it has been derived.

<TABLE>
<CAPTION>
                                                                Pro Forma
                                                June 30,       December 31,
                                                1996 (1)         1995 (1)
                                               ----------     -------------
<S>                                           <C>            <C>
Current Assets:
     Cash                                      $   17,842     $      73,782
     Financing Contract Receivables
          Current Portion                       3,976,056         4,456,621
     Inventories                                1,024,090         1,026,491
Prepaid Expenses and Other                        126,989           219,645
                                               ----------     -------------
          Total Current Assets                  5,144,412         5,776,539

Property and Equipment, net of
 accumulated depreciation of
 $957,020 and $918,472                            210,778           350,869

Financing Contracts Receivable - 
 non current portion                            2,140,953         2,625,230
Deferred Tax Benefits                              60,152            60,152
Other Assets                                       69,428            61,420
                                               ----------     -------------
                                               $7,726,288     $   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                          $   680,143    $      795,324
     Accrued Expenses                              342,671           238,317
     Current maturities of long
      term debt                                  7,232,642         7,678,870
                                               -----------    --------------
          Total Current Liabilities              8,255,456         8,712,511

Long-term debt, less current maturities            344,442           286,828
                                               -----------    --------------
                                                 8,599,898         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 June 30, 1996 
     and 14,342,151 shares issued 
     and outstanding at December 
     31, 1995                                      143,521           143,521

Additional Paid in Capital                          58,446            58,446
Accumulated Loss                                (2,203,947)       (1,455,466)
                                                -----------     -------------
                                                (2,001,980)       (1,253,499)
                                                -----------     -------------
                                                $7,726,288        $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 consoli-
dated 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 reorgani-
zation, 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 re-
flects all adjustments which, in the opinion of management, are necessary for a 
fair statement of the results of operations for the periods presented.  Opera-
ting results for the three month period ended June 30, 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
                                           June 30,            June 30,
                                             1996                1995
                                         ------------        ------------
                                         (unaudited)         (unaudited)
<S>                                     <C>                 <C>
Net Sales                                $1,117,109          $1,486,088
Cost of Sales                               793,394             778,396
                                         ------------        ------------
Gross Profit                                323,715             707,692

Financing Income                            477,916             581,337
                                         ------------        ------------
                                            801,631           1,289,029
Selling, General and Administrative 
  Expenses                                  801,631           1,104,989
                                         ------------        ------------
Operating Income                           (170,910)            184,040

Interest Expense                            235,866             228,001

Net Income/(Loss)                        $ (406,776)         $  (43,961)
                                         ------------        ------------

Loss per Common Share                        (0.028)(1)          (0.003)(1)
                                         ------------        ------------

Weighted Average Common Shares           14,352,151          14,352,151
                                         ------------        ------------
</TABLE>
                                                                  6
<PAGE>
     CONSOLIDATED CONDENSED STATEMENT OF INCOME

     The interim consolidated condensed statement of income contained herein 
reflects 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 six month period ended June 30, 1996 are not neces-
sarily indicative of the results that may be expected for the year ended 
December 31, 1996.

<TABLE>
<CAPTION>
                                          For the Six Months Ended
                                        June 30,            June 30,
                                          1996                1995
                                      ------------        ------------
                                       (unaudited)         (unaudited)
<S>                                  <C>                 <C>
Net Sales                             $  1,950,073        $  2,692,974
Cost of Sales                            1,339,549           1,503,155
                                      ------------        ------------
Gross Profit                               610,524           1,189,819

Financing Income                           989,238           1,195,707
                                      ------------        ------------
                                         1,599,762           2,385,528
Selling, General and Administrative 
  Expenses                               1,896,031           2,101,918
                                      ------------        ------------
Operating Income                          (296,269)            283,610

Interest Expense                           452,212             458,541

Net Income/(Loss)                     $   (748,481)       $   (174,931)
                                      ------------        ------------

Loss per Common Share                        (0.05)(1)           (0.01)(1)
                                      ------------        ------------

Weighted Average Common Shares          14,352,151          14,352,151
                                      ------------        ------------
</TABLE>
                                                                  7
<PAGE>
         CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
                                
<TABLE>
<CAPTION>
                                           For the Six Months Ended
                                         June 30,            June 30,
                                           1996                1995
                                       ------------        ------------
                                       (unaudited)         (unaudited)
<S>                                   <C>                 <C>
Cash flow provided by (used in) 
  operating activities:
     Net income/(loss)                     (748,481)           (174,931)
Adjustments to reconcile net cash 
  provided (used in) operating 
  activities:
     Depreciation and amortization           38,548             126,679
     (Increase)decrease in finance 
       contract receivables                 964,842             163,173
     (Increase)decrease in inventories        2,401             (72,224)
     (Increase)decrease in prepaid 
       expenses                              92,656             (56,282)
     Increase(decrease) in accounts 
       payable                             (115,181)             68,840
     Increase(decrease) in accrued 
       expenses                             104,354             (41,275)
                                       ------------        ------------
     Net cash provided by (used) in
      operating activities                  339,139             576,847
Cash flows (used in) investing 
  activities:
     (Increase)decrease in property and
      equipment                               1,543              (1,509)
     (Increase)decrease in other assets      (8,008)             31,860
                                       ------------        ------------
     Net cash (used in) investing 
       activities                            (6,465)             30,351
Cash flows (used in) financing activities:
     Increase(decrease) in long-term debt  (388,615)             55,535
                                       ------------        ------------
     Net cash (used in) financing 
       activities                          (388,615)             55,535
                                       ------------        ------------
Net Increase in Cash                        (55,941)             99,866
Cash - beginning of period                   73,782             317,723
                                       ------------        ------------
Cash - end of period                         17,842             417,589
                                       ------------        ------------
</TABLE>
                                        8
<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   JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995

     During the six months ended June 30, 1996, ZTY's current assets de-
creased by $631,562,primarily due to a decrease of $480,565 in the current 
portion of finance contract receivables.  The decrease is normal for ZTY due 
to ZTY's inability to purchase inventory, resulting in reduced gross sales.  
Inventories decreased $2,401 from December 31, 1995 to June 30, 1996.  Inven-
tories are typically at the lowest levels at the end of December each year.  
The Company's working capital shortages kept inventory at very low levels 
throughout the first months of 1996.  Management was forced to close the car-
pet store and repair shop during the second quarter due to insufficient inven-
tory.  Cash balances decreased $55,940, primarily due to a $115,181 reduction 
in trade accounts payable.  Current liabilities decreased $457,055, primarily
due to the decrease in accounts payable and due to the $446,228 reduction in 
current maturities in long term debt.  Long term debt increased $57,614 during 
the six month period.

RESULTS OF OPERATIONS   THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1995

     The Company's Statements of Income for the three months ended June 30, 
1996 and the pro forma Statement of Income for June 30, 1995 consist solely 
of operations of ZTY, its wholly owned subsidiary acquired February 28, 1995.

     Net sales for the second fiscal quarter decreased from $1,486,088 in 1995 
to $1,117,109 in 1996, a 25% decrease, while gross profit declined $383,977, a 
54% decrease.  Reduced sales for the quarter was due to ZTY operating two 
fewer stores in 1996 as compared to 1995 and due to difficulties due to sales
discounts to sell aged inventory and liquidation of inventory in the two 
closed stores.

                                        9
<PAGE>

     Financing income for the quarter decreased $103,461 compared to the three 
month period a year earlier, an 18% decrease, primarily due to lower retail 
sales and reduced base of finance contract receivables.  Selling, general and
administrative expenses for the quarter decreased by $132,448 compared to the 
prior year.  The Company had an operating loss of $170,910 for the three 
months ended June 30, 1996 as compared to operating income of $184,040 for the
same period a year earlier.  The operating loss was primarily due to reduced 
sales raised by working capital shortages.

Results in Operations for the Six Months Ended June 30, 1996 Compared to Six 
Months Ended June 30, 1995

     ZTY's sales during the six months ended June 30, 1996 were $1,950,073 
compared to $2,692,974, a decrease of $257,099 (10%).  Gross profit for the six
months decreased $579,295 or 49%.  Financing income decreased $206,469 a 17% 
decrease.  Selling, general and administrative expenses decreased $205,887, a 
10% decrease due to the additional store closings.  The Company reported a 
net loss of $748,481 for the six months ended June 30, 1996 as compared to a 
net loss of $174,931 for the six month period a year earlier.

     The Company reported a net operating loss of $170,910 in the quarter com-
pared to a profit of $184,040 for the same period in 1995.  Net loss for the 
quarter was $406,776 compared to a loss of $43,961 a year earlier.

                                        10
<PAGE>

                  PART II   OTHER INFORMATION
                                
                                
     None of the items are applicable.
   
                           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

                                                                11
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