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 fiscal year ended December 31, 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)


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
                       ----------------------------
                             (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
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 registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III this form 10-K or any amendment to this 
form 10-K.          [ X ]

<PAGE>


                APPLICABLE ONLY TO REGISTRANTS INVOLVED IN
          BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS


Indicate by check mark whether the Registrant has filed all documents and 
reports required to be filed by Section 12, 13, or 15(d) of the Securities 
Exchange Act of 1934 subsequent to the distribution of securities under a plan 
confirmed by the court.

                         Yes    X      No        

The number of shares of Common Stock outstanding as of December 31, 1997 was 
14,343,091 shares, $0.01 par value.

                                    2
<PAGE>

                    PEGASUS INDUSTRIES, INC.
                                
                             PART I
                                
ITEM 1.  DESCRIPTION OF BUSINESS

Pegasus Industries, Inc., formerly known as Pathfinder Corporation, a Nevada 
corporation (the "Company") is a holding company that, prior to February 1995 
had no operating activities.  As discussed below, the Company made a series of 
acquisitions prior to 1995 which were later rescinded, or alternatively are 
inactive and carried at no value on the Company's financial statements.  In 
February 1995 the Company acquired Zearl T. Young, Incorporated ("ZTY") and
experienced a change in both management and ownership control in connection with
the acquisition.  (See "Acquisition of ZTY" below).

The Company was originally incorporated as a Nevada corporation on November 1968
under the name Helistructures Corporation as a wholly owned subsidiary of 
American International, Inc. (formerly American Mining and Development Company).
In January 1974, the Company changed its name from Helistructures Corporation to
Midas International and in 1982 the name was changed from Midas International, 
Inc. to MII, Inc.

In December 1985 the Company filed for bankruptcy protection under Chapter 11 of
the U.S. Bankruptcy Code in the Central District of California.  In December 
1990, pursuant to the Plan of reorganization of the Company approved by the 
Bankruptcy court, the Company issued 19,454,000 shares of common stock to 
unsecured creditors for cancellation of $1,018,000 in debt.  In August 1990 the 
Company changed its name from MII, Inc. to Pathfinder Corporation.  In 1990 the
Company initiated a reverse stock split whereby all outstanding shares were 
reversed by a factor of 1 for 100 with the stipulation that no shareholder be 
reduced to less than 10 post-split shares.  In connection with this stipulation,
the Company issued 48,576 pre-split common shares.  From 1973 to 1991 the 
Company's activities consisted primarily of the management of its interests in 
various uranium mining claims.

On March 13, 1995 the Company changed its name from Pathfinder Corporation to 
Pegasus Industries, Inc. in connection with the acquisition of ZTY and the 
resulting change of control.  Additionally, the Company's executive offices were
moved to Dallas, Texas as a result of the change in control.

Acquisition and Disposition of Oil and Gas Interest
---------------------------------------------------

n September 1992 the Company acquired certain oil and gas producing properties 
for 699,997 shares of its common stock.  In 1994 the Company rescinded the 
acquisition and cancelled the 699,997 shares of stock it issued due to 
difficulties the Company encountered in obtaining clear title to the oil and gas
properties.

                                       3
<PAGE>

In January 1994, the Company authorized the purchase of an office building 
valued at $700,000 for 700,000 shares of common stock of the Company from 
certain officers and directors of the Company.  In February 1994 the Company 
rescinded the transaction and cancelled all 700,000 shares of stock issued 
related to the purchase. 

Acquisition of Zearl T. Young, Incorporated and Change of Control
-----------------------------------------------------------------

Effective February 28, 1995, the Company acquired 100% of the outstanding common
stock of Zearl T. Young, Incorporated ("ZTY") from Pegasus Ventures, Inc.  
("Ventures"), a privately held Texas corporation, pursuant to a Stock Exchange 
Agreement in exchange for the issuance of 11,500,000 shares of the Company's 
common stock.

In connection with the transaction, Mr. Boudreau and Mr. Schleizer were elected 
to fill two of the three seats of the Company's board of directors.  Kevin 
Chisholm, a certified public accountant in private practice, was elected to fill
the remaining seat.  Mr. Boudreau was subsequently elected by the Company's 
board to fill the positions of Chairman of the Board, President and Secretary of
the Company.  Mr. Schleizer was elected Chief Financial Officer and Treasurer of
the Company.  Mr. Boudreau resigned his position as President and Director 
effective December 31, 1995.  Mr. Chisholm resigned his position as director 
effective the same date.

ZTY liquidated its assets in August and September 1997 under a Liquidation 
Agreement with its primary secured lender.  ZTY closed the remaining stores in 
September 1997 after auctioning off its remaining assets.

The Company purchased certain written off accounts receivable from ZTY in 
October 1995 for $300,000 which ZTY utilized to pay down its indebtedness as 
part of a loan restructuring.  The Company continues to collect those accounts 
as its sole ongoing business activity. 

Environmental Matters
---------------------

Compliance with the applicable federal, state and local environmental 
regulations has not had, and the Company does not believe that in the future 
such compliance will have, a material effect on its financial position, results 
of operations, expenditures or competitive position. 

Competition
-----------

The retail merchandise trade in which ZTY was engaged is highly competitive.  
ZTY was unable to successfully compete due to increased competition from 
discount retailers and small loan companies.  Despite several attempts to 
restructure its indebtedness and raise equity, ZTY ceased operations in 
September 1997. 

                                       4
<PAGE>

The Company continues to collect the accounts purchased in October 1995 from 
ZTY.  Inasmuch as the sole function of the Company is collection of bad debts 
from specific customers, it faces no direct competition.  The Company is 
offering no new financing or products for sale. 

Employees
---------

As of December 31, 1997, ZTY employed 1 person in New Mexico engaged in 
collecting accounts. The Company currently has one employee in Dallas, Texas in 
an executive capacity.


ITEM 2.   DESCRIPTION OF PROPERTY

The Company's headquarters are at 400 N. St. Paul, Suite 950, Dallas, Texas 
75201.    

ZTY owned a 5,500 square foot office building in Hobbs, New Mexico that served 
as its corporate office which it abandoned to the secured lender in September 
1997.


ITEM 3.   LEGAL PROCEEDINGS

The Company is not a party to any material pending litigation.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the fiscal year covered 
by this report to a vote of security holders, through solicitation of proxies or
otherwise.

                                      5
<PAGE>


                            PART II
                                
                                
ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER           
          MATTERS

The Company's Common Stock, $.01 par value ("Common Stock") is traded on an 
interdealer basis under the symbol PIND (formerly "PTHF").  The following table 
set forth the high and low bid price of the Common Stock for the period 
indicated as quoted from the NASDAQ Bulletin Board Listing.

<TABLE>
<CAPTION>
          Fiscal 1997         Low Bid            High Bid
          -----------         -------            --------
          <S>                 <C>                <C>
          1st Quarter             .31                 .31
          2nd Quarter             N/A                N/A
          3rd Quarter             .03                 .03
          4th Quarter             .03                 .03
</TABLE>

<TABLE>
<CAPTION>
          Fiscal 1996         Low Bid            High Bid
          -----------         -------            --------
          <S>                 <C>                <C>
          1st Quarter             .12                 .56
          2nd Quarter             .06                 .06
          3rd Quarter             .06                 .06
          4th Quarter             .07                 .08
</TABLE>

There is an absence of an established public trading market, therefore the 
market forthe Common Stock is limited, sporadic and highly volatile.

Though no dividend restrictions exist relative to the Company's paying cash 
dividends, the Company has never paid cash dividends on its stock and does not 
anticipate doing so in the foreseeable future.  Rather,the Company has 
determined to utilize any earnings in the operation of its business.  Such 
policy is subject to change based on current industry and market conditions, as 
well as other factors beyond the control of the Company.

As of December 31, 1997, there were 6,221 shareholders of record of the Common 
Stock.


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of significant factors 
which have affected registrant's financial position and operations during the 
year ended December 31, 1997 as compared to December 31, 1996.

                                 6
<PAGE>

In September 1997 the Company liquidated the assets of its wholly owned 
subsidiary Zearl T. Young, Inc. ("ZTY") under an agreement with ZTY's secured 
lender.  ZTY ceased operations on September 6, 1997.  Accordingly, the following
discussions of the Company's Consolidated Statement of Operations and Liquidity 
and Capital Resources has been restated for the years ended December 31, 1997 
and December 31, 1996 reflecting the operation of ZTY as a loss from 
discontinued operations.

Results of Operations
---------------------

Financing Income for the year ended December 31, 1997 was $123,006 as compared 
to $162,079 for the prior year.  The 24% decrease is primarily due to the 
business disruption of the store closings of ZTY resulting in loss of employees 
and a move to a new location in Hobbs, New Mexico.

Interest expense decreased from $23,465 to $15,855 for the year due to a 
reduction in the Company's note payable.

Expenses were $64,085 for 1997 as compared to $77,511 for the prior year due to 
reduced staff. Operating Income for 1997 was $43,066 compared to $61,103 for the
earlier year. 

The Company reported a loss from discontinued operations in 1997 of $2,859,234 
which was due primarily to the closing of ZTY's business in September 1997.  The
loss included a $1,154,112 loss on the sale of ZTY's contract finance 
receivables on August 5, 1997.  ZTY sold the portfolio which has a face value of
$3,630,305 and a book value of $2,914,810 for $1,760,698 to World Acceptance
Corp., a company based in North Carolina.  The loss compared to a restated loss 
from discontinued operations of $2,376,722 reflecting ZTY's net operating 
results for 1996.

Liquidity and Capital Resources
-------------------------------

Total Assets for the year ended December 31, 1997 decreased to $37,751 from 
$5,217,801 at December 31, 1996 reflecting the liquidation of substantially all 
of the Company's assets which were held by ZTY.

Total liabilities at December 31, 1997 total $5,296,752 of which $5,165,637 
represent unpaid obligations of ZTY for which the parent corporation is not 
responsible for and is not obligated to pay.  Liabilities of the Company, 
excluding ZTY total $131,115 of which $129,821 represents a note payable by the 
Company to a lender under a term agreement requiring payments of $5,000 per
month increasing to $8,000 per month by December 31, 1998.  The Company is 
current on its obligations at December 31, 1997.

                                         7
<PAGE>

ITEM 7.   FINANCIAL STATEMENTS AND SELECTED FINANCIAL DATA

The following selected financial data of the Company for fiscal years 1997, 1996
and 1995 should be read in conjunction with the financial statements and related
notes included in Item 8 of this Form 10-K.  (See "Financial Statements and 
Notes Thereto").

<TABLE>
<CAPTION>
                                For the Year Ended December 31,
                              1997           1996             1995
                              ----           ----             ----
<S>                           <C>            <C>              <C>
Income Statement Data:

Revenues                         123,006        162,079           57,080
Net Income (Loss)                 40,221         61,863          110,198 
Net Income (Loss) from 
 discontinued operations      (2,859,234)    (2,376,722)      (1,565,664)
Net Income (Loss) per share         (.20)          (.16)            (.10)
Dividends per share             -               -              -

Weighted average shares
   outstanding                14,343,091     14,347,621       14,352,151

Balance Sheet Data:

Total Assets                      37,751      5,217,801        8,874,210
Long Term Debt                       -0-            -0-          286,828
Stockholder's Equity          (6,387,371)    (3,568,358)      (1,253,499)
</TABLE>

See Management's Discussion and Analysis of Financial Condition and Results of 
Operations for financial data for comparable periods.


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTABILITY AND FINANCIAL DISCLOSURE

     The Company has had no changes in or disagreements with its independent 
auditors during the fiscal year ended December 31, 1997.

ITEM 9.   DIRECTORS AND OFFICERS OF THE REGISTRANT

As of December 31, 1997, following were the directors and officers of the 
Company:

<TABLE>
<CAPTION>
Name                  Age     Position                        Term
----                  ---     --------                        ----
<S>                   <C>     <C>                             <C>
Robert W. Schleizer   44      President, Treasurer and Sole   1/95 - Present
                              Director
</TABLE>

                                     8
<PAGE>

Compliance with Section 16(a)
-----------------------------

Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") requires 
the Company's directors, officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of 
ownership and changes in ownership with the Securities and Exchange Commission. 
Directors, officers and greater than ten percent beneficial owners are required 
by applicable regulations to furnish the Company with copies of all forms they 
file with the Commission pursuant to Section 16(a).  The Company is not aware of
any beneficial owner of more than ten percent of its registered Common Stock for
purposes of Section 16(a).

Based solely upon a review of the copies of the forms furnished to the Company, 
the Company believes that during 1997 all filing requirements applicable to its 
directors and executive officers were satisfied.

ITEM 10.  EXECUTIVE COMPENSATION

Executives received compensation from the Company during 1997 as follows:

<TABLE>
<CAPTION>
                         Summary Compensation Table
                         ---------------------------

           Annual Compensation      Long Term Compensation         All other
           -------------------      ---------------------------    Compensation
                                         Awards    Payouts         ------------
Name and                               Other    Restricted
Principal                              Annual   Stock               Options/LTIP
Position      Year  Salary($) Bonus($) Comp($)  Award(s)(1) SARs(#) Payouts($)
----------    ----- --------- -------  -------  ----------- ------- ------------
<S>           <C>   <C>       <C>      <C>      <C>         <C>     <C>
Robert W. 
Schleizer, 
President     1997  $100,000  -0-      -0-      -0-         -0-     -0-

David
Donahue
Chief Financial
Officer       1997  $17,500  -0-      -0-      -0-         -0-     -0-
</TABLE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

As of December 31, 1997 there were 14,343,091 common shares of the Company, the
Company's only class of voting securities.  The Company has no knowledge of any 
arrangements which could affect the Company.

The following table will identify as of December 31, 1997, the number and 
percentage of outstanding shares of common stock owned by (i) each person known 
to the Company who owns more than five percent of the outstanding common stock, 
(ii) each officer and director of the Company, and (iii) officers and directors 
of the Company as a group:

                                     9
<PAGE>

<TABLE>
<CAPTION>

Name of Beneficial Owner      Amount of Ownership      Percent of Class
<S>                           <C>                      <C>
Pegasus Ventures, Inc.*       6,495,000                45%
David Donahue                    -0-                    0%
John R. Boudreau Separate 
  Property Living Trust*      1,995,840                14%
The Schleizer Family Trust*   1,995,840                14%

All Executive Officers/
  Directors as a Group 
  (3 persons)                 10,486,680               73%

</TABLE>

*Mssrs. Boudreau and Schleizer each beneficially own 50% of the common stock of 
Ventures which owns the 45% interest in the Company per the above table.  In 
March 1996, Ventures distributed 1,995,840 shares of the Company stock to the 
John R. Boudreau Separate Property Living Trust and 1,995,840 shares to The 
Schleizer Family Trust.

ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases office space and equipment from an affiliated company owned 
by a shareholder for $750 per month.  The Company also utilizes the same 
affiliate to perform accounting and administrative services on a contractual 
basis.  Compensation paid to such affiliate in 1997 was $3,905.

                                        10
<PAGE>


                            PART IV
                                
                                
ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS
          ON FORM 8-K

Documents filed as part of this report:

(a)  Financial Statements

     Statement Name                                                 Page No.

     Pegasus Industries, Inc.
                    
          Report of Independent Certified Public Accountants............ F-1
          Balance Sheet................................................. F-2
          Statement of Operations....................................... F-3
          Statement of Stockholders' Equity............................. F-5
          Statement of Cash Flows....................................... F-6
          Notes to Financial Statements................................. F-8

(b)      Reports on Form 8K

          None

(c)  Exhibits
                                
          Zearl T. Young, Incorporated

     Liquidation Agreement................................................... 30
     Zearl T. Young, Incorporated dba Western Auto Auction Sales Summaries .. 35
     Norwest Letter - Sales of Accounts Receivable........................... 37
                                
                                
                                                              
                           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 2, 1998.

                                         11
<PAGE>



                                   PEGASUS INDUSTRIES, INC.
                                
                                
                                
                                   By:     /s/   Robert W. Schleizer
                                           ------------------------------
                                           Robert W. Schleizer, President
                                  
                                
     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
<PAGE>
                                   26th PLACE
                                 2601 E. THOMAS RD.        PHONE: (602) 266-2646
Clancy and Co., P.L.L.C.           SUITE 110                  FAX: (602)224-9496
Certified Public Accountants     PHOENIX, AZ 85016    E-MAIL: CLANCYPLLC@AOL.COM


                              INDEPENDENT AUDITORS REPORT

Board of Directors 
Pegasus Industries, Inc. 
Dallas, Texas 75201

We have audited the accompanying consolidated balance sheet of Pegasus 
Industries, Inc., as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' 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 audit.

We conducted our audit 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 audit of the financial statements provides a reasonable 
basis for our opinion. 

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Pegasus Industries, Inc., as of
December 31, 1997 and 1996, in conformity with generally accepted accounting 
principles.

The accompanying financial statements have been prepared assuming the company 
will continue as a going concern. As discussed in Note 1 to the financial 
statements, the Company has suffered recurring losses from operations and has a 
net capital deficiency that raises doubt about the Company's ability to continue
as a going concern. Management's plan in regard to these matters is also 
described in Note 1. The financial statements do not include any adjustments 
that might result from the outcome of this uncertainty.

/s/ Clancy and Co.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 3, 1998 
                                         F-1
<PAGE>

                    PEGASUS INDUSTRIES, INC.
                   CONSOLIDATED BALANCE SHEET
                   DECEMBER 31, 1997 AND 1996

                             ASSETS
<TABLE>
<CAPTION>
                                               1997               1996
                                               ----               ----
<S>                                            <C>                <C>
Current Assets
Cash                                           $ 31,457           $   132,162
Securities - Trading                              6,039                     0
Receivables (Note 3)                                  0             2,988,990
Inventories (Note 2)                                  0               624,141
Investment in Cooperative Securities                  0                23,931
Prepaid Expenses                                      0                11,809
                                               --------           -----------

Total Current Assets                             37,496             3,781,033

Property and Equipment, Net (Note 5)                255               274,363

Other Assets
   Noncurrent Portion of Financing Receivable 
    (Note 6)                                          0             1,102,395
   Cash Value of Life Insurance, Net of Policy 
    Loans of $0 in 1997 and $1,027,894 in 1996, 
    (Face Value of Approximately $7,600,000) 
    (Note 9)                                          0                60,010
                                                --------           -----------

Total Other Assets                                    0             1,612,405
                                                --------           -----------

Total Assets                                   $ 37,571            $5,217,801
                                               ========            ===========
</TABLE>

 The accompanying notes are an integral part of these financial statements.

                                      F-2
<PAGE>

                              PEGASUS INDUSTRIES, INC.
                             CONSOLIDATED BALANCE SHEET 
                             DECEMBER 31, 1997 AND 1996
                                
                         LIABILITIES AND STOCKHOLDERS EQUITY
                                
<TABLE>
<CAPTION>
                                                    1997            1996
                                                    ----            ----
<S>                                                 <C>             <C>
Current Liabilities
    Principal Subsidiary
      Trade Accounts Payable (Note 8)               $   687,103     $   556,144
      Other Liabilities                                 135,640         133,105
      Short-Term Debt (Note 9)                        4,342,897       6,411,325
      Accrued Expenses                                        0         367,523
                                                    -----------     ------------
      Total Principal Subsidiary Current Liabilities  5,165,640       7,468,097
    Parent Company
      Trade Accounts Payable (Note 9)                         0           1,274
      Short-Term Debt (Note 9)                          129,821         172,803
      Accrued Expenses                                    1,291          15,615
                                                     ----------     ------------
      Total Parent Company Current Liabilities          131,112         189,692
                                                     ----------     ------------
Total Current Liabilities                             5,296,572       7,657,789
                                                     ----------     ------------

Total Liabilities                                     5,296,752       7,657,789

Preferred Stockholders' Equity in Subsidiary 
 (Note 10)                                            1,128,370       1,128,370

Stockholders' Equity
   Common Stock, Par Value $.01, Authorized 
    50,000,000 Shares Issued and Outstanding, 
    14,343,091 Shares at December 31, 1997 
    and 14,343,091 at December 31, 1996                 143,431         143,431 
   Additional Paid-In Capital                            58,536          58,536
   Retained Earnings - A Deficit                     (6,589,338)     (3,770,325)
                                                     -----------     -----------
   
Total Stockholders' Equity                           (6,387,371)     (3,568,358)
                                                     -----------     -----------

Total Liabilities and Stockholders Equity           $    37,571     $ 5,217,801
                                                    ===========     ============
</TABLE>

    The accompanying notes are an integral part of these financial statements.
                                    F-3
<PAGE>

                           PEGASUS INDUSTRIES, INC.
                     CONSOLIDATED STATEMENT OF OPERATIONS
                FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                
                                
<TABLE>
<CAPTION>
                                              1997              1996
                                              ----              ----
<S>                                           <C>               <C>
Financing Income                              $   123,006       $   162,079

Cost of Financing 
   Interest Expense                                15,855            23,465
                                              -----------       -----------

Net Financing Income                              107,151           138,614

Expenses
   General and Administrative                      64,085            77,511
                                              -----------       -----------

Operating Income                                   43,066            61,103

Other Income (Expense)                       
   Loss on Sale of Securities                      (1,606)                0
   Temporary Decrease in Market Value of 
   Marketable Securities.                          (2,371)                0
   Interest Income                                  1,132               760
   Loss from Discontinued Operations           (2,859,234)       (2,376,722)
                                               -----------       -----------
Total Other Income (Expense)                   (2,862,079)       (2,375,962)
                                               -----------       -----------


Net Loss                                      $(2,819,013)      $(2,314,859)
                                              ============      ============

Net Loss Per Share:
   Continuing Operations                      $     (0.00)      $     (0.00)
   Discontinued Operations                          (0.20)            (0.16)
                                              ------------      ------------
   Net Loss                                         (0.20)            (0.16)
                                              ------------      ------------
</TABLE>

  The accompanying notes are an integral part of these financial statements.
                                     F-4

                                
                          PEGASUS INDUSTRIES, INC. 
         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                
<TABLE>
<CAPTION>
                     Common Stock        Additional   Retained         
                  Shares      Amount     Paid-In      Earnings-
                                         Capital      A Deficit     Total
<S>               <C>         <C>        <C>          <C>           <C>
Balance-
December 31, 
1995              14,352,151  $ 143,521  $ 58,466     $(1,455,466)  $(1,253,499)

Shares Canceled       (9,060)       (90)       90               0             0

Net Loss Year 
Ended December
31, 1996                   0          0         0               0             0
                      ------    -------   -------     ------------   -----------
Balance-
December 31,
1996              14,343,151    143,431    58,536      (3,770,325)   (3,568,358)

Net Loss Year
Ended December
31, 1997                                               (2,819,013)   (2,819,013)
                      ------    -------   -------      -----------   -----------

Balance-December
31, 1997          14,343,091   $143,431   $58,536     $(6,589,338)  $(6,387,371)
                  ==========   ========   =======     ============  ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                         F-5
<PAGE>

                            PEGASUS INDUSTRIES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                
<TABLE>
<CAPTION>
                                                  1997            1996
                                                  ----            ----
<S>                                               <C>             <C>
Cash Flows From Operating
Activities
  Net Loss                                        $(2,819,013)    $(2,134,859)
  Adjustments to Reconcile Net Loss to 
   Net Cash Provided by Operating Activities
     Depreciation                                         400          79,077
     Changes in Operating Assets and Liabilities
     Receivables                                    4,091,385       2,990,466
     Inventories                                      624,141         402,350
     Investment in Cooperative Securities              23,931          (7,381)
     Prepaid Expenses                                  11,809         207,836
     Cash Value of Life Insurance                      60,010         (15,140)
     Deferred Tax Benefit                                   0          60,152
     Trade Accounts Payable                           129,685        (237,907)
     Other Liabilities                                  2,535          33,884
     Accrued Expenses                                (381,847)        244,042
                                                    ----------      ----------
 Total Adjustments                                  4,562,049       3,757,379
                                                    ----------      ----------

Net Cash Flows Provided by Operating Activities     1,743,036       1,442,520

Cash Flows From Investing Activities           
     Capital Expenditures                                   0          (2,571)
     Sale of Capital Assets                           273,708               0
     Purchase of Securities                            (6,309)              0
                                                     ---------      ----------

Net Cash Flows Provided by (Used In)
 Investing Activities                                 267,669          (2,571)

Cash Flows From Financing Activities
   Cash Received from Borrowings                            0          63,436
   Repayments on Long Term Debt                    (2,111,410)     (1,445,005)
                                                   -----------     -----------

Net Cash Flows Used in Financing Activities        (2,111,410)     (1,381,569)

Increase (Decrease) in Cash                          (100,705)         58,380

Cash, Beginning of Year                               132,162          73,782
                                                   -----------     ------------
  
Cash, End of Year                                  $   31,457      $  132,162
                                                   ===========     ============
</TABLE>

 The accompanying notes are an integral part of these financial statements.

                                    F-7
<PAGE>

                     PEGASUS INDUSTRIES, INC. 
              CONSOLIDATED STATEMENT OF CASH FLOWS
         FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                
<TABLE>
<CAPTION>
                                        1997              1996
                                        ----              ----
<S>                                     <C>               <C>
Supplemental Information:
Interest Expense Paid                   $ 725,937         $ 604,444
                                        =========         =========

Income Taxes Paid                       $       0         $       0
                                        =========         =========
</TABLE>





   The accompanying notes are an integral part of these financial statements.

                              F-7
<PAGE>
          

                    PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996

NOTE 1 - ORGANIZATION
         ------------

Pegasus Industries, Inc. (The Company), was incorporated under the name 
Helistructures Corporation on November 25, 1968 under the laws of the State of 
Nevada with an authorized capital of 2,500 shares of common stock with no par 
value. On January 12, 1973, the Company filed restated Articles of Incorporation
changing its name to Midas International, Inc. and increasing its authorized 
capital to 125,000 shares of common stock with a par value of $.20. The restated
articles supersede the original Articles of Incorporation and all amendments 
heretofore made thereto prior to this date.

On December 14, 1982, the Company amended its Articles of Incorporation changing
its name to MII Holdings, Inc. and increasing its capital to 20,000,000 shares 
of common stock with a par value of $.01.

In December, 1985, the Company applied for and was allowed protection under 
Chapter 11 of the Bankruptcy Court in the Central District of California. On 
December 19, 1989, the Bankruptcy court accepted the Order of Confirmation of 
the Trustee's second amended Chapter 11 plan of Reorganization which in effect 
returned all assets of the Company to creditors for cancellation of all debt. 
The Company issued a total of 19,454,500 shares of common stock to the unsecured
creditors for cancellation of $1,018,000 of debt.

On January 19, 1990, the Company amended its Articles of Incorporation 
increasing its authorized capital to 50,000,000 shares of common stock with a 
value of $.01.

On August 7, 1990, the Company amended its Articles of Incorporation changing 
its name to Pathfinder Corporation and authorizing a reverse split of 100 to 1 
with the stipulation that no shareholders be reduced to less than 10 shares, the
Company issued an additional 48,576 shares to maintain the 10 share minimum.

On September 30, 1992, the Company acquired oil and gas producing properties for
699,997 shares of common stock. On September 12, 1994, the purchase agreement 
was rescinded and the shares of common stock were returned and canceled.  

On March 30, 1995, the Company amended its Articles of Incorporation changing 
its name to Pegasus Industries, Inc.

The accompanying financial statements have been prepared assuming the Company 
will continue as a going concern. The Company has suffered recurring losses from
operations, has a net capital deficiency and is in several loan agreement items,
that raises doubt about the Company's ability to continue as a going concern.

                              F-8
<PAGE>

                    PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996

NOTE 1 - ORGANIZATION (CONTINUED)
         ------------------------

The financial statements do not include any adjustments that might result from 
the outcome of this uncertainty.

The Company's principal subsidiary ceased operations on September 6, 1997.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
         -------------------------------

A.   Basis of Financial Statement Presentation
     -----------------------------------------

The records of the Company (A Corporation) are maintained using the accrual 
method of accounting.

B.   Principles of Consolidation
     ---------------------------

The accompanying consolidated financial statements include the accounts of the 
Company and its wholly owned subsidiary, Zearl T. Young, Inc.  Intercompany 
transactions have been eliminated in consolidation.

C.   Company's Activities and Operating Cycle
     ----------------------------------------

The Company's business consists of the sale of retail consumer products, 
primarily consumer durable goods such as furniture, appliances, carpets and 
electronics and the related financing of those purchases with consumer finance 
contracts.  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.

D.   Cash and Cash Equivalents
     -------------------------

The Company considers all highly liquid debt instruments with a maturity of 
three months or less to be cash and cash equivalents.

E.   Inventories
     -----------

The Company determines its inventory using the lower of cost (first-in, first-
out) or market.


                                   F-9
<PAGE>

                    PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996
                                
NOTE 2   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
         -------------------------------------------

F.   Property, Equipment and Depreciation
     ------------------------------------

The cost of property and equipment is depreciated over the useful lives of the 
related assets.  The straight line method is utilized for substantially all 
assets for financial reporting, but accelerated methods are used for income tax 
reporting.  The estimated lives used in determining depreciation are:

<TABLE>
<CAPTION>
     <S>                                  <C>
     Buildings and Improvements           30 Years
     Furniture, Fixtures and Equipment    5-15 Years
     Automobiles and Trucks               3-5 Years
</TABLE>

G.   Investment in Life Insurance
     ----------------------------

The Company's investment in corporate owned life insurance policies is reported 
net of policy loans.  The net life insurance expense, including interest 
expense, is included in General and Administrative Expense in the Statement of 
Operations.  The policies have been pledged to lenders.  During September 1997, 
the policies were assigned to lenders in connection with the closing of the
Company's principal segment.

H.   Earnings or (Loss) Per Share
     ----------------------------

Earnings or (loss) per share is computed using the weighted averaged number of 
shares of common stock outstanding.

I.   Use of Estimates
     ----------------
Management uses estimates and assumptions in preparing financial statements in 
accordance with generally accepted accounting principles.  Those estimates and 
assumptions affect the reported amounts of assets and liabilities, the 
disclosure of contingent assets and liabilities, and the reported revenues and 
expenses.  Actual results could vary from the estimates that were assumed in 
preparing the financial statements.

J.   Presentation
     ------------

Certain accounts from prior years have been reclassified to conform with the 
current year's presentation.

K.   Pending Accounting Pronouncements
     ---------------------------------

It is anticipated that current pending accounting pronouncements will not have 
an adverse impact on the financial statements of the Company.

                              F-10
<PAGE>
                    PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996

NOTE 3 - RECEIVABLES
         -----------

During the year ended December 31, 1996, the Company's revenue and receivables 
were from retail sales to customers in the Lea County, New Mexico trade area 
through several retail outlets selling a variety of merchandise and services.  
During September 1997, this segment of the Company's business was closed.  
Receivables consist of the following at December 31, 1996: 

<TABLE>
<CAPTION>
          <S>                                        <C>
          Open Trade Accounts                        $    25,947
          Employees' Accounts                            134,466
          Less Allowance for Doubtful Receivables        (11,302)
                                                       ---------
                                                         149,111
          Current Portion of Financing:
             Contracts Receivable                      3,097,684
             Less Allowance for Doubtful Collections    (257,805)
                                                       ---------
                                                       2,839,879
                                                       ---------
                                                      $2,988,990
                                                      ==========
</TABLE>

The following is an aging of receivables at December 31, 1996:

<TABLE>
<CAPTION>
<S>                                    <C>
Current                                $3,258,097
1-30 days                                 626,831
31-60 days                                259,697
61-90 days                                102,818
91 and over                               212,582
                                       ----------
Total                                   4,460,025
Less Allowance for Doubtful Accounts     (368,640)
                                       ----------
Total                                   4,091,385
                                       ==========
</TABLE>

NOTE 4   INVESTMENT IN COOPERATIVE SECURITIES
         ------------------------------------

In 1996, the Company did business with a supplier which operated as a 
cooperative.  Under the cooperative structure, purchasers received restricted 
stock and notes.  The stock and notes are recorded at cost by the Company.  The 
stock is subject to certain buy-sell restrictions.  The notes have maturities 
dated December 31,1999.  During September 197, this segment of the Company's
business was discontinued.  The balance is as follows at December 31, 1996:

<TABLE>
<CAPTION>
<S>                 <C>
Notes               $  3,480
Stock                 20,451
                     -------
Total                 23,931
                     =======
</TABLE>

                               F-11
<PAGE>
 
                   PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996
                                
NOTE 5   PROPERTY AND EQUIPMENT
         ----------------------

Property and equipment consists of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                       1997      1996
                                       ----      ----
<S>                                    <C>       <C>
Buildings                              $         $   50,000
Leasehold Improvements                              176,767
Equipment                                           501,376
Furniture and Fixtures                  1,945       302,578
Automobiles and Trucks                              241,191
                                        -----    ----------
Less Accumulated Depreciation           1,945     1,271,912
Net Book Value                          1,690       997,549
                                        -----    ----------
                                       $  255       274,363
                                       ======    ==========
</TABLE>

Depreciation expense charged to operations in 1997 and 1996 was $400 and 
$79,077, respectively.

Expenditures for repairs and maintenance and minor renewal and improvements are 
charged to operations in the year incurred.  Major renewals and improvements are
capitalized.  During September 1997, all of the property and equipment of this 
segment of the Company's business was sold.

NOTE 6   FINANCING CONTRACTS RECEIVABLE
         ------------------------------

The Company finances customer purchases on various terms not exceeding 36 
months.  Interest charged varies and currently is 21%.  There were 9,699 
customer contracts outstanding at December 31, 1996.  The contracts are secured 
by furniture, appliances or other consumer products purchased.  On August 5, 
1997, the Company sold all Financing Contracts receivable.  During September 
1997, this segment of the Company's business was discontinued.  At December 31, 
1996, the balance consists of:

<TABLE>
<CAPTION>
<S>                                          <C>
Financing Contracts                          $ 5,435,629
Less Unearned Finance and Insurance Charges     (975,604)
                                             ------------
                                               4,460,025
Less Allowance for Doubtful Accounts            (368,640)
                                             ------------

Total                                         $4,091,385
                                             ============

Current Portion                               $2,988,990
Noncurrent Portion                             1,102,395
                                             ------------
                                              $4,091,385
                                             ============
</TABLE>
                              F-12
<PAGE>

                    PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996

NOTE 7 - INCOME TAXES
         ------------

As of December 31, 1997 and 1996, the Company has net operating losses of 
approximately $8,946,990 and $6,127,977, which will expire in the years 2011 and
2012, if not utilized.  The estimated deferred income tax benefit net of a 
valuation allowance for doubtful realization, consists of:

<TABLE>
<CAPTION>
                              1997           1996
                              ----           ----
<S>                           <C>            <C> 
Benefit                       $ 2,270,588    $ 772,000
Valuation Allowance            (2,270,588)    (772,000)
                              ------------   ----------
                              $         0    $       0
                              ============   ==========
</TABLE>

NOTE 8 - ACCOUNTS PAYABLE
         ----------------

The following is an aging of accounts payable at December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                          1997            1996
                          ----            ----
<S>                       <C>             <C>
Current                   $               $111,365
31-60                                       (4,661)
61-90                                       22,681
91 and Over                 687,103        428,033
                          ---------       --------
Total                     $ 687,103       $557,418
                          =========       ========
</TABLE>

NOTE 9 - SHORT TERM DEBT
         ---------------

<TABLE>
<CAPTION>
                                                    1997              1996
                                                    ----              ----
<S>                                                 <C>               <C>
Revolving note of $10,000,000 with a
financing institution, secured by
substantially all assets of the Company's
principal subsidiary, bearing interest at
the institution's base rate plus 3/4% or
11% currently, the available loan amount
varies on a formula based upon the amount
of eligible contracts receivable, and the 
amount of inventory on hand; interest is
payable monthly with the principal due
February 7, 1997.  The loan agreement provides
for acceleration of the maturity date of the note
and certain other remedies upon occurrence as of
an Event of Default.  Certain potential Events of
Default as that term is used in the loan agreement
have occurred as of and subsequent to December 31,

                              F-13
<PAGE>

                             PEGASUS INDUSTRIES, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            December 31, 1997 and 1996


</TABLE>
<TABLE>
<CAPTION> 
                                                         1997         1996
                                                         ----         ----
<S>                                                      <C>          <C>
NOTE 9 - SHORT TERM DEBT (CONTINUED)
         ---------------------------

1997 and 1996.  The Company's subsidiary negotiated
an amendment to the loan agreement in October 1996, 
when it sold approximately 1/3 of its finance contracts 
to an affiliate of its lender.  As of December 31, 1996,
the Company's subsidiary has breached the amended 
loan covenants.  The lender notified the Company's
subsidiary of the default in January 1997.  A series of
short term amendments were negotiated through
March 1997.  On May 5, 1997, the Company's subsidiary
entered into a liquidation agreement with its lender.

The agreement required management to sell the finance
contracts receivable to a third party no later than July 
31, 1997, at which time the remaining assets of the 
subsidiary were to be sold in a liquidation sale.  The 
finance contracts receivable were sold August 5, 1997.  
The liquidation sales were completed on September 6, 
1997. Balance due represents the unliquidated portion 
of the unpaid account.                                   $4,078,052   $6,136,079

Various unsecured notes payable of the Company's
principal subsidiary to pre-petition creditors, bearing
interest at 6.21% or 2.5%, due in quarterly and annual
payments of principal and interest of varying amounts
beginning March 15, 1994, with varying balloon payouts
due December 15, 1998.  The death benefit of a $446,000
face value life insurance policy on the life of the majority
preferred stockholder in the subsidiary is pledged to pay 
these notes payable.  These notes are currently in arrears
in payment.                                                182,487       186,985

Note payable, secured by real estate, of the Company's
principal subsidiary, bearing interest at 6%, due in 
monthly payments of principal and interest of $500 through
August, 2004.                                               37,409        37,409
</TABLE>

                              F-14
<PAGE>

                    PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                
                                                         1997         1996
                                                         ----         ----
<S>                                                      <C>          <C>
NOTE 9 - SHORT TERM DEBT (CONTINUED)
         ---------------------------

Note payable, secured by equipment, of the Company's
principal subsidiary, bearing interest at 9.95%, due in
monthly payments of principal and interest of $268.25
beginning August 15, 1995 through August 15, 1998.                0        5,903

Note payable, Estate of Jerry Lewis, payable by the
Company's principal subsidiary, bearing interest at
6.12% per annum, due in quarterly payments of 
$1,680,70.  The loan is in default.                          44,949       44,949
                                                          ---------    ---------
Total Subsidiary Short Term Debt                          4,342,897    6,411,325

Note payable, secured by credit insurance
commissions, dated August 4, 1995 bearing
interest at 10.75% with payments due quarterly,
and principal payments of $5,000 in 1997 and
$12,500 due monthly in 1996.  Note is due
December 31, 1998.                                          128,821      172,803
                                                          ---------    ---------
Total                                                     4,472,718    6,584,128
Less Current Portion                                      4,472,718    6,584,128
                                                          ---------    ---------
                                                          $       0    $      0
                                                          =========    =========
</TABLE>

At December 31, 1996, the Company had available for future use a standby letter 
of credit in the amount of $50,000.  The maturity date on the standby letter of 
credit is January 31, 1997.  Note was renewed when matured.  The Parent Company 
has no responsibility for any of the debts of its principal subsidiary, Zearl T.
Young, Inc.

NOTE 10 - PREFERRED STOCKHOLDERS' EQUITY IN SUBSIDIARY
          --------------------------------------------

As a part of the bankruptcy (Chapter 11) plan and quasi-reorganization of the 
Company's subsidiary, all common shares of the then-existing shareholders of the
subsidiary were canceled, with the existing shareholders accepting preferred 
shares in the subsidiary and allowing the subsidiary to issue new common stock 
tot he new shareholders who purchased the subsidiary as of November 1, 1994, all
prior to the merger with the Company. 

                              F-15
<PAGE>
                              PEGASUS INDUSTRIES, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             December 31, 1997 and 1996

NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
          ---------------------------------

The Company's principal subsidiary rents all but one of its buildings from 
Young's Investment Corporation.  Young's Investment Corporation is 100% owned by
Zearl T. Young, who owns 50% of the Series A preferred stock of Zearl T. Young, 
Inc., a wholly owned subsidiary of the Company. The amount of rent was $240,000 
for the years ended December 31, 1997 and 1996.  The Company was in arrears, in 
rent payments, as of December 31, 1997 and 1996 in the amount of $181,275 and
$120,000.  The Company pays certain expenses related to the buildings, such as 
property taxes, insurance and repairs and maintenance.

The Company's principal subsidiary also pays management and director fees to 
companies that are related through common ownership.  These amounts totaled 
$0 in 1997, $48,000 in 1996 and $72,000 in 1995.

NOTE 12 - DISCONTINUED OPERATIONS
         ------------------------

The following is a condensed balance sheet and statement of operations of its 
wholly owned subsidiary, Zearl T. Young, Inc., at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                               1997            1996
                                               ----            ----
<S>                                            <C>             <C>
Current Assets                                 $         0     $ 3,731,609
Property and Equipment                                   0         273,708
Other Assets                                             0       1,161,405
                                               -----------     -----------
Total Assets                                             0       5,166,722
                                               ===========     ===========

Total Current Liabilities                      $ 5,465,640     $ 7,759,965
Preferred Stockholders' Equity                   1,128,370       1,128,370
Stockholders' Equity   A Deficit                (6,594,010)     (3,721,613)
                                               ----------      -----------
Total Liabilities and Stockholders' Equity     $         0     $ 5,166,722
                                               ==========      ===========

Sales                                          $ 1,025,786     $ 4,531,905
Cost of Sales                                    1,265,804       3,336,214
                                               -----------     -----------
Gross Profit                                      (240,018)      1,195,691
Financing Income                                   862,675       1,158,203
Cost of Financing
   Interest Expense                                420,148         744,069
   Amortization of loan costs                            0         211,730
                                               -----------     -----------
Net Financing Income                               442,527         955,799
                                               -----------     -----------
</TABLE>
                              F-16
<PAGE>

                    PEGASUS INDUSTRIES, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   December 31, 1997 and 1996

NOTE 12 - DISCONTINUED OPERATIONS (CONTINUED)
          -----------------------------------

<TABLE>
<CAPTION>
<S>                                            <C>           <C>
Total Gross Income                                 202,509     1,798,095
Expense
   General and Administrative                      297,610       983,905
   Selling                                       1,185,167     3,096,170
                                               -----------   -----------
Total Expenses                                   1,482,777     4,080,075
                                               -----------   -----------
Operating Loss                                  (1,280,268)   (2,281,980)
Other Income and Expense
   Loss on Sale of Assets                       (1,578,966)      (46,282)
   Other Income                                          0        11,692
                                               -----------   -----------
Total Other Income and Expense                  (1,578,966)      (34,590)
                                               -----------   -----------

Net Loss Before Taxes                          $(2,859,234)  $(2,316,570)
Deferred Tax Benefit Canceled                            0       (60,152)
                                               -----------   ------------
Net Loss from Discontinued Operations          $(2,859,234)  $(2,376,722)
                                               ===========   ============
</TABLE>

NOTE 13 - SUBSEQUENT EVENTS
          -----------------

On March 6, 1996, the Board of Directors adopted a resolution to issue a new 
class of preferred stock, with the rights, privileges and preferences to be 
determined at a future date. 

On September 6, 1997, the Company's principal subsidiary ceased operations and 
sold all of its assets.

                              F-17
<PAGE>