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, 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
                       ----------------------------
                            (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 registrants 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 1
<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, 1996 was 
14,343,091 shares, $0.01 par value.

                             Page 2
<PAGE>


                    PEGASUS INDUSTRIES, INC.
                                
                             PART I

ITEM 1.        DESCRIPTION OF BUSINESS

Introduction
------------

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 changedits 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
---------------------------------------------------

In 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  

                             Page 3
<PAGE>

699,997 shares of stock it issued due to difficulties the Company encountered in
obtaining clear title to the oil and gas properties.

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.  ZTY currently operates a nine store retail and consumer finance 
concern in Hobbs, New Mexico.  ZTY has assets of over $11 million and generated 
revenues in fiscal 1994 in excess of $9 million.  Ventures is a wholly owned 
subsidiary of Boudreau & Associates, Inc. ("BAI") formed in 1992 by John R. 
Boudreau and Robert W. Schleizer to acquire undermanaged and undervalued 
companies.

In connection with the transaction, Mr. Boudreau and Mr. Schleizer were elected 
to fill two of the three seats on the Company's board of directors.  Kevin 
Chisholm, a certified public accountant in private practice, was elected to fill
the remaining seat.  The Company's prior directors, James M. Richards, Allen C. 
Stout and Kenneth Mock resigned.  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 Offficer 
and Treasurer of the Company.  Mr. Boudreau resigned his position as director 
effective the same date.  Mr. Chisholm also resigned as director December 31, 
1995.

Business of Zearl T. Young, Incorporated
----------------------------------------

ZTY was founded in 1955 as a single location Western Auto store in Hobbs, New 
Mexico and was incorporated as a New Mexico corporation in 1958.

ZTY is engaged in the retail sale at its five locations of a diverse range of 
products including:  (1) furniture; (2) home electronics; (3) household 
appliances; (4) hardware; (5) home improvement supplies; (6) household and 
commercial floor coverings and installation thereof; (7) sporting goods
and recreational equipment; (8) automotive parts, supplies and accessories; 
(9) automotive repair services; and (10) toys.  ZTY's stores include a Western 
Auto affiliated store and a True Value Hardware store.

                             Page 4
<PAGE>

ZTY operates its business from five retail locations in Hobbs, New Mexico.  The 
Company was operating five stores at December 1996 compared to nine the prior 
year.  The diversified retail concern draws customers from southeastern New 
Mexico and western Texas.  The company generates 72% of its revenues from sales 
of retail merchandise.  In October 1996, the Company sold off $2.8 of its then 
$7.5 million finance contracts to Norwest Financial Services, Inc., an affiliate
of its primary secured lender, Norwest Bank Minnesota, N.A. The sale was 
completed as part of a restructuring of the Company's $10 million line of credit
that was in default.  The Company netted $2.3 million or 81.4% of the gross 
finance contracts sold, resulting in a $90,000 loss to the Company.  The entire 
proceeds were applied to the line of credit.

Approximately 28% of ZTY's revenues are derived from the financing of consumer 
purchases.

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

The retail merchandise trade in which ZTY is engaged is highly competitive.  
There are several discount retailers in Hobbs, New Mexico including Kmart and 
Walmart which affect the gross margins ZTY can achieve on its retail sales.  In 
addition, during 1996, six new small loan companies have opened offices in 
Hobbs, directly competing with ZTY for higher risk credit consumers.  The
combination of both factors resulting in ZTY closing four stores in 1996.

Employees
---------

As of December 31, 1996, ZTY employed 54 people in New Mexico, 36 of which 
engaged in operating the retail operation, 15 operating the consumer finance 
business and 3 in administrative support positions.  The Company currently has 
three employees in Dallas, Texas in administrative and executive capacities.


ITEM 2.   DESCRIPTION OF PROPERTY

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

ZTY, its wholly owned subsidiary, has 180,000 square feet of retail space 
available under a master lease agreement.  ZTY also leases 50,000 square feet of
warehouse space under the master lease.  The master lease expires in November 
2012.  The master lease was negotiated on an arm's length basis with a company 
owned by some of ZTY's preferred shareholders.  As of  

                             Page 5
<PAGE>

December 31, 1996, the Company occupied only 43,000 square feet of retail space 
and 21,000 square feet of warehouse space.  Rent payments were in arrears 
totalling $120,000 at December 31, 1996.

ZTY owns a 5,500 square foot office building in Hobbs, New Mexico that serves as
its administrative office.


ITEM 3.   LEGAL PROCEEDINGS

The Company is not a party to any material pending litigation or other legal 
proceedings.



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

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

                             Page 6
<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 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>

<TABLE>
<CAPTION>
          Fiscal 1995         Low Bid        High Bid
          <S>                 <C>            <C>
          1st Quarter             .15               1.00
          2nd Quarter             .44                .75
          3rd Quarter             .25                .87
          4th Quarter             .50               1.00
</TABLE>

There is an absence of an established public trading market, therefore the 
market for the 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.

                             Page 7
<PAGE>

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 the registrant's financial position and operations during 
the year ended December 31, 1996 as compared to December 31, 1995.

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

The Company's Consolidated Statement of Operations for the years ended December 
31, 1996 and December 31, 1995 consist of the Company and ZTY, its wholly owned 
subsidiary.  Sales decreased from $5,621,587 for the year ended December 31, 
1995 to $4,531,905 for the current year, a 19% decrease.  The decrease is due to
the closing of four additional stores in 1996.  Gross profits declined 18% or 
$735,801 for the same period.  Reduced sales and difficulty obtaining current 
inventory due to insufficient working capital caused the decline.

Financing income decreased from $2,000,153 to $1,720,282 for the year ended 
December 31, 1996 as compared to the year ended December 31, 1995, a 14% 
decrease.

The Company reported a net loss of $2,314,859 for the year ended December 31, 
1996 as compared to a net loss of $1,455,466 for 1995.  The losses and the 
Company's inability to raise sufficient working capital resulted in the Company 
entering into an agreement in May 1997 to liquidate ZTY. 

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

Current liabilities as of December 31, 1996 of $7,637,789 exceeded currrent 
assets by $3,876,750.  The Company experienced significant working capital 
shortages resulting in the inability to purchase sufficient inventory to 
maintain sales.

The Company was in default on certain financial covenants of its senior loan 
agreement including shareholder equity, collateral base and profitability 
provisions.  Management entered into a Liquidation Agreement in May 1997 to 
close the operation of ZTY and sell its assets. 

ITEM 7.   FINANCIAL STATEMENTS AND SELECTED FINANCIAL DATA

The following selected financial data of the Company for fiscal years 1996, 1995
and 1994 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").

                             Page 8
<PAGE>

<TABLE>
<CAPTION>
                                 For the Year Ended December 31,
                              1996           1995             1994    
<S>                           <C>            <C>              <C>
Income Statement Data:

Revenues                       4,531,905      7,622,010        -0-
Net Income (Loss)             (2,314,859)    (1,455,460)       -0-
Net Income (Loss) per share         (.16)          (.09)       -0-
Dividends per share               -              -              -

Weighted average shares
   outstanding                14,352,151     14,352,151       2,781,151

Balance Sheet Data:

Total Assets                   5,271,801      8,874,210        -0-
Long Term Debt                     -            286,828        -0-
Stockholder's Equity          (3,568,358)    (1,253,499)       -0-
</TABLE>

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

                             Page 9
<PAGE>

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

Duane V. Midgley, the  Company's former accountant, and Johnson, Miller & Co, 
the auditors for Zearl T. Young, Inc., were dismissed by the Company on March 
16, 1996.  This event was reported in detail on a Form 8-K filed prior to this 
filing.


ITEM 9.   DIRECTORS AND OFFICERS OF THE REGISTRANT

On December 31, 1995, John R. Boudreau resigned as president and Director and 
Kevin Chisholm resigned as Director.  Robert W. Schleizer assumed the role of 
President and remained as the sole Director of the Corporation.  Following are 
the officers and directors as of December 31, 1996:

<TABLE>
<CAPTION>
Name                  Age    Position                    Term
<S>                   <C>    <C>                         <C>
Robert W. Schleizer   42     President, Treasurer and    1/95 - Present
                             and Sole Director

David Donahue         32     Chief Financial Officer     7/96 - Present
</TABLE>

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 1996 all filing requirements applicable to its 
directors and executive officers were satisfied.

                            Page 10
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

Executives received compensation from the Company during 1996 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     1996  $100,000  -0-      -0-      -0-         -0-     -0-

David
Donahue
Chief Financial
Officer       1996  $31,500  -0-      -0-      -0-         -0-     -0-
</TABLE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

As of December 31, 1996 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, 1996, 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:

<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 
Pegasus Ventures which owns the 45% interest in the Company per the above table.
In March 1996, Pegasus Ventures distributed 1,995,840 shares of the Company 
stock to the John R. Boudreau Separate Family Trust and 1,995,840 to The 
Schleizer Family Trust. 

                            Page 11
<PAGE>

ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases substantially all of its buildings from Young's Investment 
Corporation ("YIC") an affiliated entity.  Zearl T. Young and family own 100% of
the stock of YIC and also own 100% of the series A preferred stock of ZTY, a 
wholly owned subsidiary of the Company.


                            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

     A report on Form 8K dated March 12, 1996 was filed changing Registrants 
     certifying accountant and reporting a transfer of shares owned by 
     Pegasus Ventures, Inc. 

(c)   Exhibits

          Exhibit A: Stock Exchange Agreement

                                
                            Page 12
<PAGE>

                           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 8, 1998.


                              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)
March 20, 1998

                        

(1)  Principal executive officer
     
Page 13
<PAGE>

                                  26th Place
                              2601 E. Thomas Rd.              PH:  (602)266-2646
CLANCY AND CO., P.L.L.C.          Suite 110                   FAX: (602)224-9496
CERTIFIED PUBLIC ACCOUNTANTS  Phoenix, AZ  85016       EMAIL: 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, 1996 and 1995, 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, 1996 and 1995, 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 operatins 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.

Clancy and Co., P.L.L.C.
Phoenix, Arizona

March 3, 1998

Page 14                                F-1
<PAGE>

                          PEGASUS INDUSTRIES, INC.
                         CONSOLIDATED BALANCE SHEET
                         December 31, 1996 and 1995

                                   ASSETS

<TABLE>
<CAPTION>
                                                  1996               1995
<S>                                               <C>                <C>
Current Assets       
   Cash                                           $  132,162         $   73,782
   Receivables (Note 3)                            2,966,990          4,456,621
   Inventories (Note 2)                              624,141          1,026,491
   Investment in Cooperative Securities (Note 4)      23,931             16,550
   Prepaid Expenses                                   11,809            219,645
                                                  ----------         ----------

Total Current Assets                               3,781,033          5,793,089

Property and Equipment (Note 5)                      274,363            350,869

Deferred Tax Benefit (Note 7)                              0             60,152

Other Assets
   Noncurrent Portion of Financing Receivable
    (Note 6)                                       1,102,395          2,625,230
   Cash Value of Life Insurance, Net of Policy     
    Loans of $1,027,894 in 1996, and $915,894
    in 1995 (Face Value of Approximately
    $7,600,000) (Note 9)                              60,010             44,870
                                                  ----------          ---------

Total Other Assets                                 1,162,405          2,670,100
                                                  ----------          ---------

Total Assets                                      $5,217,801         $8,874,210
                                                  ==========         ==========
</TABLE>

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

Page 15                               F-2  

<PAGE>

                         PEGASUS INDUSTRIES, INC.
                        CONSOLIDATED BALANCE SHEET
                        December 31, 1996 and 1995

                   LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                1996             1995
<S>                                             <C>              <C>
Current Liabilities                    
   Trade Accounts Payable (Note 8)              $   557,418      $   795,324
   Other Liabilities                                133,105           99,221
   Note Payable and Current Portion of
    Long-Term Debt (Note 9)                       6,584,128        7,678,870
   Accrued Expenses                                 383,138          139,096
                                                -----------      -----------

Total Current Liabilities                         7,657,789        8,712,511

Long-Term Debt, Noncurrent Portion (Note 9)               0          286,828
                                                -----------      -----------

Total Liabilities                                 7,657,789        8,999,339

Preferred Stockholders' Equity in
 Subsidiary (Note 9)                              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, 1996 and
    14,352,151 at December 31, 1995                 143,431          143,521
   Additional Paid-In Capital                        58,536           58,446
   Retained Earnings - A Deficit                 (3,770,325)      (1,455,466)
                                                 -----------      -----------

Total Stockholders' Equity                       (3,568,358)      (1,253,499)
                                                 -----------      -----------

Total Liabilities and Stockholders' Equity      $ 5,217,801      $ 8,874,210
                                                ============     ============
</TABLE>

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

Page 16                          F-3

<PAGE>

                             PEGASUS INDUSTRIES, INC.
                       CONSOLIDATED STATEMENT OF OPERATIONS
                  For the Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                       1996         1995
<S>                                                    <C>          <C>
Sales                                                  $ 4,531,905  $ 5,621,857

Cost of Sales                                            3,336,214    4,071,915
                                                         ---------    ---------

   Gross Profit                                          1,195,691    1,549,942

Financing Income                                         1,720,282    2,000,153

Cost of Financing
   Interest Expense                                        767,534      875,892
   Amortization of loan costs                              211,730      156,680
                                                       -----------   ----------
                                                           979,264    1,032,572
                                                       -----------   ----------
Net Financing Income                                       741,018      967,581
                                                       -----------   ----------

Total Gross Income                                       1,936,709    2,517,523

Expenses
   General and Administrative                            1,061,416    1,418,933
   Selling                                               3,096,170    2,687,602
                                                       -----------   ----------

Total Expenses                                           4,157,586    4,106,535
                                                       -----------   ----------

Operating Loss                                          (2,220,877)  (1,589,012)

Other Income and Expenses
   Gain on Sale of Equipment                               (46,282)       6,521
   Receipt from Bankruptcy Court in Connection With
    Reorganization                                               0      108,631
   Other Income                                             12,452       18,394
                                                       ------------   ---------
                                                
Total Other Income and Expense                             (33,830)     133,546
                                                       ------------   ---------

Net Loss Before Taxes                                   (2,254,707)  (1,455,466)

Tax Benefit Cancelled                                      (60,152)           0
                                                       ------------   ----------

Net Loss                                               $(2,314,859) $(1,455,466)
                                                       ============ ============

Net Loss Per Share                                     $     (0.16) $     (0.10)
                                                       ============ ============
</TABLE>

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

Page 17                              F-4
<PAGE>

                            PEGASUS INDUSTRIES, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                  For The Year Ended December 31, 1996 and 1995

<TABLE>
<CAPTION>

                      Common Stock        Additional   Retained
                  Shares        Amount    Paid-In      Earnings-
                                          Capital      A Deficit    Total 
<S>               <C>           <C>       <C>          <C>          <C>
Balance - December
31, 1994          2,852,151     $ 28,521   3,522,602   $(3,551,123)            0

Issuance of Shares
in Connection with
acquisition of
100% of the
outstanding common
shares of Zearl T.
Young, Inc. and
Recording of
Quazi-Reorganization
Effective February
28, 1995          11,500,000     115,000  (3,464,156)    3,551,123      201,967

Net Loss Year
Ended December
31, 1995                                                (1,455,466)  (1,455,466)
                  ----------     --------  ----------   -----------  -----------
Balance, December
31, 1995          14,352,151     143,521       58,446  $(1,455,466)  (1,253,499)

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

Net Loss Year Ended
December 31, 1996          0           0            0   (2,314,859)  (2,314,859)
                 -----------     --------   ---------   -----------  -----------

Balance, December
31, 1996         14,343,091     $143,431   $   58,536  $(3,770,325) $(3,568,358)
                 ===========    ========   ==========  ============ ============
</TABLE>

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

Page 18                            F-5
<PAGE>

                             PEGASUS INDUSTRIES, INC.
                       CONSOLIDATED STATEMENT OF CASH FLOWS
                    For the Year Ended December 31,1996 and 1995

<TABLE>
<CAPTION>
                                         December 31,          December 31,
                                             1996                  1995
<S>                                      <C>                   <C>
Cash Flows From Operating Activities
   Net Income (or Loss)                  $ (2,314,859)         $ (1,455,466)
   Adjustments to Reconcile Net Income
    to Net Cash Provided by Operating
    Activities      
      Depreciation                             79,077                96,766
      Changes in Operating Assets and 
       Liabilities
         Receivables                        2,990,466            (7,081,851)
         Inventories at Cost                  402,350            (1,026,491)  
         Investment in Cooperative
          Securities                           (7,381)              (16,550)
         Prepaid Expenses                     207,836              (219,645)
         Cash Value of Life Insurance         (15,140)              (44,870)
         Deferred Tax Benefit                  60,152               (60,152)
         Trade Accounts Payable              (237,907)              795,324
         Other Liabilities                     33,884                99,221
         Accrued Expenses                     244,042               139,096
                                           -----------           -----------
   Total Adjustments                        3,757,379            (7,319,152)
                                           -----------           -----------

Net Cash Flows Provided By (Used In)
   Operating Activities                     1,442,520            (8,774,618)

Cash Flows From Investing Activities
   Capital Expenditures                        (2,571)             (447,635)

Cash Flows From Financing Activities
   Cash Received from Borrowings               63,436             7,965,698
   Repayments on Long Term Debt            (1,445,005) 
   Preferred Stockholders' Equity
    In Subsidiary                                                 1,128,370
   Common Stock                                     0               201,967
                                           -----------           ----------

Net Cash Flows Provided By (Used In)
 Financing Activities                      (1,381,569)            9,296,035

Increase in Cash                               58,380                73,782

Cash, Beginning of Year                        73,782                     0
                                          ------------            ----------

Cash, End of Year                         $   132,162             $  73,782
                                          ============            ===========
</TABLE>

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

Page 19                           F-6
<PAGE> 

                          PEGASUS INDUSTRIES, INC.
                   CONSOLIDATED STATEMENT OF CASH FLOWS
               For the Year Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                            December 31,        December 31,
                                            1996                1995
<S>                                         <C>                 <C>
Supplemental Information

Interest Expense Paid                       $ 725,937           $   604,444
                                            =========           ===========

Income Taxes Paid                           $       0           $         0
                                            =========           ===========

Noncash Investing and Financing Activites 

Acquisition of 100% Interest in Subsidiary
 In Exchange for Issuance of Common Stock   $       0           $   115,000
                                            =========           ===========

A Quasi-Reorganization Reduced Beginning
 Retained Earnings - A Deficit to Zero With
 a Charge to Additional Paid-in Capital     $       0           $ 3,551,123
                                            =========           ===========
</TABLE>

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

Page 20                           F-7
<PAGE>

                         PEGASUS INDUSTRIES, INC.
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996 and 1995

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 $0.20.
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 and increasing its authorized capital to 20,000,000 shares of 
common stock with a par value of $0.01.

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
par value of $0.01.

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.
Due to the stipulation that no shareholder 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 default on several loan
agreement items, which raises doubt about the Company's ability to continue as
a going concern.

Page 21                               F-8
<PAGE>

                          PEGASUS INDUSTRIES, INC.
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1996 and 1995

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 retain 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.


Page 22                            F-9
<PAGE>

                           PEGASUS INDUSTRIES, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1996 and 1995

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
         -------------------------------------------

F.  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:

               Buildings and Improvements           30 years
               Furniture, Fixtures and Equipment    5-15 years
               Automobiles and Trucks               3-5 years

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.

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

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

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

The Company's revenue and receivables are from retail sales to customers in the
Lea County, New Mexico trade area through several retail outlets selling a 
variety of merchandise and services.

<TABLE>
<CAPTION>
                                                    1996            1995
<S>                                                 <C>             <C>
Receivables consist of:
   Open Trade Accounts                              $    25,947     $   108,963
   Employees' Accounts                                  134,466          60,875
   Less Allowance for Doubtful Receivables              (11,302)         (6,586)
                                                    ------------    ------------
                                                        149,111         163,252
Current Portion of Financing
   Contracts Receivable                               3,097,684       4,425,091
   Less Allowance for Doubtful Collections             (257,805)       (131,722)
                                                    ------------    ------------
                                                      2,839,879       4,293,369
                                                    ------------    ------------
                                                     $2,988,990      $4,456,621
                                                    ============    ============
</TABLE>

Page 23                            F-10
<PAGE>

                              PEGASUS INDUSTRIES, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             December 31, 1996 and 1995

The following is an aging of receivables at December 31, 1996 and 1995.

<TABLE>
<CAPTION>
                                            1996             1995
<S>                                         <C>              <C>
Current                                     $3,258,097       $2,820,811
1-30 days                                      626,831          889,083
31-60                                          259,697          323,301
61-90                                          102,818          128,529
91 and over                                    212,582          433,205
                                            ----------       ----------
Total                                        4,460,025        4,594,929
Less Allowance for Doubtful Accounts          (368,640)        (138,308)
                                            ----------       ----------
                                            $4,091,385       $4,456,621
                                            ==========       ==========
</TABLE>

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

The Company does business with a supplier which operates as a cooperative.  
Under the cooperative structure, purchasers receive 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.  The balance is as follows at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                      1996             1995
<S>                   <C>              <C>
Notes                 $   3,480        $  4,640
Stock                    20,451          11,910
                      ---------        --------
Total                 $  23,931        $ 16,550
                      =========        ========
</TABLE>

NOTE 5 -- PROPERTY AND EQUIPMENT
          ----------------------

<TABLE>
<CAPTION>
                                       1996             1995
<S>                                    <C>              <C>
Buildings                              $   50,000       $   50,000
Leasehold Improvements                    176,767          176,767
Equipment                                 501,376          501,376
Furniture and Fixtures                    302,578          300,007
Automobiles and Trucks                    241,191          241,191
                                      -----------       ----------
                                        1,271,912        1,269,341
Less Accumulated Depreciation             997,549          918,472
                                      -----------       ----------
Net Book Value                         $  274,363       $  350,869
                                      ===========       ==========
</TABLE>

Depreciation expense charged to operations in 1996 and 1995 was $79,077 and
$96,766 respectively.

Page 24                          F-11
<PAGE>

                      PEGASUS INDUSTRIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     December 31, 1996 and 1995

NOTE 5 -- PROPERTY AND EQUIPMENT (CONTINUED)
          ----------------------------------

Expenditures for repairs and maintenance and minor renewal and betterments are
charged to operations in the year incurred.  Major renewals and betterments are
capitalized.

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 and 6,795 at December 31,
1995.  The contracts are secured by furniture, appliances or other consumer
products purchased.  The balance consist of:

<TABLE>
<CAPTION>
                                               1996            1995
<S>                                            <C>             <C>
Financing Contracts                            $ 5,435,629      $ 8,407,283

Less Unearned Finance and Insurance Charges       (975,604)      (1,285,734)
                                               ------------     ------------
                                                 4,460,025        7,121,549
Less Allowance for Doubtful Accounts              (368,640)        (212,950)
                                               ------------     ------------

                                               $ 4,091,385      $ 6,908,599
                                               ============     ============

Current Portion                                $ 2,988,990      $ 4,456,621
Noncurrent Portion                               1,102,395       (2,625,230)
                                               -----------      ------------

                                               $ 4,091,385      $ 6,908,599
                                               ===========      ============
</TABLE>

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

As of December 31, 1996 and 1995, the Company has net operating losses of 
approximately $6,127,977 and $3,813,117 which will expire in the years 2010 and
2011, if not utilized.  The estimated deferred income tax benefit net of a 
valuation allowance for doubtful realization consists of:

<TABLE>
<CAPTION>
                        1996           1995
<S>                     <C>            <C>
Benefit                 $  772,000     $  772,000
Valuation Allowance       (772,000)      (771,848)
                        -----------    -----------
                        $        0     $   60,152
                        ===========    ===========
</TABLE>
Page 25                      F-12
<PAGE>

                        PEGASUS INDUSTRIES, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1996 and 1995

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

The following is an aging of accounts payable at December 31, 1996 and 1995.

<TABLE>
<CAPTION>

                     1996         1995
<S>                  <C>          <C>
Current              $111,365     $327,602
31-60                  (4,661)      74,009
61-90                  22,681        3,267
91 and Over           428,033      390,446
                     ---------    --------
Total                $557,418     $795,324
                     =========    ========
</TABLE>

NOTE 9 -- LONG-TERM DEBT
          --------------

<TABLE>
<CAPTION>
<S>                                                  <C>            <C>
Revolving note of $10,000,000 with a financial
institution, secured by substantially all assets
of the Company's principal subsidiary, bearing
interest at the institution's base rate plus
2.5% or 10.75% 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 loand agreement provides for acceleration of
the maturity date of the note and certain other
remedies upon occurence 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, 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.                          $  6,136,079    $ 7,403,085
</TABLE>

Page 26                               F-13
<PAGE>

                             PEGASUS INDUSTRIES, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            December 31, 1996 and 1995

NOTE 9 -- LONG-TERM DEBT (CONTINUED)
          --------------------------

<TABLE>
<CAPTION>
<S>                                                  <C>            <C>
Various unsecured notes payable 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
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.                        186,985         260,871

Note payable, secured by real estate, bearing interest
at 6%, due in monthly payments of principal and
interest of $500 through August, 2004.                   37,409          41,046

Note payable, secured by equipment, bearing interest
at 7.9%, due in monthly payments of principal and
interest of $540 through September 1995.                      0             540

Note payable, secured by equipment, bearing interest
at 7.9%, due in monthly payments of principal and 
interest of $461 through December 1995.                       0           1,303

Note payable, secured by equipment, bearing interest
at 9.95%, due in monthly payments of principal and
interest of $268.25 beginning August 15, 1995 through
August 15, 1998.                                          5,903           8,853

Note payable, estimated of Jerry Lewis, bearing
interest at 6.12% per annum, due in quarterly payments
of $1,680.70                                             44,949               0

</TABLE>

Page 27                             F-14
<PAGE>

                            PEGASUS INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995

NOTE 9 -- LONG-TERM DEBT (CONTINUED)
          --------------------------

<TABLE>
<CAPTION>
                                                     1996           1995
<S>                                                  <C>            <C>
Note payable, secured by credit insurance
commissions, dated August 4, 1995 bearing
interest at 10.75% with payments due
quarterly, and principal payments of $12,500
due monthly.  Note is due September 4, 1996.            172,803        250,000
                                                     ----------     ----------

Total                                                 6,584,128      7,965,698
Less Current Portion                                  6,584,128      7,678,870
                                                      ---------     -----------
                                                     $        0     $  286,828
                                                     ==========     ===========
</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.

At December 31, 1995, there were two letters of credit outstanding with a
financial institution in the amount of $100,000 each, maturing June 1, 1996.

The annual maturities for the five years ended December 31, 2001, and in the
aggregate are as follows:

<TABLE>
<CAPTION>
<S>            <C>
1997           $6,487,604
1998               37,766
1999               13,240
2000               14,200
2001               15,160
Thereafter         16,159
               ----------
               $6,584,128
               ==========
</TABLE>

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
to the new shareholders who purchased the subsidiary as of December 31, 1995, 
all prior to the merger with the Company.

Page 28                             F-15
<PAGE>

                        PEGASUS INDUSTRIES, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 1996 and 1995

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

The Company 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 year
ended December 31, 1995.  The Company was in arrears in rent payments, as of
December 31, 1996 and 1995, in the amount of $120,000 and $31,500.  The Company
pays certain expenses related to the buildings such as property taxes, 
insurance, and repairs and maintenance.

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

NOTE 12 -- SUBSEQUENT EVENTS
           -----------------

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

On September 6, 1996, the Company's principal subsidiary ceased operations and
sold all of its assets.
<PAGE>