-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EIgYWG6J+9fZYof5MYCeyrnh2bSIC+oPff94CIzEkguQSmWRRiwm70AJLqC5rwhv E6wyu01XM9wei7IyLJuzaw== 0001023856-98-000017.txt : 19980414 0001023856-98-000017.hdr.sgml : 19980414 ACCESSION NUMBER: 0001023856-98-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980413 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEGASUS INDUSTRIES INC CENTRAL INDEX KEY: 0000757073 STANDARD INDUSTRIAL CLASSIFICATION: BOTTLED & CANNED SOFT DRINKS CARBONATED WATERS [2086] IRS NUMBER: 953599648 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12977 FILM NUMBER: 98592128 BUSINESS ADDRESS: STREET 1: 400 N ST PAUL STREET 2: SUITE 950 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2145208300 FORMER COMPANY: FORMER CONFORMED NAME: PATHFINDER CORP DATE OF NAME CHANGE: 19940324 10-K 1 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 ] 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 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 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 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 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.
Fiscal 1997 Low Bid High Bid ----------- ------- -------- 1st Quarter .31 .31 2nd Quarter N/A N/A 3rd Quarter .03 .03 4th Quarter .03 .03
Fiscal 1996 Low Bid High Bid ----------- ------- -------- 1st Quarter .12 .56 2nd Quarter .06 .06 3rd Quarter .06 .06 4th Quarter .07 .08
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 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 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").
For the Year Ended December 31, 1997 1996 1995 ---- ---- ---- 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)
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:
Name Age Position Term - ---- --- -------- ---- Robert W. Schleizer 44 President, Treasurer and Sole 1/95 - Present Director
8 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:
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($) - ---------- ----- --------- ------- ------- ----------- ------- ------------ 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-
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
Name of Beneficial Owner Amount of Ownership Percent of Class 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%
*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 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 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 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 PEGASUS INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 AND 1996 ASSETS
1997 1996 ---- ---- 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 ======== ===========
The accompanying notes are an integral part of these financial statements. F-2 PEGASUS INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 AND 1996 LIABILITIES AND STOCKHOLDERS EQUITY
1997 1996 ---- ---- 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 =========== ============
The accompanying notes are an integral part of these financial statements. F-3 PEGASUS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ---- ---- 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) ------------ ------------
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
Common Stock Additional Retained Shares Amount Paid-In Earnings- Capital A Deficit Total 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) ========== ======== ======= ============ ============
The accompanying notes are an integral part of these financial statements. F-5 PEGASUS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ---- ---- 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 =========== ============
The accompanying notes are an integral part of these financial statements. F-7 PEGASUS INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ---- ---- Supplemental Information: Interest Expense Paid $ 725,937 $ 604,444 ========= ========= Income Taxes Paid $ 0 $ 0 ========= =========
The accompanying notes are an integral part of these financial statements. F-7 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 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 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:
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. 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 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:
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 ==========
The following is an aging of receivables at December 31, 1996:
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 ==========
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:
Notes $ 3,480 Stock 20,451 ------- Total 23,931 =======
F-11 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:
1997 1996 ---- ---- 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 ====== ==========
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:
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 ============
F-12 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:
1997 1996 ---- ---- Benefit $ 2,270,588 $ 772,000 Valuation Allowance (2,270,588) (772,000) ------------ ---------- $ 0 $ 0 ============ ==========
NOTE 8 - ACCOUNTS PAYABLE ---------------- The following is an aging of accounts payable at December 31, 1997 and 1996.
1997 1996 ---- ---- Current $ $111,365 31-60 (4,661) 61-90 22,681 91 and Over 687,103 428,033 --------- -------- Total $ 687,103 $557,418 ========= ========
NOTE 9 - SHORT TERM DEBT ---------------
1997 1996 ---- ---- 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 PEGASUS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 and 1996
1997 1996 ---- ---- 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
F-14 PEGASUS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 and 1996
1997 1996 ---- ---- 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 ========= =========
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 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:
1997 1996 ---- ---- 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 ----------- -----------
F-16 PEGASUS INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 and 1996 NOTE 12 - DISCONTINUED OPERATIONS (CONTINUED) -----------------------------------
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) =========== ============
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 EX-2 2 LIQUIDATION AGREEMENT LIQUIDATION AGREEMENT This Agreement is entered into as of this 5th day of May, 1997 between Norwest Bank Minnesota, National Association (the "Lender") and Zearl T. Young, Incorporated (the "Company"). Recitals - -------- A. The Company is indebted to the Lender pursuant to a Loan and Security Agreement dated October 28, 1994, as amended, (the "Credit Agreement"). All advances under the Credit Agreement, together with daily interest, fees, costs and expenses and any other indebtedness of the Company to Lender, are hereinafter collectively referred to as the "Indebtedness." The Credit Agreement and all related documents in favor of the Lender are referred to herein as the "Security Documents." B. As of the close of business on May 4, 1997, the outstanding principal amount of the Indebtedness was $6,055,473.65. In addition, interest, fees, costs and expenses have accrued and are accruing. C. The Indebtedness is secured by, among other things, a perfected security interest in, without limitation, all inventory, receivables, accounts, equipment and general intangibles of the Company (the "Collateral"). D. Robert W. Schleizer and John R. Boudreau (the "Guarantors") have each, in their personal capacities, executed a Guaranty dated as of October 28, 1994, as amended, and a Management Agreement dated as of October 28, 1994. E. The Company is in default of its obligations under the Security Documents. The Lender is entitled to exercise its rights and remedies. F. The Company has acknowledged its financial difficulties and has represented to the Lender its desire to liquidate its assets. The Company desires to seek a buyer for its assets on a going concern basis for a limited period of time, and, if the Company cannot sell its assets as a going concern, to wind up its affairs through an orderly liquidation. The Company has represented that the level of the Collateral will not materially deteriorate in relationship to the level of Indebtedness while the Company seeks buyers for its assets. The Lender has consented to a winding down of the Company's business and orderly liquidation on the terms and conditions set forth below. 12 AGREEMENT NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party, the parties agree as follows: 1. The Recitals are true and correct. The Indebtedness is due and owing, without defense, offset or counterclaim. 2. The Company may continue its business operations to the extent reasonably necessary to sell inventory and other assets, service existing customers, collect receivables and wind down its affairs in a timely manner until July 31, 1997, provided that it complies with the Budget attached hereto as Exhibit A in all material respects. No item of Collateral with a value greater than $5,000.00 may be sold, other than in the ordinary course of business, by the Company without the prior approval of the Lender. The Company shall pay the Indebtedness in full on or before July 31, 1997. Promptly after July 15, 1997, unless the Company has located a buyer who will buy the Company's assets on a going-concern basis, the Company will conduct a going out of business sale or will otherwise sell its remaining inventory, equipment and other assets, and shall either sell or collect its remaining receivables. 3. All proceeds from the sale of assets and from the collection of accounts or otherwise collected or received by the Company shall be turned over to the Lender in the form received for application to the Indebtedness in a manner to be determined by the Lender in its sole discretion. 4. Except as set forth in paragraph 5 below, the Company shall not incur or pay expenses or other obligations except expenses which are both (i) set forth in the Budget and (ii) reasonably necessary to wind down its business. The Lender, in its sole discretion, may fund advances required by the Company as set forth in the Budget, and any amounts so advanced shall become part of the Indebtedness. The Company shall achieve the collections and payments to the Indebtedness as set forth in the Budget, and shall comply with the Budget in every respect at the times and in the amounts set forth in the Budget. The Company shall not accept consigned inventory unless the consignor has executed an intercreditor agreement with the Lender, in form and substance acceptable to the Lender, including, without limitation, provisions regarding the segregation of consigned inventory and that no consigned inventory shall be sold on a deferred payment basis unless such deferred payments are sold to a third party. 5. The Company has represented to the Lender that certain parties ("Consignors") may provide inventory to the Company on consignment (the "Consignment Goods") for sale by the Company. The Lender has no objection to the Company accepting Consigned Goods for sale, provided: 13 (i) All Consigned Goods must be readily identifiable by marking or labeling as constituting Consigned Goods. (ii) All Consigned Goods that are not clearly marked or labeled as such shall be deemed to be part of the Collateral. (iii) The Company shall not sell any Consigned Goods for less than the amount owing to the Consignor for such Consigned Goods. (iv) The Company shall not sell any Consigned Goods other than for cash unless the company has an agreement from an unrelated third party to purchase any accounts receivable or chattel paper created by such sales at face value. (v) The Company will deliver to the Lender all payments made to the Company on account of the sale of the Consigned Goods, including the proceeds from the disposition of chattel paper or accounts receivable resulting from the sale of Consigned Goods. Provided that the Company meets its obligations herein and complies with the foregoing, the Lender has no objection to the Company's payment to Consignors of an amount equal to the cost of Consigned Goods sold by the Company, notwithstanding that the Budget does not list any payments to Consignors for the Sale of Consigned Goods. 6. The Company agrees to permit the Lender, and its respective officers, employees and agents, to have full access to the Company's books, records and properties for the purpose of verifying the Company's compliance with the terms of the Security Documents and this Agreement. 7. Except as expressly modified by this Agreement, all provisions of the Security Documents remain in full force and effect. The Lender reserves its rights at any time to exercise all of its rights and remedies under the Security Documents, whether or not the Company has complied with its covenants and obligations under this Agreement, or the Security Documents. The Company shall, upon request of the Lender, deliver all of the Collateral to the Lender and shall permit the Lender to use the Company's premises for the purpose of enforcement and foreclosure of the Lender's security interest in the Collateral. Without limiting the generality of the foregoing, the Lender specifically reserves its rights with respect to the Guarantors. 8. The Company shall also deliver the following to the Lender: (a) a daily report setting forth the sales of inventory, equipment and other assets and collection of receivables by 12:00 noon on the next business day and (b) a revised weekly cash flow 14 forecast comparing actual results to forecasted performance for the prior week, along with a collateral\loan schedule, and a sales projection schedule, all to be received by 12:00 noon on the Tuesday of the following week and reflecting information through the close of business for the prior week. The Company shall also deliver to the Lender by 12:00 noon on each Tuesday, a report with respect to the Company's efforts with respect to the sale of its receivables portfolio, including information regarding offers received, contacts made, and other information relevant to the disposition of the Company's assets. The reports shall also provide detailed information regarding the Company's efforts to sell its store operations, and information regarding store performance including sales, cash collections and expenses. The Company agrees to execute and deliver such other and further documents or reports as the Lender may request from the Company to execute, perfect, evidence or otherwise implement the agreements set forth in this Agreement. In consideration of the Lender's willingness to provide further advances to the Company and to provide the Company an opportunity to liquidate its assets in an orderly fashion, the Company shall execute such further financing statements, assignments, mortgages or other documents which the Lender may require to create perfected security interests or liens on assets of the Company. 9. If the Company permanently reduces the outstanding Indebtedness from the proceeds of liquidation to $4,000,000 or less by no later than July 31, 1997, the Lender will not object if Company elects to pay the Guarantors a bonus of $25,000 each. If the Company further permanently reduces the outstanding Indebtedness from the proceeds of the liquidation below $4,000,000 by no later than July 31, 1997, the Lender will not object to the Company's payment of an additional bonus to each Guarantor, not to exceed $50,000 each (in addition to the foregoing $25,000 bonus), equal to five percent (5%) of the amount such permanent reduction is less than $4,000,000. If the Company further permanently reduces the outstanding Indebtedness from the proceeds of liquidation below $3,000,000 by no later than July 31, 1997, the Lender will not object to the Company's payment of a bonus to each of Guarantors of ten percent (10%) of the amount of such permanent reduction below $3,000,000, such bonus being in addition to the foregoing described bonuses. For the purposes of the calculations set forth in this paragraph 9 only, (i) the proceeds of liquidation shall not include any proceeds received from life insurance policies, and (ii) collateral monitoring fees, unused line fees and interest accruing after April 5, 1997 shall not be added to the Indebtedness. 10. In consideration of the execution of this Agreement, the Company, on behalf of itself, its officers, agents, insurers, successors and assigns, releases, acquits and forever discharges the Lender, and its respective officers, directors, agents, attorneys, insurers, parents, affiliates, successors and assigns, of and from any and all manner of action or actions, suits, claims, damages, judgments, levies and executions, whether known or unknown, liquidated or unliquidated, fixed, contingent, direct or indirect, which the Company ever had, has, or may have or claim to have against the Lender or its respective officers, agents, insurers, successors and assigns, for, upon or by reason of any matter, act or thing prior to the date of execution of this Agreement. 15 11. No modifications or amendments to this Agreement may be made except in a writing signed by all parties hereto. 12. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Facsimiles or photocopies of executed signature pages to this Agreement shall be considered originals. 13. This Agreement is made and entered into in the State of Minnesota, and the laws of Minnesota shall govern its enforcement and performance. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. NORWEST BANK MINNESOTA NATIONAL ASSOCIATION By______________________________ Its___________________________ ZEARL T. YOUNG, INCORPORATED By /s/ ______________________________ Its President ____________________________ 16 EX-27 3 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 DEC-31-1997 31,457 6,039 0 0 0 37,496 255 0 37,751 5,296,752 0 0 1,128,370 143,431 0 37,751 0 123,006 0 0 0 0 15,855 107,151 0 0 (2,859,234) 0 0 (2,819,013) (0.20) (0.20)
EX-99 4 LETTER FROM NORWEST BANK RE SALE OF ACCOUNTS NORWEST BANKS Norwest Bank Minnesota, N.A. Norwest Center Sixth and Marquette Minneapolis, Minnesota 55479-0001 August 5, 1997 R. Harold Owens President and Chief Operating Officer World Acceptance Corporation P.O. Box 6429 Greenville, SC 29806 Robert W. Schleizer President Zearl T. Young, Incorporated 400 North St. Paul, Suite 950 Dallas, Texas 75291 RE: Sale of Accounts Receivable Gentlemen: As you are aware, Norwest Bank Minnesota, National Association ("Norwest") has a valid, perfected, first priority lien on, among other things, all accounts receivable and other rights to payment of Zearl T. Young, Incorporated (the "Company") pursuant to a Loan and Security Agreement dated October 28, 1994, as amended from time to time. Norwest has been informed that the Company would like to sell, and World Acceptance Corporation (the "Purchaser") would like to buy, certain of the Company's accounts receivable (the "Accounts"), all as more fully set forth in a purchase agreement being executed between them. Norwest is willing to release its lien on the Accounts on the terms and conditions set forth below. The Purchaser shall pay an amount equal to $1,760,698.29 (the "Purchase Price") equal to 48.5% of the face value of the Accounts on the Company's books at the close of business Monday, August 4, 1997 (the "Closing Date"). All collections of Accounts received on and prior to the Closing Date shall be wired promptly in full directly to Norwest and shall remain subject to Norwest's lien. All collections of Accounts received after the Closing Date and payment of the Purchase Price shall be remitted promptly to the Purchaser and shall no longer be subjectto Norwest's lien. The Purchase Price shall be wired by the Purchaser directly to Norwest and applied in reduction of the Company's obligations to Norwest The wiring instructions to Norwest are as follows: Norwest Bank Minnesota, National Association ABA No. 091000019 Commercial Loan Clearing Account No. 840165 Attention: Alma McKenzie 612/673-8680 Reference: Zearl T. Young We understand and agree that $50,000 of the Purchase Price may be reserved by the Purchaser in a segregated account (the "Reserve Fund") for up to one year solely for the purpose of paying any valid credit insurance premium refund claims of account debtors whose accounts are sold to the Purchaser by the Company where such credit insurance is actually in force on the closing date and the premium has been fully paid; provided, however, that no refund claim shall be paid from the Reserve fund in the event the account debtor renews, extends or otherwise modifies an existing payment obligation and obtains additional or replacement credit insurance to which the refund amount should be credited against the new or additional premium. Purchaser may not withdraw any funds from the Reserve Account without first giving notice to Norwest of the intent to make such withdrawal, together with evidence of the account debtor's right to receive a credit insurance premium refund, and receiving written authorization for such withdrawal from Norwest. On or before the first anniversary of the closing date of the sale of the Company's accounts to the Purchaser, the Purchaser shall remit to Norwest the sum of $50,000 or such balance as remains in the Reserve Fund after withdrawals approved by Norwest. Very truly yours, NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ ------------------------ Its Assistant Vice President ------------------------ EX-99 5 AUCTION SALES SUMMARIES James Cecil Auctioneers P.O. Box 1947 Hobbs, NM 88241 (505) 393-4917 "WESTERN AUTO AUTOMOTIVE" Page: 24 Consignment Sales - Detail Sat Aug 23 06:21:49 1997 Consignment: A Consignor: WESTERN AUTO AUTOMOTIVE
Lot# Description Quan Bid# Comm. Unit Price Price - ---- ----------- ---- ---- ----- ---------- ----- 464 170 USED BATTERIES 170 85 0.90 153.00 465 2 TIRE RACKS 1 85 110.00 466 2 TIRE RACKS 1 85 110.00 467 2 TIRE RACKS 1 85 110.00 468 2 TIRE RACKS 1 85 110.00 469 1 TIRE RACK 1 3 55.00 470 1 TIRE RACK (OUTSIDE) 1 85 100.00
PAGE TOTAL $748.00
TOTAL ITEMS SOLD AT AUCTION $37,999.60 LESS EXPENSES: LESS 10% COMMISSION $3,799.96 LESS TAX ON COMMISSION 228.00 LES ADVERTISING 2,500.00 --------- LESS TOTAL EXPENSES $6,527.96 6,527.96 --------- NET BALANCE $31,471,64 WITH MR. BOUDREAU'S APPROVAL, JAMES CECIL AUCTIONEERS SOLD A COMMEMORATIVE HIGH-DOLLAR GUN AT THE QUAILS UNLTD. AUCTION AT THE HOBBS COUNTRY CLUB, AUGUST 23, 1997. THE GUN WAS SOLD FOR $2,100.00 WITH $100.00 OF THIS MONEY GOING TO QUAILS UNLTD. $2,000.00 IS TO BE PAID TO NORWEST, WITH NO COMMISSION CHARGED ON THIS ITEM. 2,000.00 --------- NET BALANCE $33,471.64
James Cecil Auctioneers P.O. Box 1947 Hobbs, NM 88241 (505) 393-4917 "TRUE VALUE HDWR/WAREHOUSE/MAIN" Page: 47 Consignment Sales - Detail Sun Sep 7 00:43:31 1997 Consignment: A Consignor: ZEARL T. YOUNG, INC. Lot# Description Quan Bid# Comm. Unit Price Price - ----- ----------- ---- ---- ----- ---------- ----- --------------- Total for this Consignment 52296,40 0.0% Rate LESS: Commissions: 0.00 ---- 0.00 Total Auction Charges 0.00 --------------- 52296.40
TOTAL SOLD AT AUCTION $52,296.40 LESS 10% COMMISSION $5,229.64 LESS TAX ON COMMISSION 313.78 LESS ADVERTISING 3,000.00 --------- LESS TOTAL $8,543.42 8,543.42 -------- NET BALANCE $43,752.98
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