-----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, H9I87LqkUC9YPGsDIiEdld/f5WchrLMSpe6QkCxxomQbHyJmDzSPtH9cB/0DBNTy Yw0k7YDDNOpWUjsImpXRLg== 0001023856-98-000018.txt : 19980414 0001023856-98-000018.hdr.sgml : 19980414 ACCESSION NUMBER: 0001023856-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 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-Q SEC ACT: SEC FILE NUMBER: 000-12977 FILM NUMBER: 98592139 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-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 Commission File Number 0-12977 PEGASUS INDUSTRIES, INC. _________________________________________________ (Exact name of registrant as specified in charter) Nevada 95-3599648 _____________________________ _______________________________________ (State or other jurisdiction) (I.R.S. Employer Identification Number) 400 N. St. Paul, Suite 950, Dallas, TX 75201 ____________________________________________ (Address of principal executive offices) (214) 520-8300 _______________________________ (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports 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 re- quired to file such reports), and (2) has been subject to such filing require- ments for the past 90 days. Yes No X As of June 30, 1997, there were 14,343,041 shares of Common Stock outstanding. 1 PEGASUS INDUSTRIES, INC. INDEX Page No. ________ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 3 Condensed Consolidated Balance Sheets June 30, 1997 and December 31, 1996 3 Condensed Consolidated Statement of Income - Three Months Ended June 30, 1997 and June 30, 1996 6 Condensed Consolidated Statement of Income - Six Months Ended June 30, 1997 and June 30, 1996 6 Condensed Consolidated Statement of Cash Flows - Six Months Ended June 30, 1997 and June 30, 1996 8 Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Signatures 12 2 PART I ITEM I. PEGASUS INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS In the opinion of management, the information set forth in the Condensed Consolidated Balance Sheets is fairly stated in all material aspects in relation to the consolidated balance sheets from which it has been derived.
Unaudited June 30, December 31, 1997 (1) 1996 (1) _________ ____________ Current Assets: Cash $ 103,080 $ 132,162 Financing Contract Receivables Current Portion 2,595,980 2,988,990 Inventories 413,605 624,141 Prepaid Expenses and Other 5,598 35,740 _________ ___________ Total Current Assets 3,118,263 3,781,033 Property and Equipment, net of accumulated depreciation of $1,035,507 and $997,549 236,913 274,363 Financing Contracts Receivable - non current portion 648,995 1,102,395 Other Assets 69,799 60,010 _________ __________ $ 4,073,970 $ 5,217,801 _________ __________
The accompanying notes are an integral part of the Condensed Consolidated Balance Sheets 3 LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31, 1997 (1) 1996 (1) __________ ____________ Current Liabilities: Accounts Payable $ 626,783 $ 557,418 Accrued Expenses 235,275 516,243 Current maturities of long term debt 6,118,625 6,584,128 __________ ___________ Total Current Liabilities 6,980,683 7,657,789 Long-term debt, less current maturities 35,045 - __________ ___________ 7,015,728 7,657,789 Preferred Stockholders' Equity in Subsidiary 1,128,370 (2) 1,128,370 (2) Stockholders' Equity Common stock, $.01 par value, 50,000,000 shares authorized; 14,343,091 shares issued and outstanding at June 30, 1997 and 14,434,091 shares issued and out- standing at December 31, 1996 143,091 143,431 Additional Paid in Capital 58,536 58,536 Accumulated Loss (4,272,095) (3,770,325) ___________ ___________ (4,070,128) (3,568,358) ___________ ___________ 4,073,970 5,217,801 ___________ ___________
The accompanying notes are an integral part of the Condensed Consolidated Balance Sheets 4 NOTES TO CONDENSED CONSOLIDATED BALANCE SHEET (1) The unaudited condensed consolidated balance sheet represent the consoli- dated assets, liabilities and stockholders' equity of the Company and its wholly owned subsidiary, Zearl T. Young, Incorporated ("ZTY"). (2) Reflects the preferred stockholders' equity interest in ZTY as a result of a reorganization in 1994. The preferred stock, issued as part of the reorgani- zation, has a $5.00 par value and 5% cumulative dividend. 5 CONSOLIDATED CONDENSED STATEMENT OF INCOME The interim consolidated condensed statement of income contained herein reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods presented. Operating results for the three month period ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. However, under an agreement with its secured lender, Zearl T. Young, Incorporated, a wholly owned subsidiary of the Company initiated a liquidation.
For the Three Months Ended June 30, June 30, 1997 1996 ___________ ___________ (Unaudited) (Unaudited) Net Sales $ 382,488 $ 1,117,109 Cost of Sales 292,842 793,394 ___________ ___________ Gross Profit 89,646 323,715 Financing Income 370,563 477,916 ___________ ___________ 460,209 801,631 Selling, General and Administrative Expenses 570,626 801,631 ___________ ___________ Operating Income (110,417) (170,910) Interest Expense 165,959 235,866 ___________ ___________ (276,376) (406,776) Other Income 8,805 - ___________ ___________ Net Income $ (267,571) $ (406,776) Loss per Common Share (0.02) (0.028) ___________ ___________ Weighted Average Common Shares 14,343,091 14,343,091 ___________ ___________
6 CONSOLIDATED CONDENSED STATEMENT OF INCOME The interim consolidated condensed statement of income contained herein re- flect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods presented. Opera- ting results for the three month period ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997.
For the Six Months Ended June 30, June 30, 1997 1996 ___________ ___________ (Unaudited) (Unaudited) Net Sales $ 684,709 $ 1,950,073 Cost of Sales 632,236 1,339,549 ___________ ___________ Gross Profit 52,383 610,524 Financing Income 944,334 989,238 ___________ ___________ 996,717 1,599,762 Selling, General and Administrative Expenses 1,177,716 1,896,031 ___________ ___________ Operating Income (180,999) (296,269) Interest Expense 334,307 452,212 ___________ ___________ (515,306) (748,481) Other Income 13,536 - ___________ ___________ Net Loss $ (501,770) $ (748,481) Loss per Common Share (0.03) (0.05) ___________ ___________ Weighted Average Common Shares 14,343,091 14,343,091 ___________ ___________
7
For the Six Months Ended June 30, June 30, 1997 1996 ___________ ___________ (Unaudited) (Unaudited) Cash flow provided by (used in) operating activities: Net income /(loss) (501,770) (748,481) Adjustments to reconcile net cash provided (used in) operating activities: Depreciation and amortization 37,450 38,548 (Increase)decrease in finance contract receivables 846,410 964,842 (Increase)decrease in inventories 210,536 2,401 (Increase)decrease in prepaid expenses 30,142 92,656 Increase(decrease) in accounts payable 69,365 (115,181) Increase(decrease) in accrued expenses (280,968) 104,354 ___________ ___________ Net cash provided by (used) in operating activities 912,935 339,139 Cash flows (used in) investing activities: (Increase)decrease in property and equipment - 1,543 (Increase)decrease in other assets (9,789) (8,008) ___________ ___________ Net cash (used in) investing activities (9,789) (6,465) Cash flows (used in) financing activities: Increase(decrease) in debt (430,458) (388,615) ___________ ___________ Net cash (used in) financing activities (430,458) (388,615) ___________ ___________ Net Increase in Cash (29,082) (55,941) Cash - beginning of period 132,162 73,782 ___________ ___________ Cash - end of period 103,080 17,842 ___________ ___________
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's business consists of the sale of retail consumer products, primarily consumer durable goods such as furniture, appliances, carpet and e- lectronics and the related financing of those purchases with consumer finance contracts. The Company's wholly owned subsidiary, Zearl T. Young, Incorporated ("ZTY") experienced working capital shortages for the previous several quarters. Con- tinuing operating losses necessitated management to initiate a program to close stores, reduce staff and restructure operations while it attempted to raise equity. Attempts to secure equity were unsuccessful and consequently, ZTY's operations were reduced to the size where its ability to continue as a going concern ended. On May 4, 1997, ZTY's management executed a liquidation agreement with the primary lender whereby, the lender would provide short term operating working capital while management sought buyers for its stores and finance contracts re- ceivable. Management believed it would be successful in selling the finance contracts receivable. If the stores could not be sold, management agreed to continue to consolidate inventory for a liquidation of its assets in the third quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES - JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995 During the six months ended June 30, 1997, ZTY's current assets decreased by $662,770 primarily due to a decrease of $393,010 in the current portion of finance contract receivables. In April 1997, ZTY's lender discontinued finan- cing any newly generated finance contracts. Management, therefore, limited sales to cash only unless the finance contracts could be immediately sold to a third party finance company. As a result, ZTY's finance contracts reduced a total of $846,410 during the quarter or 24%. Inventories decreased $210,536 from December 31, 1996 to June 30, 1997. ZTY was unable to purchase new in- ventory during the quarter except in very limited quantities. Management con- tinued consolidating inventory and discounting prices in anticipation of a liquidation. Cash balances decreased $29,082. Current liabilities decreased $642,061 primarily due to the decrease in accrued liabilities and due to the $465,503 reduction in current maturities in long term debt. Long term debt increased $35,045 during the six month period. 9 RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 The Company's Statements of Income for the three months ended June 30, 1997 and the Statement of Income for June 30, 1996 consist of the operations of the Company and ZTY, its wholly owned subsidiary. Net sales for the second fiscal quarter decreased from $1,117,109 in 1996 to $382,488 in 1997, a 66% decrease while gross profit declined $234,069, a 71% decrease. Gross profit decreased due to sales discounts to sell aged inventory due to liquidation of inventory. Financing income for the quarter decreased $107,353 compared to the three month period a year earlier, an 22% decrease primarily due to lower retail sales and reduced base of finance contract receivables. Selling, general and admini- strative expenses for the quarter decreased by $231,005 compared to the prior year. The company had an operating loss of $110,417 for the three months ended June 30, 1997 as compared to operating loss of $170,910 for the same period a year earlier. The operating loss was primarily due to reduced sales caused by working capital shortages. RESULTS IN OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 ZTY's sales during the six months ended June 30, 1996 were $1,950,073 compared to $684,709 for the current period, a decrease of $1,265,364. Gross profit for the six months decreased $558,141 or 91%. Financing income decreased $44,904 a 5% decrease. Selling, general and administrative expenses decreased $718,315, a 38% decrease due to the additional store closings. The Company re- ported a net loss of $748,481 for the six months ended June 30, 1996 as compared to a net loss of $501,770 for the current six month period. 10 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Zearl T. Young, Incorporated Liquidation Agreement...........................................12 (b) There are no reports on Form 8-K SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 6, 1998. PEGASUS INDUSTRIES, INC. /s/ Robert W. Schleizer ------------------------------- By: Robert W. Schleizer, President 11 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 6-MOS DEC-31-1997 JUN-30-1997 103,080 0 2,595,980 0 413,605 3,118,263 236,913 0 4,073,970 6,980,683 0 0 1,128,370 143,091 0 4,073,970 684,709 684,709 632,236 632,236 1,177,716 0 334,307 (501,770) 0 0 0 0 0 (501,770) (0.03) (0.03)
-----END PRIVACY-ENHANCED MESSAGE-----