UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number:
333-162516
CIK Number:
0001377469
_______________________________________________
PEGASUS TEL, INC.
(Exact name of small business issuer as specified
in its charter)
Delaware
|
|
41-2039686
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification No.)
|
|
|
|
118 Chatham Road, Syracuse, NY
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|
13203
|
(Address of principal executive offices)
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|
(zip code)
|
Registrant's telephone number, including
area code:
Issuer’s telephone number:
(315)
491-8262
Anthony Dibiase
6315 Presidential Court
Fort Myers, FL 33919
Telephone: (877) 233-9492
Securities registered under Section 12(b) of the Exchange
Act:
None.
Securities registered under Section 12(g) of the Exchange
Act:
Common Stock, $.0001 par value per share
(Title of Class)
1
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No
[X
]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [
X
]
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 [
X
] No [ ]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§229.405) 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 of this Form 10-K or
any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
Non-accelerated filer [ ]
|
Smaller reporting company [
X
]
|
(Do not check if a smaller reporting company)
|
|
Indicate by checkmark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
Yes [ ] No [
X
]
As of September 30, 2011, 2,810,496,677 shares of the Company's $.0001
par value common stock were issued and outstanding.
State issuer’s revenues for its most recent fiscal year: $4,554
As of November 18 2011 the aggregate market value
of the 79,215,136 shares common stock held by non-affiliates was approximately $15,843 based upon the market value of $.0002. As
of September 30, 2011, there were 2,810,496,677 shares of common stock outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format: Yes [ ] No
[
X
]
2
PEGASUS TEL, INC.
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SEPTEMBER 30, 2011
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PART I – FINANCIAL INFORMATION
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Page
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Item 1.
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Financial Statements
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4
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Balance Sheets as September 30, 2011 (Unaudited) and December 31, 2010
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4
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|
Statements of Operations
For the three months ended September 30, 2011(Unaudited) and
September 30, 2010 (Unaudited)
For the nine months ended September 30, 2011 (Unaudited) and
September 30, 2010 (Unaudited)
For the cumulative period from February 19, 2002 (Inception)
to September 30, 2011 (Unaudited)
|
5
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Statements of Cash Flows
For the nine months ended September 30, 2011 (Unaudited) and
September 30, 2010 (Unaudited)
For the cumulative period from February 19, 2002 (Inception)
to September 30, 2011 (Unaudited)
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6
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Notes to Financial Statements
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7
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Item 2.
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Management’s Discussion and Analysis or Plan of Operation
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20
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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30
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Item 4.
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Controls and Procedures
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31
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PART II – OTHER INFORMATION
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Item 1.
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Legal Proceedings
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32
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Item 1A.
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Risk Factors
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32
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Item 2.
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Unregistered Sale of Equity Securities and Use of Proceeds
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35
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Item 3.
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Defaults Upon Senior Securities
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35
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Item 4.
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Submission of Matters to a Vote of Security Holders
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35
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Item 5.
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Other Information
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35
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Item 6.
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Exhibits
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36
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SIGNATURES
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3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
PEGASUS TEL, INC.
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(A Development Stage Company)
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BALANCE SHEETS
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(Unaudited)
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September 30,
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December 31,
|
|
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2011
|
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2010
|
|
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|
Assets:
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
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|
$
|
317
|
|
|
$
|
289
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Accounts Receivable
|
|
|
208
|
|
|
|
218
|
|
|
|
|
|
|
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Total Current Assets
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525
|
|
|
|
507
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|
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Total Assets
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$
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525
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$
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507
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Liabilities:
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|
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Accounts Payable
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$
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22,338
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|
$
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9.258
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Related Party Accounts Payable
|
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|
15,766
|
|
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24,589
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Accrued Interest
|
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58,976
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|
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38,431
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Notes Payable
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414,635
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140,627
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Total Current Liabilities
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|
511,715
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212,905
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Total Liabilities
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511,715
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212,905
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|
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Stockholders' Equity:
|
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Preferred Stock, Par value $0.0001, Authorized 10,000,000 shares
|
|
|
|
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|
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Issued 6,995,206 shares at September 30, 2011 and December 31, 2010
|
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|
699
|
|
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|
-
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Common Stock, Par value $0.0001, Authorized 100,000,000 shares
|
|
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Issued 2,810,496,677 shares at September 30, 2011 and December 31, 2010
|
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281,250
|
|
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|
2,022
|
|
Paid-In Capital
|
|
|
18,550,599
|
|
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|
55,842
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Deficit Accumulated During Development Stage
|
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|
(19,343,938
|
)
|
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(270,262
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)
|
Total Stockholders' Equity
|
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|
(511,190
|
)
|
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(212,398
|
)
|
|
|
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|
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Total Liabilities and Stockholders' Equity
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|
$
|
525
|
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$
|
507
|
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The accompanying notes are an integral part of these financial statements.
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4
PEGASUS TEL, INC.
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(A Development Stage Company)
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STATEMENTS OF OPERATIONS
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(Unaudited)
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Cumulative
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Since
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February 19,
|
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|
|
|
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2002
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|
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For the Three Months Ended
|
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For the Nine Months Ended
|
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Inception of
|
|
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|
|
|
|
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September 30,
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September 30,
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Development
|
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2011
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2010
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2011
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2010
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Stage
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Revenues
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$
|
993
|
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$
|
1,159
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$
|
2,783
|
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$
|
3,478
|
|
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$
|
72,544
|
|
Costs of Services
|
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|
(773
|
)
|
|
|
(885
|
)
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|
(2,378
|
)
|
|
|
(2,680
|
)
|
|
|
(68,363
|
)
|
|
|
|
|
|
|
|
|
|
|
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Gross Margin
|
|
|
220
|
|
|
|
274
|
|
|
|
405
|
|
|
|
798
|
|
|
|
4,181
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
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|
Expenses
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Accounting
|
|
|
12,147
|
|
|
|
3,988
|
|
|
|
31,649
|
|
|
|
1,803
|
|
|
|
117,243
|
|
Stock for Services
|
|
|
16,599,384
|
|
|
|
-
|
|
|
|
17,749,384
|
|
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|
-
|
|
|
|
17,479,384
|
|
Related Party Bookkeeping
|
|
|
-
|
|
|
|
800
|
|
|
|
2,600
|
|
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|
2,600
|
|
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|
20,327
|
|
General and Administrative
|
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|
5,709
|
|
|
|
205
|
|
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|
8,574
|
|
|
|
5,253
|
|
|
|
51,981
|
|
Legal
|
|
|
2,500
|
|
|
|
-
|
|
|
|
25,598
|
|
|
|
16,500
|
|
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|
110,388
|
|
Finance Charge
|
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|
1,180,000
|
|
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|
-
|
|
|
|
1,506,000
|
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-
|
|
|
|
1,506,000
|
|
Operating Expenses
|
|
|
17,799,740
|
|
|
|
4,993
|
|
|
|
19,053,055
|
|
|
|
26,156
|
|
|
|
19,285,323
|
|
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Operating Income (Loss)
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|
(17,799,520
|
)
|
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|
(4,719
|
)
|
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|
(19,052,650
|
)
|
|
|
(25,358
|
)
|
|
|
(19,281,142
|
)
|
|
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|
|
|
|
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|
|
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Other Income (Expense)
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|
|
|
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|
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|
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Interest, Net
|
|
|
(7,494
|
)
|
|
|
(4,771
|
)
|
|
|
(20,545
|
)
|
|
|
(13,804
|
)
|
|
|
(60,031
|
)
|
|
|
|
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|
|
|
|
|
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|
|
|
|
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Net Loss Before Taxes
|
|
|
(17,807,014
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)
|
|
|
(9,490
|
)
|
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|
(19,073,195
|
)
|
|
|
(39,162
|
)
|
|
|
(19,341,173
|
)
|
|
|
|
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|
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|
|
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|
|
|
|
|
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|
|
Income and Franchise Tax
|
|
|
-
|
|
|
|
-
|
|
|
|
(481
|
)
|
|
|
(648
|
)
|
|
|
(2,765)
|
)
|
|
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|
|
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|
|
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|
|
|
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Net Loss
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|
$
|
(17,807,014
|
)
|
|
$
|
(9,490
|
)
|
|
$
|
(19,073,676
|
)
|
|
$
|
(39,810
|
)
|
|
$
|
(260,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Loss per Share, Basic &
|
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|
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Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
Weighted Average Shares
|
|
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|
|
|
|
|
|
|
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|
Outstanding
|
|
|
2,251,331,214
|
|
|
|
20,215,136
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|
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|
774,722,693
|
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|
20,215,136
|
|
|
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|
|
|
|
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|
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The accompanying notes are an integral part of these financial statements.
|
|
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5
PEGASUS TEL, INC.
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(A Development Stage Company)
|
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STATEMENTS OF CASH FLOWS
|
|
|
|
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|
|
|
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(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
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|
|
Since
|
|
|
|
|
|
|
|
|
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|
|
February 19,
|
|
|
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|
|
|
|
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|
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|
|
2002
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
Inception of
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Development
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Stage
|
|
|
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|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss for the Period
|
|
$
|
(19,073,676
|
)
|
|
$
|
(39,810
|
)
|
|
$
|
(19,343,938
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by operating activities:Depreciation
|
|
|
|
|
|
|
|
|
|
|
12,600
|
|
Stock issuance/
|
|
|
18,794,987
|
|
|
|
-
|
|
|
|
19,074,748
|
|
Changes in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (Increase) in Accounts Receivable
|
|
|
10
|
|
|
|
(34)
|
|
|
|
(208
|
)
|
Increase (Decrease) in Accounts Payable
|
|
|
13,080
|
|
|
|
(30,009)
|
|
|
|
23,798
|
|
Increase (Decrease) in Related Party Accounts Payable
|
|
|
1,850
|
|
|
|
2,600
|
|
|
|
15,766
|
|
Increase (Decrease) in Interest Payable
|
|
|
20,545
|
|
|
|
12,750
|
|
|
|
58,976
|
|
Decrease (Increase) in Intercompany Dues
|
|
|
3,100
|
|
|
|
-
|
|
|
|
3,100
|
|
Net Cash Used in Operating Activities
|
|
|
(60,104
|
)
|
|
|
(54,503
|
)
|
|
|
(153,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Property and Equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,600
|
)
|
Net cash provided by Investing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Payments on Related Party Notes
|
|
|
-
|
|
|
|
(445)
|
|
|
|
-
|
-
|
Proceeds from Related Party Notes
|
|
|
60,132
|
|
|
|
55,175
|
|
|
|
166,535
|
|
Net Cash Provided by Financing Activities
|
|
|
60,132
|
|
|
|
54,730
|
|
|
|
123,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash
|
|
|
28
|
|
|
|
227
|
|
|
|
317
|
|
Cash at Beginning of Period
|
|
|
289
|
|
|
$
|
39
|
|
|
|
-
|
|
Cash at End of Period
|
|
$
|
317
|
|
|
$
|
266
|
|
|
$
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
1,055
|
|
|
$
|
1,055
|
|
Franchise and Income Taxes
|
|
$
|
481
|
|
|
$
|
482
|
|
|
$
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
|
|
|
|
|
|
|
|
|
|
|
|
|
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable Satisfied through Contributed Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
and Property and Equipment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
56,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
6
PEGASUS
TEL, INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Pegasus Tel, Inc. is presented
to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the financial statements.
Interim Financial Statements
The unaudited financial statements as of September 30, 2011 and
the nine months then ended, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of the operations for all three months. Operating results for
interim periods are not necessarily indicative of the results which can be expected for full years.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the
basis of accounting principles applicable to a “going concern”, which assume that Pegasus Tel., Inc. (hereto referred
to as the “Company”) will continue in operation for at least one year and will be able to realize its assets and discharge
its liabilities in the normal course of operations.
Several conditions and events cast doubt about the Company’s
ability to continue as a “going concern.” The Company has incurred net losses of approximately $(19,364,488)
for the period from February 19, 2002 (inception) to September 30, 2011, has an accumulated deficit, has recurring losses, has
minimal revenues and requires additional financing in order to finance its business activities on an ongoing basis. The Company
is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have
been obtained. In the interim, shareholders of the Company have committed to meeting its operating expenses. Management
believes that actions presently being taken to revise the Company’s operating and financial requirements provide them with
the opportunity to continue as a “going concern”.
These financial statements do not reflect adjustments that would
be necessary if the Company were unable to continue as a “going concern”. While management believes that the actions
already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the “going
concern” assumption used in preparing these financial statements, there can be no assurance that these actions will be successful.
If the Company were unable to continue as a “going concern,”
then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the
reported revenues and expenses, and the balance sheet classifications used.
Organization and Basis of Presentation
On February 19, 2002, Pegasus Tel, Inc., a Delaware company, was
formed as a wholly owned subsidiary of American Industries.
On March 28, 2002, American Industries, Inc. and Pegasus Tel, Inc.
entered into an agreement with Pegasus Communications, Inc., a New York corporation, to acquire 100% of the outstanding shares
of Pegasus Communications, Inc. in exchange for 72,721,966 shares of common stock of American Industries, Inc. Pegasus Tel,
Inc. continued as the surviving corporation and Pegasus Communications, Inc. was merged out of existence. The Company is in the
development stage, and has not commenced planned principal operations. The Company has a December 31 year end.
Nature of Business
The Company is primarily in the business of providing the use of
outdoor payphones, and providing telecommunication services.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents to the extent the funds
are not being held for investment purposes.
Revenue Recognition
The Company derives its primary revenue from the sources described
below, which includes Dial Around revenues, coin collections, telephone equipment repairs, and sales. Other revenue generated by
the company includes sales commissions.
Coin revenues are recorded in an equal amount to the coins collected.
Revenues on commissions and telephone equipment and sales are realized on the date when the telephone repair services are
provided or the telecommunication supplies are received by the customer. Dial Around revenues are earned when a customer uses the
Company’s payphone to gain access to a different long distance carrier than is already programmed into the phone. The Dial
Around revenue is recognized when the billing and collection agent of the Company, APCC, calculates and compensates the Company
for the use of the payphone on a quarterly basis by billing the actual party’s long distance carrier that received the calls.
The date of the Dial Around revenue recognition is determined when this compensation is collected and deposited into the
Company’s bank account.
The Company recognizes revenues in accordance with the Securities
and Exchange Commission Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition." SAB 104 clarifies application
of U. S. generally accepted accounting principles to revenue transactions. The Company recognizes revenue when the earnings
process is complete. That is, when the arrangements of the goods are documented, the pricing becomes final and collectibility
is reasonably assured. An allowance for bad debt is provided based on estimated losses. For revenue received in advance for goods,
the Company records a current liability classified as either deferred revenue or customer deposits. As of September 30, 2011, there
was no deferred revenue.
Allowance for Doubtful Accounts
The Company recognizes an allowance for doubtful accounts to ensure
accounts receivable are not overstated due to uncollectibility. Bad debt reserves are maintained for all customers based on a variety
of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An
additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its
financial obligation, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial
position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.
As of September 30, 2011, the Company has determined an allowance for doubtful accounts is not necessary.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations
of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company had
cash and cash equivalents of $317 and $289 as of September 30, 2011 and December 31, 2010 all of which was fully covered by Federal
depository insurance.
Accounts Receivable
Accounts Receivable consists of Local Service revenue and Commission
Revenue
.
The Accounts Receivable was $208 and $218 as of September 30, 2011 and December 31, 2010
respectively.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Loss per Share
Basic loss per share has been computed by dividing the loss for
the period applicable to the common stockholders’ by the weighted average number of common shares outstanding during the
period. There were no common equivalent shares outstanding during the periods ended September 30, 2011 and September 30,
2010.
Financial Instruments
The Company’s financial assets and liabilities consist of
cash, accounts receivable, and accounts payable. Except as otherwise noted, it is management’s opinion that the Company is
not exposed to significant interest or credit risks arising from these financial instruments. The fair values of these financial
instruments approximate their carrying values due to the short-term maturities of these instruments.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS
No.109, “Accounting for Income Taxes.” SFAS No.109 requires recognition of deferred income tax assets and liabilities
for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting
and tax bases of assets and liabilities.
Reclassification
Certain reclassifications have been made in the 2010 financial statements
to conform to the September 30, 2011 presentation.
Recent Accounting Standards
In January 2011, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update 2011-01 (ASU 2011-01) Receivables (Topic 310): Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20. ASU 2011-01 temporarily delay the effective date of the disclosures
about troubled debt restructurings. The effective date of the new disclosures about troubled debt restructurings for
public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently,
the guidance is anticipated to be effective for interim and annual period ending after June 15, 2011. The
Company does not expect the provisions of ASU 2011-01 to have a material effect on its financial position, results of operations
or cash flows.
NOTE 2 - INCOME TAXES
As of December 31, 2010, the Company had a net operating loss carry
forward for income tax reporting purposes of approximately $261,000 that may be offset against future taxable income through 2025.
Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change
in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit
has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry-forwards
will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance
of the same amount.
|
|
|
|
|
|
|
2010
|
|
2009
|
Net Operating Losses
|
|
$ 88,740
|
|
$ 72,080
|
Valuation Allowance
|
|
(88,740)
|
|
(72,080)
|
|
|
$ -
|
|
$ -
|
The provision for income taxes differ from the amount computed using
the federal US statutory income tax rate as follows:
|
|
|
|
|
|
|
2010
|
|
2009
|
Provision (Benefit) at US Statutory Rate
|
|
$ 16,660
|
|
$ 13,260
|
Other Adjustments
|
|
-
|
|
-
|
Increase (Decrease) in Valuation Allowance
|
|
(16,660)
|
|
(13,260)
|
|
|
$ -
|
|
$ -
|
The Company evaluates its valuation allowance requirements based
on projected future operations. When circumstances change and causes a change in management's judgment about the recoverability
of deferred tax assets, the impact of the change on the valuation is reflected in current income.
NOTE 3- DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is common
with a development stage company, the Company will have recurring losses during its development stage. The Company's financial
statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant
cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to
allow it to continue as a going concern. In the interim, shareholders of the Company have committed to meeting its minimal
operating expenses.
NOTE 4 – UNCERTAIN TAX POSITIONS
Effective January 1, 2007, the Company adopted the provisions of
FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition
and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position
must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of FIN 48 did
not have a material impact on the company’s financial position and results of operations. At January 1, 2010, the company
had no liability for unrecognized tax benefits and no accrual for the payment of related interest.
Interest costs related to unrecognized tax benefits are classified
as “Interest expense, net” in the accompanying statements of operations. Penalties, if any, would be recognized as
a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related
to unrecognized tax benefits during 2010. In many cases the company’s uncertain tax positions are related to tax years
that remain subject to examination by relevant tax authorities.
With few exceptions, the company is generally no longer subject
to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2007. The following describes
the open tax years, by major tax jurisdiction, as of January 1, 2010:
|
|
|
United States (a)
|
|
2007– Present
|
(a) Includes federal as well as state or similar
local jurisdictions, as applicable.
NOTE 5 – EQUIPMENT
Equipment, stated at cost, less accumulated
depreciation at September 30, 2011 and December 31, 2010 consisted of the following:
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$ 12,600 10,249
|
|
$
|
12,600
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
(12,600)
|
|
|
(12,600)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
)
|
|
|
|
$ - 6,839
|
|
$
|
-
|
|
|
Depreciation expense for the period ended
September 30, 2011 and December 31, 2010 was $0 and $0.
NOTE 6 – NOTES PAYABLE
On June 6, 2011 the Company acquired certain
assets and certain liabilities of Encounter Technologies, Inc. for the issuance of 6,995,206 shares of series B preferred stock.
At September 30, 2011 the amounts owed on the assumed liabilities are as follows: MP Power for $2,000, V-2 for $160,000, V-mix
for $7,500, and Spire for $75,000.
At September 30, 2011 Cobalt Blue is owed
$15,912 plus interest at 18%. As of September 30, 2011 interest payable on the note is $1,093.
At September 30, 2011 Flash Funding is owed
$150,623 plus interest at 18%. As of September 30, 2011 interest payable on the note is $13,530.
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
MP Power
|
|
$ 2,000
|
|
$
|
-
|
|
|
V-2
|
|
160,000
|
|
|
-
|
|
|
V-Mix
|
|
8,000
|
|
|
-
|
|
|
Spire
|
|
75,000
|
|
|
-
|
|
|
Cobalt Blue
|
|
15,912
|
|
|
70,785
|
|
|
Flash Funding
|
|
150,623
|
|
|
-
|
|
|
Joseph Passalaqua
|
|
-
|
|
|
16,242
|
|
|
Mary Passalaqua
|
|
-
|
|
|
53,600
|
|
|
|
|
|
|
|
|
)
|
|
|
|
$ 411,535
|
|
$
|
140,627
|
|
|
NOTE 7 - COMMITMENTS
As of September 30, 2011, all activities of the Company have been
conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed
by the company for the use of these facilities and there are no commitments for future use of the facilities.
NOTE 8 - COMMON STOCK TRANSACTIONS
On December 31, 2003, the Company issued 1,000 shares of common
stock in exchange for cash valued at $1,000.
On September 21, 2006, the Company filed an Amended Certificate
of Incorporation and the par value of the common stock was changed to $ .0001 per share. This change is retro-active and
therefore changes the 1,000 share of Common Stock issued on December 31, 2003 to the par value of $ .0001 per share.
On May 15, 2007, the Company filed an Amended Certificate of Incorporation
and there was forward stock split 5,100 to 1. This change is retro-active and therefore changes the 1,000 shares of Common
Stock issued on December 31, 2003 to 5,100,000 shares of Common Stock. The par value remains at $ .0001 per share.
On August 18, 2008, Sino Gas International Holdings, Inc., a Utah
corporation (“Sino”) (OTCBB: SGAS), consummated a distribution of shares of the Company, a then wholly-owned subsidiary
of Sino to Sino’s stockholders of record as of August 15, 2008. The Ratio of Distribution was one (1) share of
common stock of Pegasus for every twelve (12) shares of common stock of Sino (1:12). Fractional shares were
rounded up to the nearest whole-number. An aggregate of 2,215,136 shares of Pegasus common stock were issued to an aggregate
of 167 Sino stockholders. The distributed shares of Pegasus common stock are “restricted securities” (as defined in
Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”)), and were issued pursuant to Section 4(2)
of the Securities Act due to the fact that the distribution did not involve a public offering of securities. Sino cancelled all
the Pegasus Common Stock not distributed to the shareholders. The amount cancelled was 2,884,864 shares of Common Stock.
On March 23, 2009, Pegasus filed a Form 15 (File No. 000-52628)
with the Securities and Exchange Commission pursuant to which the Company de-registered its class of Common Stock under the Securities
Exchange Act of 1934, as amended.
On October 15, 2009, the Company filed a Form S-1 Registration Statement
with the Securities and Exchange Commission to register the Common Stock under the Securities Exchange Act of 1934, as amended,
and on December 28, 2009 the Company’s Registration Statement went effective.
On July 21, 2010 John F. Passalaqua resigned as Director and Secretary
of Pegasus Tel and Joseph C. Passalaqua was appointed as Director and Secretary. A stock purchase agreement was filed stating
that Joseph C. Passalaqua purchased 2,702,386 shares of Pegasus Tel. common stock from John F. Passalaqua for $20,000. On March
30, 2011, the members of the board of directors (the “Board”) of Pegasus Tel, Inc. (the “Company”) approved
by unanimous written consent, and the stockholders of the Company holding a majority in interest of the Company’s voting
equity, approved by written consent, the appointment of Mr. Anthony DiBiase as Chief Executive Officer and as a member of the Board,
effective as of March 30, 2011. Also on that date of March 30, 2011, Pegasus Tel, Inc. (the “Company”), entered
into a Common Stock Purchase Agreement (the “Agreement”) with two shareholders (collectively, the “Majority Shareholders”)
who together hold a majority of the issued and outstanding shares of the Company’s common stock immediately prior to the
consummation of the Sale (as defined herein), and a subscriber for shares of the Company’s common stock (the “Buyer”).
Subject to certain conditions set forth in the Agreement, when the Company has received payment in full of $390,000, the Company
will issue, and the Buyer shall receive, 79,784,864 shares of the Company’s common stock, par value $.0001 per share (the
“Shares”), which, at the time of issuance, will constitute 79.78% of the issued and outstanding shares of the Company’s
common stock. Pursuant to the Agreement, and upon final payment of the purchase price, the Majority Shareholders shall also receive
such number of shares of common stock of the Company as shall constitute 9.9% of the issued and outstanding shares of common stock
of the Company on a fully diluted basis. As of June 30, 2011 the sale had not been completed and 79,784,864 shares have not yet
been issued.
On April 11, 2011 a stock purchase agreement was filed that stated
that Amanda Godin purchased 350,000 shares of Pegasus Tel, Inc. common stock from Joseph C. Passalaqua for $1,750.
On April 4, 2011 Flash Funding, Inc. entered into a Debt Purchase
Agreement to purchase $184,623 of debt held in promissory notes in Pegasus Tel. that are owed to Cobalt Blue LLC, Joseph Passalaqua,
and Mary Passalaqua for $58,000 to the related parties.
On April 6, 2011, 8,000,000 shares were issued to the Company’s
new president for services valued at market which was .08 per share.
On April 6, 2011 Flash Funding, Inc. converted $25,000 of the debt
purchased as outlined in the Debt Purchase Agreement into 2,000,000 shares of Pegasus Tel. Common stock. The market price of the
stock was .08 which resulted in a finance charge of $160,000.
On May 2, 2011 Flash Funding, Inc. converted $2,000 of the debt
purchased as outlined in the Debt Purchase Agreement into 2,000,000 shares of Pegasus Tel. Common Stock. The market price of the
stock was .07 on that day resulting in a finance charge of $140,000.
On June 8, 2011 2,000,000 shares were issued to convert debt of
$2,000. The market price on that day for the stock closed at .008 resulting in a $16,000 finance fee.
On June 10, 2011 40,000,000 shares were issued to the Company’s
new president for services valued at market of $.006 per share, resulting in an expense of $240,000.
On June 23, 2011 5,000,000 shares were issued resulting in debt
reduction of $5,000. The closing price of the stock that day was .0088 which resulted in a finance cost of $44,000.
On June 30, the Company increased its authority
to issue 20,000,000,000 shares. Total common shares authorized increased to 19,900,000,000 shares at $.0001 par value and total
preferred stock authorized remained at 10,000,000 shares at $.0001 par value.
On July 14, 2011 2,400,000,000 shares were issued to Anthony Dibiase
for services valued at market of $.0069 per share, resulting in an expense of $16,560,000.
On July 28, 2011 200,000,000 shares were issued to Flash Funding,
Inc. to settle the $76,750 note payable to Spire. The fair market value of the stock at issuance is $.0059 per share, resulting
in an finance expense of $1,180,000.
On September 29, 2011 131,281,541 shares were issued to Belmont
Partners LTD, for services valued at market of $.0003 per share, resulting in an expense of $39,384.
NOTE 9 - PREFERRED STOCK TRANSACTIONS
On August 5, 2008, Pegasus filed a Certificate of Designations,
Powers, Preferences and Rights (the “Certificate of Designation”) with the Secretary of State of the State of Delaware
thereby designating 2,000,000 shares of preferred stock as Series A Convertible Preferred Stock, $0.0001 (the “Series A Preferred
Stock”). The Certificate of Incorporation of Pegasus authorizes the designation and issuance of an aggregate of
ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board
of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were no shares of preferred stock
designated or issued. Pursuant to the Certificate of Designation, a copy of which is filed as an exhibit hereto, each share of
Series A Preferred Stock may be converted at any time by Pegasus or the holders thereof into ten (10) fully-paid and non-assessable
shares of Pegasus Common Stock.On August 15, 2008, Pegasus issued an aggregate of 1,800,000 shares of Series A Preferred Stock
to an aggregate of 17 individuals pursuant to a Securities Purchase Agreement for $0.0001 per share of Series A Preferred Stock.
Pegasus issued the Series A Preferred Stock pursuant to Section 4(2) of the Securities Act due to the fact that it did not involve
a public offering of securities. The shares of Series A Preferred Stock are “restricted securities” (as such term is
defined in Rule 144 of the Securities Act.
On August 18, 2008 and pursuant to the Series A Preferred Stock
Certificate of Designation and Securities Purchase Agreement, Pegasus converted an aggregate of 1,800,000 shares of Series A Preferred
Stock into an aggregate of 18,000,000 shares of Pegasus common stock. Pegasus issued the common stock pursuant to Section
4(2) of Securities Act due to the fact that it did not involve a public offering of securities. The shares of common stock are
“restricted securities.”
On June 6, 2011 the Company acquired certain
assets and certain liabilities of Encounter Technologies, Inc. for 6,995,206 shares of series B preferred stock. The total assumed
liabilities were $321,250.
On June 13, 2011 the Company amended its certificate of designation
for preferred shares and created out of the 10,000,000 shares authorized 7,000,000 shares designated as “preferred B”
and 1,000,000 as “preferred C” with a par value of $0.001.
The preferred B shares have a conversion feature rate of 1:1,711.156.
The series C preferred stock has voting rights of 350 times that
number of votes on all matters submitted to shareholders and can be converted into 10 times the amount of common shares.
NOTE 10 – RELATED PARTY NOTES PAYABLE
During 2006, a Shareholder and Officer of the Company, Carl Worboys,
advanced the Company $224. As of September 30, 2011, the Company owes $224.
In 2006, 2007, 2008, and 2011 a Shareholder and former Officer of
the Company, Mary Passalaqua, advanced the Company $5,000, $30,300, $18,300, and $18,100 respectively. The notes were accruing
between 10%,15%, and 18% simple interest per annum and were payable in full upon demand. As of September 30, 2011 this debt was
sold to Flash Funding.
In 2007, 2008 and 2010, a Shareholder of the Company, Joseph Passalaqua
has advanced the company $5,000, $9,887, and $1,800 respectively. The notes are accruing between 10% and 18% in simple interest
per annum and is payable in full upon demand. On January 21, 2010, $1,500 was paid to Joseph Passalaqua as a partial repayment,
with $1,055 paid to loan interest and $445 paid to loan principal by the Company. As of September 30, 2011, this debt was sold
to Flash Funding.
At September 30, 2011 Flash Funding an unrelated third party is
owed $150,623.04 plus interest at 18%. The accrued interest on the note is $13,530 in 2011.
In 2010 and 2011, Cobalt Blue LLC did advance the Company $70,785
and $15,223 respectively. Mary Passalaqua is the Managing Member of Cobalt Blue LLC and is a Shareholder of the Company. These
note were accruing 18% in simple interest per annum and was payable in full upon demand, The Company owed a total principle balance
of $86,008 related to these notes and has accrued $13,197 in simple interest. This note was sold to Flash Funding.
Cobalt did advance an additional $15,912 plus interest at 18%. The
accrued interest on the note is $1,093 in 2011.
NOTE 10 – SPIN OFF
As reported by Pegasus Tel, Inc., Delaware corporation (“Pegasus”),
on Form 8-K (File No. 000-5268) filed with the Securities and Exchange Commission on August 27, 2008, on August 18, 2008, Sino
Gas International Holdings, Inc., a Utah corporation (“Sino”) (OTCBB: SGAS), declared a dividend and issued shares
of Pegasus to Sino’s stockholders of record as of August 15, 2008 (“Spin-off”). The ratio of distribution
of the Pegasus shares was one (1) share of common stock of Pegasus for every twelve (12) shares of common stock of Sino
(1:12). Fractional shares were rounded up to the nearest whole-number. An aggregate of 2,215,136 shares of
Pegasus common stock were issued to an aggregate of 167 Sino stockholders. The Pegasus common stock issued in distribution are
“restricted securities” (as defined in Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”)),
and were issued pursuant to Section 4(2) of the Securities Act due to the fact that the distribution did not involve a public offering.
On August 5, 2008, Pegasus filed a Certificate of Designations,
Powers, Preferences and Rights (the “Certificate of Designation”) with the Secretary of State of the State of Delaware
thereby designating 2,000,000 shares of preferred stock as Series A Convertible Preferred Stock, $0.0001 (the “Series A Preferred
Stock”). The Certificate of Incorporation of Pegasus authorizes the designation and issuance of an aggregate of
ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board
of Directors of Pegasus and without stockholder approval. Prior to the filing of the Certificate of Designation, there
were no shares of preferred stock designated or issued. Pursuant to the Certificate of Designation, each share of Series A Preferred
Stock may be converted at any time by Pegasus or the holders thereof into ten (10) fully-paid and non-assessable shares of Pegasus
Common Stock.
On August 15, 2008, Pegasus issued an aggregate of 1,800,000 shares
of Series A Preferred Stock to an aggregate of 17 individuals pursuant to a Securities Purchase Agreement for $0.0001per share
of Series A Preferred Stock. Pegasus issued the Series A Preferred Stock pursuant to Section 4(2) of the Securities Act due to
the fact that it did not involve a public offering of securities. The shares of Series A Preferred Stock were restricted securities.
On August 18, 2008, and pursuant to the Certificate of Designation,
Pegasus converted an aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of 18,000,000 shares of Pegasus
common stock. Pegasus issued the common stock pursuant to Section 4(2) of Securities Act due to the fact that it did
not involve a public offering of securities. The shares of common stock are restricted securities.
On March 23, 2009, Pegasus filed a Form 15 (File No.
000-52628) with the Securities and Exchange Commission pursuant to which the Company de-registered its class of Common Stock under
the Securities Exchange Act of 1934, as
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements
that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may,"
"will," "expect," "anticipate," "estimate," "continue," or other similar words.
You should read statements that contain these words carefully because they discuss our future expectations, contain projections
of our future results of operations or financial condition or state other "forward-looking" information. We believe that
it is important to communicate our future expectations to our investors. However, there may be events in the future that we are
unable to accurately predict or control. Those events as well as any cautionary language in this registration statement provide
examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe
in our forward-looking statements. You should be aware that the occurrence of the events described in this Form 10-Q could have
a material adverse effect on our business, operating results and financial condition.
BASIS OF PRESENTATION
The unaudited financial statements of Pegasus Tel,
Inc., a Delaware corporation (“Pegasus”, “Pegasus Tel.”, “the Company”, “our”,
or “we”), should be read in conjunction with the notes thereto. In the opinion of management, the unaudited financial
statements presented herein reflect all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation. Interim
results are not necessarily indicative of results to be expected for the entire year.
We prepare our financial statements in accordance
with U.S. generally accepted accounting principals, which require that management make estimates and assumptions that affect reported
amounts. Actual results could differ from these estimates.
Certain statements contained below are forward-looking
statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements.
DESCRIPTION OF BUSINESS
Pegasus Tel, Inc., or Pegasus,
was incorporated under the laws of the State of Delaware on February 19, 2002 to enter into the telecommunication business.
On March 28, 2002, American Industries, Inc. and
Pegasus Tel, Inc. entered into an agreement with Pegasus Communications, Inc., a New York corporation, to acquire 100% of the outstanding
shares of Pegasus Communications, Inc. in exchange for 72,721,966 shares of common stock of American Industries, Inc. Pegasus
Tel, Inc. continued as the surviving corporation and Pegasus Communications, Inc. was merged out of existence.
On September 21, 2006, the Company filed Amended
and Restated Certificate of Incorporation increasing its authorized capital to 110,000,000 shares, of which 100,000,000 shares
were designated as Common Stock, par value $0.0001 per share, and the remaining 10,000,000 as Preferred Stock, par value $0.0001
per share. The designations and the preferences, conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption of such shares shall be determined by the Board of Directors
from time to time, without stockholder approval.
On May 7, 2007, we filed a Registration Statement
on Form 10-SB (File No.: 0-52628), or the Registration Statement, with the SEC to register the Pegasus common stock under Section
12(g) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Registration Statement went effective on July
6, 2007 through the operation of law 60 days after its initial filing. On March 23, 2009, we filed with the SEC a Form 15 to deregister
our common stock under Section 12(g) of the Exchange Act and to terminate our status as a reporting company under the Exchange
Act.
20
On May 15, 2007, the Company filed an Amended Certificate
of Incorporation to effectuate a forward stock split 5,100 to 1. This change is retro-active and therefore changes the
1,000 shares of common stock issued on December 31, 2003 to 5,100,000 shares of common stock. The par value remains
at $.0001 per share.
On August 5, 2008, Pegasus filed a Certificate of
Designations, Powers, Preferences and Rights (the “Certificate of Designation”) with the Secretary of State of the
State of Delaware thereby designating 2,000,000 shares of preferred stock as Series A Convertible Preferred Stock, $0.0001 (the
“Series A Preferred Stock”). The Certificate of Incorporation of Pegasus authorizes the designation and
issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges
determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were no
shares of preferred stock designated or issued. Pursuant to the Certificate of Designation, each share of Series A Preferred Stock
may be converted at any time by Pegasus or the holders thereof into ten (10) fully-paid and non-assessable shares of Pegasus Common
Stock.
On August 15, 2008, Pegasus issued an aggregate
of 1,800,000 shares of Series A Preferred Stock to an aggregate of 17 individuals pursuant to a Securities Purchase Agreement for
$0.0001per share of Series A Preferred Stock. Pegasus issued the Series A Preferred Stock pursuant to an exemption under Section
4(2) of the Securities Act due to the fact that it did not involve a public offering of securities. The shares of Series A Preferred
Stock were “restricted securities” (as such term is defined in the Securities Act).
On August 18, 2008, Sino Gas International Holdings,
Inc., a Utah corporation, or Sino, (OTCBB: SGAS), our former parent company, distributed to its stockholders of record as of August
15, 2008, 100% of the issued and outstanding common stock of Pegasus. The ratio of distribution was one (1) share of
common stock of Pegasus for every twelve (12) shares of common stock of Sino (1:12). Fractional shares were
rounded up to the nearest whole-number. An aggregate of 2,215,136 shares of Pegasus common stock were issued pursuant
to the distribution to an aggregate of 167 Sino stockholders. The Pegasus common stock issued were and remain “restricted
securities” (as defined in Rule 144 of the Securities Act of 1933, as amended).
On August 18, 2008 and pursuant to the Certificate
of Designation, Pegasus converted an aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of 18,000,000
shares of Pegasus common stock. Pegasus issued the common stock pursuant to Section 3(a)(9) of the Securities Act due
to the fact that the securities were exchanged upon conversion of the Series A Preferred Stock held by existing security holders
and there was no commission or other remuneration paid or given directly or indirectly for soliciting such exchange.
On March 23, 2009, Pegasus filed a Form 15 (File No. 000-52628) with the
Securities and Exchange Commission pursuant to which the Company de-registered its class of Common Stock under the Securities Exchange
Act of 1934, as amended.
On October 15, 2009, the Company filed a Form S-1
Registration Statement with the Securities and Exchange Commission and on December 28, 2009 the Company’s Registration Statement
went effective.
We are subject to the information reporting requirements
of the Exchange Act, and accordingly, are required to file periodic reports, including quarterly and annual reports and other information
with the Securities and Exchange Commission. Any person or entity may read and copy our reports with the Securities and Exchange
Commission at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Room by calling the SEC toll free at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov
where reports, proxies and informational statements on public companies may be viewed by the public.
SERVICES AND PRODUCTS
We own, operate and manage privately owned public
payphones in the County of Delaware, State of New York. As of September 30, 2010, we owned, operated, and managed 11 payphones.
The Company does not have any long-term agreements with the customers of these payphones and they may terminate our license to
operate at will. We may pay site owners a commission based on a flat monthly rate or on a percentage of sales. Some
of the businesses include, but are not limited to, retail stores, convenience stores, bars, restaurants, gas stations, colleges
and hospitals. In the alternative, our agreement with business owners may be to provide the telecommunications services without
the payment of any commissions.
21
The chart below describes the specific location of each of our 11 payphones
respectively and the amount of revenue generated by each payphone for the quarter ended September 30, 2011.
No.:
|
|
Location
|
|
September 30, 2011
|
|
|
|
|
1
|
|
Andes Hotel
110 Main St., Andes, NY 13731
|
|
$
|
173
|
|
|
2
|
|
Andes Public Booth
21 Main St., Andes, NY 13731
|
|
$
|
118
|
|
|
3
|
|
Margaretville Central School
415 Main St., Margaretville, NY 12455
|
|
$
|
258
|
|
|
4
|
|
Margaretville Memorial Hospital
42084 State Hwy. 28, Margaretville, NY 12455 (downstairs)
|
|
$
|
204
|
|
|
5
|
|
Margaretville Memorial Hospital
42084 State Hwy. 28, Margaretville, NY 12455 (upstairs)
|
|
$
|
350
|
|
|
6
|
|
Mountainside Residential Care
42158 State Hwy. 28, Margaretville, NY 12455 (1 st Floor)
|
|
$
|
250
|
|
|
7
|
|
Mountainside Residential Care
42158 State Hwy. 28, Margaretville, NY 12455 (2 nd Floor)
|
|
$
|
200
|
|
|
8
|
|
Mountainside Residential Care
42158 State Hwy. 28, Margaretville, NY 12455 (3 rd Floor)
|
|
$
|
188
|
|
|
9
|
|
Town of Middletown
42339 State Hwy. 28, Margaretville, NY 12455
|
|
$
|
123
|
|
|
10
|
|
Hess Mart
42598 State Hwy. 28, Margaretville, NY 12455
|
|
$
|
388
|
|
|
11
|
|
Arkville Country Store
43525 State Hwy. 28, Arkville, NY 12406
|
|
$
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
2,783
|
|
The local telephone switch controls the traditional
payphone technology. The local switch does not provide any services in the payphone that can benefit the owner of the phone. As
we purchase phones from other companies, we upgrade them with "smart card" payphone technology which we license from
Quortech. The upgrade is a circuit board with improved technology. The “smart card” technology allows us to determine
the operational status of the payphone. It also tells us when the coins in the phone have to be collected, the number and types
of calls that have been made from each phone, as well as other helpful information that helps us provide better service to our
payphone using public. This upgrade of the phones reduces the number and frequency of service visits due to outages and other payphone-related
problems and, in turn, reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry
including Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays.
Payphone users can circumvent the usual payment method
and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around”
numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications
Commission, or the FCC, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone
service providers receive compensation for these “dial-around” calls.
The FCC requires the sellers of long distance toll
free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by
the American Public Communication Council (APCC).
22
Seasonality
Our revenues from payphone operation are affected
by seasonal variations, geographic distribution of payphones and type of location. Because we operate in the northeastern part
of the country with many of the payphones located outdoor, weather patterns affect our revenue streams. Revenues drop off significantly
during winter and conversely show an increase in the spring and summer. Revenues are generally lowest in the first quarter and
highest in the third quarter.
Significant Customers
We do not rely on a major customer for our revenue.
We have a variety of small single businesses as well as some small chain stores that we service. We do not believe that we would
suffer dramatically if any one customer or small chain decided to stop using our phones.
Significant Vendors
We must buy dial tone for each payphone from the
local exchange carrier. As long as we pay the carrier bill, it is required to provide a dial tone. As a regulated utility, the
exchange carrier may not refuse to provide us service. Alternate service exists in certain areas where Verizon competitors are
located. We use alternate local service providers when we can get a better price for the service. We use long distance providers
on all the payphones.
Intellectual Property
As we purchase phones from other companies, we upgrade
them with "smart card" payphone technology. The upgrade is a circuit board with improved technology. The “smart
card” technology allows us to determine on a preset time basis the operational status of the payphone. We are given a license
to use the “smart card” technology from Quortech, the founder and manufacturer of “smart card” technology. The
technology informs us when the coins in the phone have to be collected, the number and types of calls that have been made from
each phone, as well as other helpful information that helps us provide better service to our payphone using public. This upgrade
of the phones reduces the number and frequency of service visits due to outages and other payphone-related problems and, in turn,
reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry including
Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays.
We do not own any patents or trademarks. Companies
in the telecommunications industry and other industries in which we compete own large numbers of patents, copyrights and trademarks
and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights.
As we face increasing competition, the possibility of intellectual property claims against us grows. We might not be able to withstand
any third-party claims or rights against their use.
Government Regulation
We are subject to varying degrees of regulation by
federal, state, local and foreign regulators. The implementation, modification, interpretation and enforcement of these laws and
regulations vary and can limit our ability to provide many of our services. Our ability to compete in our target markets depends,
in part, upon favorable regulatory conditions and the favorable interpretations of existing laws and regulations.
FCC Regulation and Interstate Rates
Our services are subject to the jurisdiction of the
Federal Communications Commission (FCC) with respect to interstate telecommunications services and other matters for which the
FCC has jurisdiction under the Communications Act of 1934, as amended.
Payphone users can circumvent the usual payment method
and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around”
numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications
Commission, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service
providers receive compensation for these “dial-around” calls.
23
The FCC requires the sellers of long distance toll
free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by
the American Public Communication Council (APCC). If the FCC regulation requiring sellers of long distance toll free
services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream.
We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the
future. It is possible for future regulations to be so financially demanding that they cause us to go out of business. We are not
aware of any proposed regulations or changes to any existing regulations.
Telecommunications Act of 1996
The Telecommunications Act of 1996, regulatory and
judicial actions and the development of new technologies, products and services have created opportunities for alternative telecommunication
service providers, many of which are subject to fewer regulatory constraints. We are unable to predict definitively the impact
that the ongoing changes in the telecommunications industry will ultimately have on our business, results of operations or financial
condition. The financial impact will depend on several factors, including the timing, extent and success of competition in our
markets, the timing and outcome of various regulatory proceedings and any appeals, and the timing, extent and success of our pursuit
of new opportunities resulting from the Telecommunications Act of 1996 and technological advances.
Research and Development
We have not expended any money in the last two fiscal
years on research and development activities.
Employees
The company does not have any employees. Joseph
C. Passalaqua is our Chief Financial Officer, Secretary and Director and Carl E. Worboys is our President and Director.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
The preparation of financial statements and related
disclosures in conformity with accounting principles generally accepted in the United States of America requires management to
make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying
notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable
under the circumstances. However, future events are subject to change, and the best estimates and judgments routinely require adjustment.
The amounts of assets and liabilities reported in our balance sheet, and the amounts of revenues and expenses reported for each
of our fiscal periods, are affected by estimates and assumptions which are used for, but not limited to, the accounting for allowance
for doubtful accounts, goodwill and intangible asset impairments, restructurings, inventory and income taxes. Actual results could
differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and
estimates used in the preparation of our consolidated financial statements.
Use of Estimates
It is important to note that when preparing the financial
statements in conformity with U.S. generally accepted accounting principles, management is required to make certain estimates and
assumptions that affect the amounts reported and disclosed in the financial statements and related notes. Actual results
could differ if those estimates and assumptions approve to be incorrect.
On an ongoing basis, we evaluate our estimates, including
those related to estimated customer life, used to determine the appropriate amortization period for deferred revenue and deferred
costs associated with licensing fees, the useful lives of property and equipment and our estimates of the value of common stock
for the purpose of determining stock-based compensation. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets
and liabilities.
Off- Balance Sheet Arrangements
We did not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
24
Cash and Cash Equivalents
For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents to the
extent the funds are not being held for investment purposes.
REVENUE RECOGNTION POLICES
The Company recognizes revenues in accordance with
the Securities and Exchange Commission Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition." SAB
104 clarifies application of U. S. generally accepted accounting principles to revenue transactions. As of the year ended December
31, 2010 and the nine months ended September 30, 2011, there was no deferred revenue. The Company derives its primary revenue from
the sources described below, which includes dial-around revenues, operator service revenue, coin collections, telephone equipment
repairs, and sales. Other revenue generated by the company includes sales commissions.
Our installed payphone base generates revenue from two principal sources:
coin-calls and non-coin calls.
1.
Coin calls
: Coin calls represent calls paid for by customers
who deposit coins into the payphones. Coin call revenue is recorded as the actual amount of coins collected from the payphones.
Coin revenues are recorded in an equal amount to
the coins collected.
2.
Non-Coin calls
: Non-coin revenue includes
commissions from operator service telecommunications companies and a “dial-around” commission of $0.494 per call that
the FCC requires sellers of long distance toll free services to pay payphone owners. The commissions for operator services are
paid 45 days in arrears. These funds are remitted quarterly through a service provided by the American Public Communication Council
(APCC).
The Dial Around revenue is recognized when the billing
and collection agent of the Company, APCC, calculates and compensates the Company for the use of the payphone on a quarterly basis
by billing the actual party’s long distance carrier that received the calls. The date of the Dial Around revenue
recognition is determined when this compensation is collected and deposited into the Company’s bank account.
The Operator Service revenue is recognized when the
collection agents of the Company, Legacy Long Distance and US Intercom calculates and compensates the Company for the use of operator
services on a monthly basis. The date of the Operator Service revenue recognition is determined when this compensation is collected
and deposited into the Company’s bank account.
Revenues on commissions, telephone equipment and
sales are realized when the services are provided and payment for such services is deemed certain.
COSTS RELATED TO OUR OPERATION
The principal costs related to the ongoing operation
of our payphones include telecommunication costs, commissions and depreciation. Telecommunication expenses consist of payments
made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and
service and maintenance costs. Commission expense represents payments to owners or operators of the premises at which a payphone
is located.
GOING CONCERN QUALIFICATION
In their Independent Auditor's Report for the fiscal
years ending December 31, 2010, Robison, Hill & Co. stated that several conditions and events cast substantial doubt about
our ability to continue as a “going concern.” At December 31, 2010, we had $289 cash on hand, $218
in accounts receivable and an accumulated deficit of $(.270,262 At September 30, 2011, we had $317 cash on hand, $208 in accounts
receivable and an accumulated deficit of $(19,343,938). See “Liquidity and Capital Resources.”
25
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2011, we had $317 in cash and
cash equivalents respectively. Our primary source of liquidity has been from borrowings
Net cash used in operating activities was $60,104
during the nine-month period ended September 30, 2011
Net cash provided by investing activities was $0
during the nine-month period ended September 30, 2011.
Net cash provided by financing activities was $60,132
during the nine-month period ended September 30, 2011.
Our expenses to date are largely due to professional
fees that include accounting fees.
To date, we have had minimal revenues; and we require
additional financing in order to finance our business activities on an ongoing basis. Our future capital requirements
will depend on numerous factors including, but not limited to, continued progress in finding a merger candidate and the pursuit
of business opportunities. We are actively pursuing alternative financing and have had discussions with various third parties,
although no firm commitments have been obtained to date. In the interim, shareholders of the Company have committed
to meet our minimal operating expenses. We believe that actions presently being taken to revise our operating and financial
requirements provide them with the opportunity to continue as a “going concern,” although no assurances can be given.
WORKING CAPTIAL
We had total assets of $507 and total liabilities
of $212.905 resulting in a working capital deficit of $(212,398) for the year ended December 31, 2010. We had total assets of $525
and total liabilities of $511,715, resulting in working capital deficit of $(511,190) for the nine months ended September 30, 2011.
THREE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 2010
REVENUES
Our total revenue decreased by $166, from $1,159
for the three months ended September 30, 2010 to $993 for the three months ended September 30, 2011. This decrease was primarily
due to a lower volume of coin calls and operator assisted calls at payphone locations.
26
COST OF SALES
Our overall cost of services decreased $112, from
$885 in the three months ended September 30, 2011. The principal costs related to the ongoing operation of our payphones
include telecommunication costs, commissions and depreciation. Telecommunication costs consist of payments made by us to local
exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance
costs. Once a low revenue payphone is identified, we offer the site owner an opportunity to purchase the equipment. If the site
owner does not purchase the payphone, we remove it from the site. Also a correction was made at the central office of Margaretville
Telephony Company to provide a higher level of uninterrupted service to increase revenue in the future. We own telephone equipment
which provides a service for a number of years. The term of service is commonly referred to as the "useful life" of the
asset. Because an asset such as telephone equipment or motor vehicle is expected to provide service for many years, it is recorded
as an asset, rather than an expense, in the year acquired. A portion of the cost of the long-lived asset is reported as an expense
each year over its useful life and the amount of the expense in each year is determined in a rational and systematic manner.
The FCC requires the sellers of long distance toll
free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by
the American Public Communication Council (APCC). If the FCC regulation requiring sellers of long distance toll free
services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream.
We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the
future. It is possible for future regulations to be so financially demanding that they cause us to go out of business. We are not
aware of any proposed regulations or changes to any existing regulations.
OPERATION AND ADMINISTRATIVE EXPENSES
Operating expenses increased to $17,799,740, from
$4,993 for the three months ended September 30, 2011 for the three months ended September 30, 2010 The main increase was stock
for services of 16,599,384 and finance charges on loans of 1,180,000
27
NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 2010
REVENUES
Our total revenue decreased by $695, from $3,478
for the nine months ended September 30, 2011 to $2,783 for the nine months ended September 30, 2010. This decrease was primarily
due to a lower volume of non-coin calls at payphone locations which the Company has placed in strategic areas and a decline in
commission paid by the payphone service providers.
COST OF SALES
Our overall cost of services decreased $302, from
$3,478, in the nine months ended September 30, 2010, to $2,783 in the nine months ended September 30, 2010. The principal
costs related to the ongoing operation of our payphones include telecommunication costs, commissions and depreciation. Telecommunication
costs consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications
networks and service and maintenance costs.
28
OPERATION AND ADMINISTRATIVE EXPENSES
Operating expenses increased by $19,026,899, from
$26,156 for the nine months ended September 30, 20010 to $19,053,055 for the nine months ended September 30, 2011 Stock for services
and finance costs of $17,749,384 and $1,506,000 accounted for the vast majority of the increase.
COMMON AND PREFERRED STOCK TRANSACTIONS
On April 11, 2011 a stock purchase
agreement was filed that stated that Amanda Godin purchased 350,000 shares of Pegasus Tel, Inc. common stock from Joseph C. Passalaqua
for $1,750.
On April 4, 2011 Flash Funding, Inc.
entered into a Debt Purchase Agreement to purchase $184,623 of debt held in promissory notes in Pegasus Tel. that are owed to Cobalt
Blue LLC, Joseph Passalaqua, and Mary Passalaqua for $58,000 to the related parties.
On April 6, 2011, 8,000,000 shares
were issued to the Company’s new president for services valued at market which was .08 per share.
On April 6, 2011 Flash Funding, Inc.
converted $25,000 of the debt purchased as outlined in the Debt Purchase Agreement into 2,000,000 shares of Pegasus Tel. Common
stock.The market price of the stock was .08 which resulted in a finance charge of $160,000.
On May 2, 2011 Flash Funding, Inc.
converted $2,000 of the debt purchased as outlined in the Debt Purchase Agreement into 2,000,000 shares of Pegasus Tel. Common
Stock.The market price of the stock was .07 on that day resulting in a finance charge of $140,000.
On June 8, 2011 2,000,000 shares were
issued to convert debt of $2,000. The market price on that day for the stock closed at .008 resulting in a $16,000 finance fee.
On June 10, 2011 40,000,000 shares
were issued to the Company’s new president for services valued at market of $.006 per share, resulting in an expense of $240,000.
On June 23, 2011 5,000,000 shares were
issued resulting in debt reduction of $5,000. The closing price of the stock that day was .0088 which resulted in a finance cost
of $44,000.
Finalized on July 14, 2011 the Company
issued 6,995,206 shares of preferred A series stock for the purchase of certain assets related to a music stream business.
On July 14, 2011 the Company issued
2,400,000,000 shares to its president for services valued at $16,560,000.
On July 26, 2011 the Company issued
200,000,000 shares of common stock for a debt reduction $76,750.
On September 29, 2011 the Company issued
131,281,841 common shares valued at market for services equaling $39,384.
.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market risk is the risk of loss from adverse
changes in market prices and rates. The Company’s market risk arises primarily from the fact that the area in which we do
business is highly competitive and constantly evolving. The market in which we do business is highly competitive and constantly
evolving. We face competition from the larger and more established companies, from companies that may develop new technology, that
have greater resources, including but not limited to, a larger sales force, more money, larger manufacturing capabilities and greater
ability to expand their markets also cut into our potential payphone customers. Many of our competitors have longer operating histories,
significantly greater financial strength, nationwide advertising coverage and other resources that we do not have. Our competitors
might introduce a less expensive or more improved payphone. Also, the last several years have shown a marked increase in the use
of cellular phones and toll free services which cut into our potential payphone customer base. These, as well as other
factors can have a negative impact on our income.
Options, Warranties and Other Equity Items
There are no outstanding options
or warrants to purchase, nor any securities convertible into, the our common shares. Additionally,
there are no shares that could be sold pursuant to Rule 144 under the Securities Act or that we had agreed to register under the
Securities Act for sale by security holders. Further, there are no common shares of the Company being, or proposed to be,
publicly offered by the Company.
No Trading Market
There is currently no market for our common stock. As
the registration statement is now effective, we intend to solicit a registered broker/dealer to apply with FINRA to have our common
stock quoted on the OTCBB Bulletin Board (OTCBB). We cannot assure that FINRA will approve the application or that a market for
our common stock will develop or maintained. If not, your investment might be illiqu
29
30
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer is responsible
for establishing and maintaining disclosure controls and procedures for the Company.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed
to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities
and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of
our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)
as of the end of the period covered by this report and have concluded that the disclosure controls and procedures are effective
to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner. There
were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent
to the last day they were evaluated by our Chief Executive Officer and Chief Financial Officer.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company’s
internal control over financial reporting during the last quarterly period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
In addition to the other information in this report,
the following risks should be considered carefully in evaluating our business and prospects:
We are a development stage company and have history
of losses since our inception. If we cannot reverse our losses, we will have to discontinue operations.
Our auditors have expressed their doubt as to our
ability to continue as a going concern. We anticipate incurring losses in the near future. We do not have an established
source of revenue sufficient to cover our operating costs. Our ability to continue as a going concern is dependent upon our ability
to successfully compete, operate profitably and/or raise additional capital through other means. If we are unable to reverse our
losses, we will have to discontinue operations.
Our history of losses is expected to continue
and will need to obtain additional capital financing in the future
.
We have a history of losses and expect to generate
losses until such a time when we can become profitable in the collection of payphone service fees.
As of September 30, 2010, we had $266 in cash and
cash equivalents on hand and an accumulated deficit of $(260,680).
As of September 30, 2010, the Company owed $23,089
in Related Party Accounts Payable.
As of September 30, 2010, the Company owed $123,217
in Related Party Notes payable and $33,220 in accrued interest on these notes.
We believe that our cash from borrowings will be
insufficient to fund our operations and to satisfy our long-term liquidity needs for the next twelve months. We will
required to seek additional financing in the future to respond to increased expenses or shortfalls in anticipated revenues, respond
to competitive pressures or take advantage of unanticipated acquisition opportunities. We cannot be certain we will
be able to find such additional financing on reasonable terms, or at all. If we are unable to obtain additional financing when
needed, we could be required to modify our business plan in accordance with the extent of available financing.
Our future financings could substantially dilute
our stockholders or restrict our flexibility.
We will need additional funding which may not be
available when needed. We estimate that we will need $50,000 to continue our operations for the next 12 months. If we
are able to raise additional funds and by issuing equity securities, you may experience significant dilution of your ownership
interest and holders of these securities may have rights senior to those of the holders of our common stock. If we obtain additional
financing by issuing debt securities, the terms of these securities could restrict or prevent us from paying dividends and could
limit our flexibility in making business decisions. In this case, the value of your investment could be reduced.
32
We compete with the growing cell-phone industry and other well-established
companies.
The market in which we do business is highly competitive
and constantly evolving. We face competition from the larger and more established companies -- from companies that develop new
technology, as well as the many smaller companies throughout the country. The last several years have shown a marked increase in
the use of cellular phones and toll free services which cut into our potential payphone customer base. Companies that have greater
resources, including but not limited to, a larger sales force, more money, larger manufacturing capabilities and greater ability
to expand their markets also cut into our potential payphone customers. Many of our competitors have longer operating histories,
significantly greater financial strength, nationwide advertising coverage and other resources that we do not have. Our competitors
might introduce a less expensive or more improved payphone. These, as well as other factors can have a negative impact on our income.
The competition from cellular phones is a very serious
threat that can result in substantially less revenue per payphone. Over the past years, more and more people are opting to use
personal cell phones to communicate as compared to pay phones. Cell phone technology has advanced over the recent years
and competition has made cell phones and cell phone service plans more affordable to the average consumer. Pay phones
have had a hard time competing with cell phones and we do not see this changing in the foreseeable future. Consumers
might opt to use pay phones in areas where cell phone reception is nonexistent or unreliable or when consumers do not wish to incur
charges for minutes used on their cell phone. This is not specific to upstate New York but apply to the cell phone industry
nationwide
The large former Bell companies who provide local
service dominate the industry. These companies have greater financial ability than us, and provide the greatest competitive challenge.
However, we compete with these companies by paying a commission to the site owner. The commission is an enticement for the site
owner to use our phone on its site. We believe we are able to provide a higher quality customer service because the phones alert
us to any technical difficulties, and we can service them promptly. The ability to immediately know that a problem exists with
a payphone is very important because down time for a phone means lost revenue for us.
Our non-coin revenue is primarily attributable
to “dial-around” commissions. If the FCC reduces or repeals the “dial-around” commission, our revenues
could be materially adversely affected.
Our services are subject to the jurisdiction of the
Federal Communications Commission (FCC) with respect to interstate telecommunications services and other matters for which the
FCC has jurisdiction under the Communications Act of 1934, as amended.
Payphone users can circumvent the usual payment method
and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around”
numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications
Commission, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service
providers receive compensation for these “dial-around” calls.
The FCC requires the sellers of long distance toll
free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by
the American Public Communication Council “APCC.”
If the FCC regulation requiring sellers of long distance
toll free services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue
stream. We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or
in the future. It is possible for future regulations to be so financially demanding that they cause us to go out of business.
We are highly dependent on our two executive officers,
Carl E. Worboys and Joseph C. Passalaqua. The loss of either of them would have a material adverse affect on our business and prospects.
We currently have only two executive officers, Carl
E. Worboys and Joseph C. Passalaqua. Carl E. Worboys serves as our President and Director, and Joseph C. Passalaqua serves as our
Chief Financial Officer, Secretary and Director. The loss of either executive officer could have a material adverse effect on our
business and prospects.
If we cannot attract, retain, motivate and integrate additional skilled
personal, our ability to compete will be impaired.
33
The Company has no employees and many of our current
and potential competitors have employees. Our success depends in large part on our ability to attract, retain and motivate highly
qualified management and technical personnel. We face intense competition for qualified personnel. The industry in which we compete
has a high level of employee mobility and aggressive recruiting of skilled personnel. If we are unable to continue to employ our
key personnel or to attract and retain qualified personnel in the future, our ability to successfully execute our business plan
will be jeopardized and our growth will be inhibited.
We will depend on outside manufacturing sources
and suppliers.
As we purchase phones from other companies, we upgrade
them with "smart card" payphone technology. The upgrade is a circuit board with improved technology. The “smart
card” technology allows us to determine on a preset time basis the operational status of the payphone. We were given a license
to use the “smart card” technology from Quortech, the founder and manufacturer of “smart card” technology. The
technology informs us when the coins in the phone have to be collected, the number and types of calls that have been made from
each phone, as well as other helpful information that helps us provide better service to our payphone using public. This upgrade
of the phones reduces the number and frequency of service visits due to outages and other payphone-related problems and, in turn,
reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry including
Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays.
We will have limited control over the actual production
process. Moreover, difficulties encountered by any one of our third party manufacturers which result in product defects, delayed
or reduced product shipments, cost overruns or our inability to fill orders on a timely basis, could have an adverse impact on
our business. Even a short-term disruption in our relationship with third party manufacturers or suppliers could have a material
adverse effect on our operations. We do not intend to maintain an inventory of sufficient size to protect ourselves for any significant
period of time against supply interruptions, particularly if we are required to obtain alternative sources of supply.
We may be unable to adequately protect our proprietary rights or may
be sued by third parties for infringement of their proprietary rights.
The telecommunications industry is characterized
by the existence of a large number of patents and frequent litigation based on allegations of trade secret, copyright or patent
infringement. We may inadvertently infringe a patent of which we are unaware. In addition, because patent applications can take
many years to issue, there may be a patent application now pending of which we are unaware that will cause us to be infringing
when it is issued in the future. If we make any acquisitions, we could have similar problems in those industries. Although we are
not currently involved in any intellectual property litigation, we may be a party to litigation in the future to protect our intellectual
property or as a result of our alleged infringement of another's intellectual property, forcing us to do one or more of the following:
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Cease selling, incorporating or using products or services that incorporate the challenged intellectual property;
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Obtain from the holder of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms; or
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Redesign those products or services that incorporate such technology.
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A successful claim of infringement against us, and
our failure to license the same or similar technology, could adversely affect our business, asset value or stock value. Infringement
claims, with or without merit, would be expensive to litigate or settle, and would divert management resources.
Our employees may be bound by confidentiality and
other nondisclosure agreements regarding the trade secrets of their former employers. As a result, our employees or we could be
subject to allegations of trade secret violations and other similar violations if claims are made that they breached these agreements.
34
If we engage in acquisitions, we may experience
significant costs and difficulty assimilating the operations or personnel of the acquired companies, which could threaten our future
growth.
If we make any acquisitions, we could have difficulty
assimilating the operations, technologies and products acquired or integrating or retaining personnel of acquired companies. In
addition, acquisitions may involve entering markets in which we have no or limited direct prior experience. The occurrence of any
one or more of these factors could disrupt our ongoing business, distract our management and employees and increase our expenses.
In addition, pursuing acquisition opportunities could divert our management's attention from our ongoing business operations and
result in decreased operating performance. Moreover, our profitability may suffer because of acquisition-related costs or amortization
of acquired goodwill and other intangible assets. Furthermore, we may have to incur debt or issue equity securities in future acquisitions.
The issuance of equity securities would dilute our existing stockholders.
Because our officers and directors are indemnified
against certain losses, we may be exposed to costs associated with litigation.
If our directors or officers become exposed to liabilities
invoking the indemnification provisions, we could be exposed to additional unreimbursable costs, including legal fees. Our articles
of incorporation and bylaws provide that our directors and officers will not be liable to us or to any shareholder and will be
indemnified and held harmless for any consequences of any act or omission by the directors and officers unless the act or omission
constitutes gross negligence or willful misconduct. Extended or protracted litigation could have a material adverse effect on our
cash flow.
.
If a trading market develops for our common stock,
we will be subject to SEC regulations relating to “penny stock” and the market for our common stock could be adversely
affected.
The SEC has adopted regulations concerning low-priced
stock, or “penny stocks.” The regulations generally define "penny stock" to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. If our shares are offered at a market price less than
$5.00 per share, and do not qualify for any exemption from the penny stock regulations, our shares may become subject to these
additional regulations relating to low-priced stocks.
The penny stock regulations require that broker-dealers,
who recommend penny stocks to persons other than institutional accredited investors make a special suitability determination for
the purchaser, receive the purchaser's written agreement to the transaction prior to the sale and provide the purchaser with risk
disclosure documents that identify risks associated with investing in penny stocks. Furthermore, the broker-dealer must obtain
a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure
document before effecting a transaction in penny stock. These requirements have historically resulted in reducing the level of
trading activity in securities that become subject to the penny stock rules. The additional burdens imposed upon broker-dealers
by these penny stock requirements may discourage broker-dealers from effecting transactions in the common stock, which could severely
limit the market liquidity of our common stock and our shareholders' ability to sell our common stock in the secondary market.
ITEM 2. UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the nine months ended September 30, 2011 there were sales of registered
securities enumerated under common stock
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
35
ITEM 6. EXHIBITS
Exhibit No.
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Description
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3.1(1)
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Articles of Incorporation, dated February 19, 2002
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3.2(1)
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Amended Articles of Incorporation, dated September 21, 2006
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3.3(1)
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Amendment to the Articles of Incorporation, dated September 18, 2006.
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3.4(2)
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Amendment to Articles of Incorporation, date May 15, 2007
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3.5(3)
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Certificate of the Designations, Powers Preferences and Rights of the Series A Convertible Preferred Stock
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3.5(1)
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By-laws
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4.1(1)
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Form of Common Stock Certificate
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10.1 (3)
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Series A Preferred Stock Purchase Agreement
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10.2 (4)
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$1,205 18% Promissory Note, dated December 2, 2008, for the benefit of Joseph C. Passalaqua
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10.3 (4)
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$8,682 18% Promissory Note, dated August 13, 2008, for the benefit of Joseph C. Passalaqua
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10.4 (4)
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$5,000 10% Promissory Note, dated December 13, 2007, for the benefit of Joseph C. Passalaqua
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10.5 (4)
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$400 10% Promissory Note, dated March 21, 2008, for the benefit of Mary Passalaqua
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10.6 (4)
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$17,900 10% Promissory Note, dated January 24, 2008, for the benefit of Mary Passalaqua
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10.7 (4)
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$15,300 15% Promissory Note, dated June 11, 2007, for the benefit of Mary Passalaqua
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10.8 (4)
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$15,000 15% Promissory Note, dated April 26, 2007, for the benefit of Mary Passalaqua
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10.9 (4)
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$5,000 10% Promissory Note, dated October 24, 2006, for the benefit of Mary Passalaqua
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Exhibit 31.1
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Certification of the Principal Executive Officer of Registrant pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended
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Exhibit 31.2
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Certification of the Principal Financial Officer of Registrant pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended
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Exhibit 32.1
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Certification of the Principal Executive Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Exhibit 32.2
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Certification of the Principal Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
(1) Filed as an exhibit to the Company’s Form 10-SB (File No.: 000-52628)
filed with the SEC on May 7, 2007 and incorporated by reference herein.
(2) Filed as an exhibit to the Company’s Form 10-SB Amendment No.
1 (File No.: 000-52628) filed with the SEC on October 5, 2007 and incorporated by reference herein.
(3) Filed as an exhibit to the Company’s Form 8-K (File No.: 000-52628)
filed on August 27, 2008 and incorporated by reference herein.
(4) Filed as an exhibit to the Company’s Form S-1 Amendment No.
2 (File No.: 333-162516) filed on November 13, 2009 and incorporated by reference herein.
36
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized
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PEGASUS TEL, INC.
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By:
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Anthony Diabase
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Date: November 15,2011
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Anthony Diabase
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President, Director, Chief Executive Officer
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(Principal Executive Officer)
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By:
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Anthony diabas
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Date: November 15, 2011
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Anthony Diabase
Secretary, Director, and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
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EXHIBIT 31.1
SECTION 302 CERTIFICATIONS
I, Anthony Diabase, certify that:
1. I
have reviewed this Quarterly Report on Form 10-Q for the nine months ended September 30, 2010 of Pegasus Tel. Inc.;
2. Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report.;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small
business issuer and have:
a) designed
such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision
to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated
the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluations; and
d) disclosed
in this report any change in the small business issuer’s internal control over financial reporting that occurred during the
small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s
internal control over the financial
5. I
have disclosed, based on my most recent evaluation of internal control over financial reporting to the small business issuer’s
auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent
functions):
a) all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial
information; and
b) any
fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s
internal control over financial reporting.
Date: November 15 2011
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Anthony Diabase
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Name: Anthony Diabase
Title: President, Chief Executive Officer,
and
(Principal Executive Officer)
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EXHIBIT 31.2
SECTION 302 CERTIFICATIONS
I, Anthony Diabase certify that:
1. I
have reviewed this Quarterly Report on Form 10-Q for the nine months ended September 30, 2010 of Pegasus Tel. Inc.;
2. Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report.;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small
business issuer and have:
a) designed
such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision
to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated
the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluations; and
d) disclosed
in this report any change in the small business issuer’s internal control over financial reporting that occurred during the
small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s
internal control over the financial
5. I
have disclosed, based on my most recent evaluation of internal control over financial reporting to the small business issuer’s
auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent
functions):
a) all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial
information; and
b) any
fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s
internal control over financial reporting.
Date: November 15, 2011
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Anthony Diabase
|
|
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Name: Anthony Diabase
Title: Secretary, Chief Financial Officer,
and
(Principal Financial Officer)
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report of Pegasus Tel. Inc. (the "Company")
on Form 10-Q for the nine months ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Carl E. Worboys, President and Chief Executive Officer, of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
Date: November 15, 2011
|
|
Anthony Diabase
|
|
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Name: Anthony Dibase
Title: President, Chief Executive Officer
(Principal Executive Officer)
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report of Pegasus Tel. Inc. (the "Company")
on Form 10-Q for the nine months ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Joseph C. Passalaqua, Secretary and Chief Financial Officer, of the Company, certify, pursuant to
18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
Date: November 15, 2011
|
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Anthony Diabase
|
|
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Name: Diabase
Title: Secretary, Chief Financial Officer
(Principal Financial Officer)
|
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