Attached files
file | filename |
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EX-32.2 - PEGASUS TEL, INC. | form10q033110ex32-2.htm |
EX-32.1 - PEGASUS TEL, INC. | form10q033110ex32-1.htm |
EX-31.2 - PEGASUS TEL, INC. | form10q033110ex31-2.htm |
EX-31.1 - PEGASUS TEL, INC. | form10q033110ex31-1.htm |
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 MARCH 31, 2010
[ ] 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
|
13203
|
|
(Address
of principal executive offices)
|
(zip
code)
|
Registrant's
telephone number, including area code:
Issuer’s
telephone number: (315) 491-8262
Carl
E. Worboys
118
Chatham Road
Syracuse,
NY 13203
Telephone:
(315) 491-8262
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
March 31, 2010, 20,215,136 shares of the Company's $.0001 par value common stock
were issued and outstanding.
State
issuer’s revenues for its most recent fiscal year: $4,771
As of May
11, 2010 the aggregate market value of the 7,107,991 shares common stock held by
non-affiliates was approximately $711 based upon the par value of $.0001. As of
March 31, 2010, there were 20,215,136 shares of common stock
outstanding.
Documents
incorporated by reference: None.
Transitional
Small Business Disclosure Format: Yes [ ] No [
X ]
2
PEGASUS
TEL, INC.
|
||
MARCH
31, 2010
|
||
PART
I – FINANCIAL INFORMATION
|
Page
|
|
Item
1.
|
Financial
Statements
|
|
Balance
Sheets as March 31, 2010 (Unaudited) and December 31, 2009
|
4 | |
Statements
of Operations
For
the three months ended March 31, 2010 (Unaudited) and March 31, 2009
(Unaudited)
For
the cumulative period from February 19, 2002 (Inception) to March 31, 2010
(Unaudited)
|
5 | |
Statements
of Cash Flows
For
the three months ended March 31, 2010 (Unaudited) and March 31, 2009
(Unaudited)
For
the cumulative period from February 19, 2002 (Inception) to
March 31, 2010 (Unaudited)
|
6 | |
Notes
to Financial Statements
|
7 | |
Item
2.
|
Management’s
Discussion and Analysis or Plan of Operation
|
19 |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
28 |
Item
4.
|
Controls
and Procedures
|
28 |
PART
II – OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
29 |
Item
1A.
|
Risk
Factors
|
29 |
Item
2.
|
Unregistered
Sale of Equity Securities and Use of Proceeds
|
33 |
Item
3.
|
Defaults
Upon Senior Securities
|
33 |
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
33 |
Item
5.
|
Other
Information
|
33 |
Item
6.
|
Exhibits
|
34 |
SIGNATURES
|
3
PART
I FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
PEGASUS TEL, INC.
|
||||||||
(A Development Stage
Company)
|
||||||||
BALANCE SHEETS
|
||||||||
(Unaudited)
|
||||||||
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Assets:
|
||||||||
Cash
and Cash Equivalents
|
$ | 561 | $ | 39 | ||||
Accounts
Receivable
|
148 | 208 | ||||||
Total
Current Assets
|
709 | 247 | ||||||
Total
Assets
|
$ | 709 | $ | 247 | ||||
Liabilities:
|
||||||||
Accounts
Payable
|
$ | 16,224 | $ | 53,807 | ||||
Related
Party Accounts Payable
|
21,489 | 20,489 | ||||||
Accrued
Interest
|
23,725 | 20,470 | ||||||
Related
Party Notes Payable
|
121,717 | 68,487 | ||||||
Total
Current Liabilities
|
183,155 | 163,253 | ||||||
Total
Liabilities
|
183,155 | 163,253 | ||||||
Stockholders'
Equity:
|
||||||||
Preferred
Stock, Par value $0.0001, Authorized 10,000,000
shares
|
||||||||
Issued
0 shares at March 31, 2010 and December 31, 2009
|
- | - | ||||||
Common
Stock, Par value $0.0001, Authorized 100,000,000 shares
|
||||||||
Issued 20,215,136
shares at March 31, 2010 and December 31, 2009
|
2,022 | 2,022 | ||||||
Paid-In
Capital
|
55,842 | 55,842 | ||||||
Deficit
Accumulated During Development Stage
|
(240,310 | ) | (220,870 | ) | ||||
Total
Stockholders' Equity
|
(182,446 | ) | (163,006 | ) | ||||
Total
Liabilities and Stockholders' Equity
|
$ | 709 | $ | 247 | ||||
The
accompanying notes are an integral part of these financial
statements.
|
4
PEGASUS TEL, INC.
|
||||||||||||
(A Development Stage
Company)
|
||||||||||||
STATEMENTS OF OPERATIONS
|
||||||||||||
(Unaudited)
|
||||||||||||
Cumulative
|
||||||||||||
Since
|
||||||||||||
February
19,
|
||||||||||||
2002
|
||||||||||||
For
the Three Months Ended
|
Inception
of
|
|||||||||||
March
31,
|
Development
|
|||||||||||
2010
|
2009
|
Stage
|
||||||||||
Revenues
|
$ | 1,302 | $ | 1,050 | $ | 66,519 | ||||||
Costs
of Services
|
(905 | ) | (819 | ) | (63,323 | ) | ||||||
Gross
Margin
|
397 | 231 | 3,196 | |||||||||
Expenses
|
||||||||||||
Accounting
|
10,500 | - | 75,584 | |||||||||
Advertising
|
- | - | 770 | |||||||||
Related
Party Bookkeeping
|
1,000 | 962 | 15,377 | |||||||||
General
and Administrative
|
209 | 176 | 11,318 | |||||||||
Legal
|
- | - | 84,790 | |||||||||
Outside
Services
|
3,336 | 1,482 | 28,769 | |||||||||
Operating
Expenses
|
15,045 | 2,620 | 216,608 | |||||||||
Operating
Income (Loss)
|
(14,648 | ) | (2,389 | ) | (213,412 | ) | ||||||
Other
Income (Expense)
|
||||||||||||
Interest,
Net
|
(4,310 | ) | (2,256 | ) | (24,780 | ) | ||||||
Net
Loss Before Taxes
|
(18,958 | ) | (4,645 | ) | (238,192 | ) | ||||||
Income
and Franchise Tax
|
(482 | ) | (100 | ) | (2,118 | ) | ||||||
Net
Loss
|
$ | (19,440 | ) | $ | (4,745 | ) | $ | (240,310 | ) | |||
Loss
per Share, Basic &
|
||||||||||||
Diluted
|
$ | (0.00 | ) | $ | (0.00 | ) | ||||||
Weighted
Average Shares
|
||||||||||||
Outstanding
|
20,215,136 | 20,215,136 | ||||||||||
The
accompanying notes are an integral part of these financial
statements.
|
5
PEGASUS TEL, INC.
|
||||||||||||
(A Development Stage
Company)
|
||||||||||||
STATEMENTS OF CASH FLOWS
|
||||||||||||
(Unaudited)
|
||||||||||||
Cumulative
|
||||||||||||
Since
|
||||||||||||
February
19,
|
||||||||||||
2002
|
||||||||||||
For
the Three Months Ended
|
Inception
of
|
|||||||||||
March
31,
|
Development
|
|||||||||||
2010
|
2009
|
Stage
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
Loss for the Period
|
$ | (19,440 | ) | $ | (4,745 | ) | $ | (240,310 | ) | |||
Adjustments
to reconcile net loss to net cash
|
||||||||||||
provided
by operating activities:
|
||||||||||||
Depreciation
and Amortization
|
- | - | 12,600 | |||||||||
Changes
in Operating Assets and Liabilities
|
||||||||||||
Decrease
(Increase) in Accounts Receivable
|
60 | (34 | ) | (148 | ) | |||||||
Increase
(Decrease) in Accounts Payable
|
(37,583 | ) | 1,354 | 16,224 | ||||||||
Increase
(Decrease) in Related Party Accounts Payable
|
1,000 | 962 | 21,489 | |||||||||
Increase
(Decrease) in Interest Payable
|
3,255 | 2,256 | 23,725 | |||||||||
Decrease
(Increase) in Intercompany Dues
|
- | - | 56,684 | |||||||||
Net
Cash Used in Operating Activities
|
(52,708 | ) | (207 | ) | (109,736 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchase
of Property and Equipment
|
- | - | (11,600 | ) | ||||||||
Net
cash provided by Investing Activities
|
- | - | (11,600 | ) | ||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Preferred
Stock Issued for Cash
|
- | - | 180 | |||||||||
Payments
on Related Party Notes
|
(445 | ) | - | (445 | ) | |||||||
Proceeds
from Related Party Notes
|
53,675 | - | 122,162 | |||||||||
Net
Cash Provided by Financing Activities
|
53,230 | - | 121,897 | |||||||||
Net
(Decrease) Increase in Cash
|
522 | (207 | ) | 561 | ||||||||
Cash
at Beginning of Period
|
39 | 618 | - | |||||||||
Cash
at End of Period
|
$ | 561 | $ | 411 | $ | 561 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
|
||||||||||||
Cash
paid during the year for:
|
||||||||||||
Interest
|
$ | 1,055 | $ | - | $ | 1,055 | ||||||
Franchise
and Income Taxes
|
$ | 482 | $ | 100 | $ | 2,118 | ||||||
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 March 31, 2010 and the three 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 nine 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
$(240,000) for the period from February 19, 2002 (inception) to March 31, 2010,
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.
7
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
8
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
(continued)
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 March 31, 2010, 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 March 31, 2010, the Company has determined an
allowance for doubtful accounts is not necessary.
9
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 $561 and
$39 as of March 31, 2010 and December 31, 2009 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 $148 and $208 as of March 31, 2010 and December 31, 2009
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 March 31, 2009 and March 31,
2010.
Financial
Instruments
The
Company’s financial assets and liabilities consist of cash, accounts receivable,
property and equipment, 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.
10
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 2009 financial statements to conform to
the March 31, 2010 presentation.
Recent Accounting
Standards
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update 2009-13 (ASU 2009-13), which provided an update to
ASC 605. ASU 2009-13 addresses how to separate deliverables and how
to measure and allocate arrangement consideration to one or more units of
accounting in multiple-deliverable arrangements. The amendments in this update
will be effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. The
Company is currently evaluating the impact that this update will have on its
Financial Statements.
In June
2009, the FASB created the Accounting Standards Codification, which is codified
as ASC 105. ASC 105 establishes the codification as the single
official non-governmental source of authoritative accounting principles (other
than guidance issued by the SEC) and supersedes and effectively replaces
previously issued GAAP hierarchy framework. All other literature that
is not part of the codification will be considered
non-authoritative. The codification is effective for interim and
annual periods ending on or after September 15, 2009. The Company has
applied the codification, as required, beginning with the 2009 Form
10-K. The adoption of the codification did not have a material impact
on the Company’s financial position, results of operations or cash
flows.
11
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Standards
(Continued)
In June
2009, the FASB updated ASC 855, which established principles and requirements
for subsequent events. This guidance details the period after the
balance sheet date which the Company should evaluate events or transactions that
may occur for potential recognition or disclosure in the financial statements,
the circumstances under which the Company should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the required disclosures for such events. ASC 855 is effective
for interim and annual periods ending after June 15, 2009. The
implementation of ASC 855 did not have a material effect on the Company’s
financial statements. The Company adopted ASC 855, and has evaluated
all subsequent events through May 10, 2010.
In April
2009, the FASB updated ASC 820 to provide additional guidance for estimating
fair value when the volume and level of activity for the asset or liability have
decreased significantly. ASC 820 also provides guidance on
identifying circumstances that indicate a transaction is not orderly. The
implementation of ASC 820 did not have a material effect on the Company’s
financial statements.
In April
2009, the FASB updated ASC 825 regarding interim disclosures about fair value of
financial instruments. ASC 825 requires disclosures about fair value
of financial instruments in interim reporting periods of publicly traded
companies that were previously only required to be disclosed in annual financial
statements. The implementation of ASC 825 did not have a material effect on the
Company’s financial statements.
In April
2009, the FASB updated ASC 320 for proper recognition and presentation of
other-than-temporary impairments. ASC 320 provides additional
guidance designed to create greater clarity and consistency in accounting for
and presenting impairment losses on securities. The implementation of
ASC 320 did not have a material effect on the Company’s consolidated financial
statements.
12
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 2 - INCOME
TAXES
As of
December 31, 2009, the Company had a net operating loss carry forward for income
tax reporting purposes of approximately $212,000 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.
2009
|
2008
|
|||||||
Net
Operating Losses
|
$ | 72,080 | $ | 58,820 | ||||
Valuation
Allowance
|
(72,080 | ) | (58,820 | ) | ||||
$ | - | $ | - |
The
provision for income taxes differ from the amount computed using the federal US
statutory income tax rate as follows:
2009
|
2008
|
|||||||
Provision
(Benefit) at US Statutory Rate
|
$ | 13,260 | $ | 13,900 | ||||
Other
Adjustments
|
- | (109 | ) | |||||
Increase
(Decrease) in Valuation Allowance
|
(13,260 | ) | (13,791 | ) | ||||
$ | - | $ | - |
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.
13
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
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, 2008, 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 2008. 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
2005. The following describes the open tax years, by major tax jurisdiction, as
of January 1, 2009:
United
States (a)
|
2006–
Present
|
(a) Includes federal as well as state
or similar local jurisdictions, as applicable.
14
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 5 -
COMMITMENTS
As of
March 31, 2010, 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 6 - 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.
15
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 7 - 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 $0.0001per 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 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.”
NOTE 8 – RELATED PARTY
ACCOUNTS PAYABLE
As of
March 31, 2010, the Company had Related Party Accounts Payable in the amount of
$10,592 due to Lyboldt-Daly, Inc. for Bookkeeping expenses. Joseph
Passalaqua (a major shareholder of the Company and brother to John F.
Passalaqua, an officer of the Company) is President and Sole Director of
Lyboldt-Daly, Inc.
During
2006, a Shareholder of the Company, Joseph Passalaqua, has advanced the company
$10,673. This is a Related Party Accounts Payable. As of March 31, 2010 the
Company owes $10,673.
During
2006, an Officer of the Company, Carl Worboys, has advanced the Company $224.
This is a Related Party Accounts Payable. As of March 31, 2010, the Company owes
$ 224.
16
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 9 – RELATED PARTY NOTES
PAYABLE
In 2006,
2007, 2008, a Shareholder of the Company, Mary Passalaqua, advanced the Company
$5,000, $30,300, and $18,300, respectively. The notes are accruing
between 10% and 15% simple interest per annum and are payable in full upon
demand. As of March 31, 2010, the Company owed a total principle balance of
$53,600 related to these notes and has accrued $18,740 in simple
interest.
In 2007,
2008 and 2010, a Shareholder of the Company, Joseph Passalaqua has advanced the
company $5,000, $9,887, and $300, 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 March 31, 2010, the Company owed a total
principle balance of $14,742 related to these notes and has accrued $2,932 in
simple interest.
In 2010,
Cobalt Blue LLC has advanced the Company $53,375. Mary Passalaqua is the
Managing Member of Cobalt Blue LLC and is a Shareholder of the Company. The note
is accruing 18% in simple interest per annum and is payable in full upon demand.
As of March 31, 2010, the Company owed a total principle balance of $53,375
related to these notes and has accrued $2,053 in simple interest.
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.
17
PEGASUS TEL,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 10 – SPIN OFF
(Continued)
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 amended.
NOTE 11 – SUBSEQUENT
EVENTS
The
Company evaluated all events subsequent to April 1, 2010 through May 11, 2010,
the financial statement issuance date, and concluded that there are no
significant or material transactions to be reported for the period from April 1,
2010 through May 11, 2010.
18
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.
19
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 March 31, 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.
20
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 March 31, 2010.
No.:
|
Location
|
March
31, 2010
|
|||||
1
|
Andes
Hotel
110
Main St., Andes, NY 13731
|
$
|
88
|
||||
2
|
Andes
Public Booth
21
Main St., Andes, NY 13731
|
$
|
31
|
||||
3
|
Margaretville
Central School
415
Main St., Margaretville, NY 12455
|
$
|
128
|
||||
4
|
Margaretville
Memorial Hospital
42084
State Hwy. 28, Margaretville, NY 12455 (downstairs)
|
$
|
70
|
||||
5
|
Margaretville
Memorial Hospital
42084
State Hwy. 28, Margaretville, NY 12455 (upstairs)
|
$
|
50
|
||||
6
|
Mountainside
Residential Care
42158
State Hwy. 28, Margaretville, NY 12455 (1 st Floor)
|
$
|
182
|
||||
7
|
Mountainside
Residential Care
42158
State Hwy. 28, Margaretville, NY 12455 (2 nd Floor)
|
$
|
170
|
||||
8
|
Mountainside
Residential Care
42158
State Hwy. 28, Margaretville, NY 12455 (3 rd Floor)
|
$
|
177
|
||||
9
|
Town
of Middletown
42339
State Hwy. 28, Margaretville, NY 12455
|
$
|
135
|
||||
10
|
Hess
Mart
42598
State Hwy. 28, Margaretville, NY 12455
|
$
|
198
|
||||
11
|
Arkville
Country Store
43525
State Hwy. 28, Arkville, NY 12406
|
$
|
73
|
||||
Total
Revenues
|
$
|
1,302
|
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).
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.
21
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.
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.
22
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. John F. 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.
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.
23
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, 2009 and the three months ended March 31, 2010, 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, 2009,
Robison, Hill & Co. stated that several conditions and events cast
substantial doubt about our ability to continue as a “going
concern.” At December 31, 2009, we had $39 cash on hand, $208
in accounts receivable and an accumulated deficit of $(220,870). At March 31,
2010, we had $561 cash on hand, $148 in accounts receivable and an accumulated
deficit of $(240,310).See “Liquidity and Capital Resources.”
LIQUIDITY
AND CAPITAL RESOURCES
As of
March 31, 2010, we had $561 in cash and cash equivalents respectively. Our
primary source of liquidity has been from borrowing from Joseph C. Passalaqua
and Mary Passalaqua, both major shareholders, to cover expenses and
liabilities.
As of
March 31, 2010 we have notes payable to Joseph C. Passalaqua in the amount
$14,742, notes payable to Mary Passalaqua in the amount of $53,600, and a note
payable to Cobalt Blue LLC, with Mary Passalaqua as the sole Managing Member, in
the amount of $53,375. These notes payable bear a simple interest
rate between 10% and 18% per annum and are payable upon demand. As of March 31,
2010 the accrued interest on the notes payable to Joseph Passalaqua, Mary
Passalaqua and Cobalt Blue LLC, were $23,725.
24
As of
March 31, 2010, the Company owed $21,489 in Related Party Accounts Payable. As
of March 31, 2010 this balance includes $10,592 due to Lyboldt-Daly Inc. for
bookkeeping expenses and $10,673 due to Joseph C. Passalaqua, the President and
Sole Director of Lyboldt-Daly, Inc. Joseph Passaalqua is also a major
shareholder of the Company and brother to John F. Passalaqua, an officer of the
Company. It also includes $224 owed to Carl Worboys, an officer of
the Company. These amounts are non-interest bearing.
Net cash
used in operating activities was $52,708 during the three-month period ended
March 31, 2010.
Net cash
provided by investing activities was $0 during the three-month period ended
March 31, 2010.
Net cash
provided by financing activities was $53,230 during the three-month period ended
March 31, 2010.
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 $247 and total liabilities of $163,253 resulting in a working
capital deficit of $(163,006) for the year ended December 31, 2009. We had total
assets of $709 and total liabilities of $183,155, which results in working
capital deficit of $(182,446) for the three months ended March 31,
2010.
THREE
MONTHS ENDED MARCH 31, 2010 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2009
REVENUES
Our total
revenue increased by $252, from $1,050 for the three months ended March 31, 2009
to $1,302 for the three months ended March 31, 2010. This increase was primarily
due to the Company strategically placing payphones in key areas, especially
where cell phone reception is not reliable as our customer base did not
increase.
Our coin
call increased by $322, from $222 for the three months ended March 31, 2009 to
$544 for the three months March 31, 2010. This increase was primarily
due to a higher volume of coin calls at payphone locations that the Company
strategically placed in key areas.
Our
non-coin call revenue, or commission income, which is comprised primarily of
“dial around” revenue, star 88 commission revenue and operator service revenue
decreased $70, from $288 for the three months ended March 31, 2009 to $218 for
the three months ended March 31, 2010. This decrease was primarily due to a
decline in commissions paid by the payphone service providers. The FCC requires
the sellers of long distance toll free services to pay the payphone owner $0.494
cents per “dial-around” call. These funds are remitted quarterly through a
service provided by the American Public Communication Council
(APCC).
Our local
service revenue which is comprised primarily of service for payphone
customers remained the same, $540 for both the three months ended March 31,
2009 and the three months ended March 31, 2010. This is the revenue from monthly
invoices billed to payphone customers in which the Company owns the payphone and
provides service to operate the payphone on the premises. As of March 31, 2010
two customers made up the local service revenue:
Mountainside
Residential Care Center, Lake Katrine, New York
Town of
Middletown, Margaretville, New York
25
COST
OF SALES
Our
overall cost of services increased $86, from $819 in the three months ended
March 31, 2009, to $905 in the three months ended March 31, 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. Commission expense represents payments to owners or
operators of the premises at which a payphone is located and APCC commission
fees related to Dial Around processing. Telecommunication costs increased by $3
for the three months ended March 31, 2010 when compared to the same period in
2009. Commissions increased by $83 for the three months ended March
31, 2010 when compared to the same period in 2009, primarily due to a credit
that was issued on a commission expense in 2009. There was no Depreciation
expense in 2009 or 2010.
As of March 31,
2010, the payphone equipment was fully depreciated.
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 by $12,425, from $2,620 for the three months ended March 31,
2009 to $15,045 for the three months ended March 31, 2010. Professional fees
increased by $10,538, from $962 for the three months ended March31, 2009 to
$11,500 for the three months ended March 31, 2010. Professional fees
include fees the Company pays for accountants, bookkeepers and attorneys
throughout the year for performing various tasks. This increase was primarily
due to accounting fees when comparing the same period ending 2010 and 2009.
Outside Services expenses increased by $1,854 in the three months ended March
31, 2010 when compared with the same period ending in 2009. General and
Administrative expenses, which is primarily consists of office expenses and
finance charges, increased by $33 in the three months ended March 31, 2010 when
compared with the same period ending in 2009.
Our expenses to date are
largely due to professional fees that include accounting, bookkeeping and legal
fees.
COMMON
STOCK
Our board
of directors is authorized to issue 100,000,000 shares of Common stock, with a
par value of $0.0001. There are an aggregate of 20,215,136 shares of Common
Stock issued and outstanding, which are held by 213 stockholders as of the date
of this Quarterly Report. All shares of our common stock have one
vote per share on all matters, including election of directors, without
provision for cumulative voting. The common stock is not redeemable and has no
conversion or preemptive rights. The common stock currently outstanding is
validly issued, fully paid and non-assessable. In the event of liquidation of
the Company, the holders of common stock will share equally in any balance of
the Company's assets available for distribution to them after satisfaction of
creditors and preferred stockholders, if any. The holders of our common stock
are entitled to equal dividends and distributions per share with respect to the
Common Stock when, as and if, declared by the board of directors from funds
legally available.
26
·
|
Dividends. We
have never declared dividends. We do not intend to declare any dividends
in the foreseeable future. We presently intend to retain earnings, if any,
for the development and expansion of our
business.
|
·
|
Share Purchase
Warrants. We have not issued and do not have outstanding
any warrants to purchase shares of our common
stock.
|
·
|
·
|
Convertible
Securities. We have not issued and do not have
outstanding any securities convertible into shares of our common stock or
any rights convertible or exchangeable into shares of our common
stock.
|
PREFERRED
STOCK
Our board
of directors is authorized to issue 10,000,000 shares of Preferred stock, with a
par value of $0.0001. There are an aggregate of 0 shares of Preferred Stock
issued and outstanding as of the date of this Quarterly Report
COMMON
AND PREFERRED STOCK TRANSACTIONS
On
February 19, 2002, we filed a Certificate of Incorporation with the Secretary of
State of Delaware. Our authorized capital was 1,000 shares of common
stock, no par value.
On
September 21, 2006, we filed an Amended and Restated Certificate of
Incorporation increasing our 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
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
5, 2008, we 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”). 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 are “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
Gas, (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 “Spin-off”). 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
“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.
27
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.
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. In not, your
investment might be illiquid.
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.
28
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
March 31, 2010, we had $561 in cash and cash equivalents on hand and an
accumulated deficit of $(240,310).
As of
March 31, 2010, the Company owed $21,489 in Related Party Accounts
Payable.
As of
March 31, 2010, the Company owed $ 121,717 in Related Party Notes payable and
$23,725 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.
We
do not have an external credit facility.
We
currently do not have an external credit facility. The current
economic recession has hampered small businesses, like ours, from obtaining
loans and lines of credit from banks and lending agencies. Overall,
due to the recession and increasing bank failures, banks have become more
selective when granting loans and/or lines of credit to businesses and
individuals. If we are unable to grow our business from generating
revenues, we may need access to additional capital such as loans and/or lines of
credit. We might not qualify for such loans and/or lines of credit. Our failure
to secure an external credit facility could prevent us from growing our business
or to cease operations.
29
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.
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.
30
We
are highly dependent on our two executive officers, Carl E. Worboys and John F.
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 John F.
Passalaqua. Carl E. Worboys serves as our President and Director, and John F.
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.
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:
|
·
|
Cease
selling, incorporating or using products or services that incorporate the
challenged intellectual property;
|
·
|
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
|
·
|
Redesign
those products or services that incorporate such
technology.
|
31
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.
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.
There
currently is no trading market for our common stock and we cannot assure that
one will develop or be maintained.
Upon the
effectiveness of this registration statement, we intend to solicit a
market-maker to apply with FINRA (formerly, the NASD) to have our common stock
quoted on the OTC Bulletin Board (OTCBB). We cannot assure that a market will
develop or maintained. In not, your investment might be
illiquid.
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.
32
During
the three months ended March 31, 2010 there were no sales of unregistered
securities.
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM
5. OTHER INFORMATION
33
PART
III. EXHIBITS
Exhibit
No.
|
Description
|
Articles
of Incorporation, dated February 19, 2002
|
|
3.2(1)
|
Amended
Articles of Incorporation, dated September 21, 2006
|
3.3(1)
|
Amendment
to the Articles of Incorporation, dated September 18,
2006.
|
3.4(2)
|
Amendment
to Articles of Incorporation, date May 15, 2007
|
3.5(3)
|
Certificate
of the Designations, Powers Preferences and Rights of the Series A
Convertible Preferred Stock
|
3.5(1)
|
By-laws
|
4.1(1)
|
Form
of Common Stock Certificate
|
10.1
(3)
|
Series
A Preferred Stock Purchase Agreement
|
10.2
(4)
|
$1,205
18% Promissory Note, dated December 2, 2008, for the benefit of Joseph C.
Passalaqua
|
10.3
(4)
|
$8,682
18% Promissory Note, dated August 13, 2008, for the benefit of
Joseph C. Passalaqua
|
10.4
(4)
|
$5,000
10% Promissory Note, dated December 13, 2007, for the benefit of Joseph C.
Passalaqua
|
10.5
(4)
|
$400
10% Promissory Note, dated March 21, 2008, for the benefit of Mary
Passalaqua
|
10.6
(4)
|
$17,900
10% Promissory Note, dated January 24, 2008, for the benefit of Mary
Passalaqua
|
10.7
(4)
|
$15,300
15% Promissory Note, dated June 11, 2007, for the benefit of Mary
Passalaqua
|
10.8
(4)
|
$15,000
15% Promissory Note, dated April 26, 2007, for the benefit of Mary
Passalaqua
|
10.9
(4)
|
$5,000
10% Promissory Note, dated October 24, 2006, for the benefit of Mary
Passalaqua
|
Exhibit
31.1
|
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
|
Exhibit
31.2
|
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
|
Exhibit
32.1
|
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
|
Exhibit
32.2
|
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.
34
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
PEGASUS
TEL, INC.
|
||
|
|
|
By:
|
/s/ CARL
E. WORBOYS
|
|
Date: May 11,
2010
|
Carl
E. Worboys
|
|
President,
Director, Chief Executive Officer
|
||
(Principal
Executive Officer)
|
||
By:
|
/s/
JOHN F. PASSALAQUA
|
|
Date: May 11,
2010
|
John
F. Passalaqua
Secretary,
Director, and Chief Financial Officer
(Principal
Financial Officer
and
Principal Accounting Officer)
|
35