PEGASUS TEL, INC. - FORM 10-Q

Attached files

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EX-31.1 - PEGASUS TEL, INC.	form10q033111ex31-1.htm
EX-32.2 - PEGASUS TEL, INC.	form10q033111ex32-2.htm
EX-32.1 - PEGASUS TEL, INC.	form10q033111ex32-1.htm
EX-31.2 - PEGASUS TEL, INC.	form10q033111ex31-2.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, 2011

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number: 333-162516

CIK Number: 0001377469

_______________________________________________

PEGASUS TEL, INC.

(Exact name of small business issuer as specified in its charter)

Delaware		41-2039686
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

118 Chatham Road Syracuse, NY		13203
(Address of principal executive offices)		(zip code)

Registrant's telephone number, including area code:

Issuer’s telephone number: (315) 491-8262

Anthony DiBiase

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)

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, 2011, 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: $4,554

As of May 23, 2011 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, 2011, there were 20,215,136 shares of common stock outstanding.

Documents incorporated by reference: None.

Transitional Small Business Disclosure Format: Yes [ ] No [ X ]

PEGASUS TEL, INC.
MARCH 31, 2011

	PART I – FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Balance Sheets as March 31, 2011 (Unaudited) and December 31, 2010	4
	Statements of Operations For the three months ended March 31, 2011 (Unaudited) and March 31, 2010 (Unaudited) For the cumulative period from February 19, 2002 (Inception) to March 31, 2011 (Unaudited)	5
	Statements of Cash Flows For the three months ended March 31, 2011 (Unaudited) and March 31, 2010 (Unaudited) For the cumulative period from February 19, 2002 (Inception) to March 31, 2011 (Unaudited)	6
	Notes to Financial Statements	7-14
Item 2.	Management’s Discussion and Analysis or Plan of Operation	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	[Removed and Reserved]	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	SIGNATURES	33

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,
	2011			2010
Assets:
Cash and Cash Equivalents	$	63		$	289
Accounts Receivable		338			218

Total Current Assets		401			507

Total Assets	$	401		$	507

Liabilities:
Accounts Payable	$	6,094		$	9,258
Related Party Accounts Payable		25,739			24,589
Accrued Interest		44,353			38,431
Related Party Notes Payable		173,950			140,627

Total Current Liabilities		250,136			212,905

Total Liabilities		250,136			212,905

Stockholders' Equity:
Preferred Stock, Par value $0.0001, Authorized 10,000,000 shares
Issued 0 shares at March 31, 2011 and December 31, 2010		-			-
Common Stock, Par value $0.0001, Authorized 100,000,000 shares
Issued 20,215,136 at March 31, 2011 and December 31, 2010		2,022			2,022
Paid-In Capital		55,842			55,842
Deficit Accumulated During Development Stage		(307,599	)		(270,262	)
Total Stockholders' Equity		(249,735	)		(212,398	)

Total Liabilities and Stockholders' Equity	$	401		$	507

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

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
	2011			2010			Stage
Revenues	$	898		$	1,302		$	70,659
Costs of Services		(792	)		(905	)		(66,777	)

Gross Margin		106			397			3,882

Expenses
Accounting		5,258			10,500			90,852
Advertising		-			-			770
Related Party Bookkeeping		1,150			1,000			19,627
General and Administrative		290			209			12,089
Legal		23,098			-			107,888
Outside Services		1,244			3,336			32,082
Operating Expenses		31,040			15,045			263,308

Operating Income (Loss)		(30,934	)		(14,648	)		(259,426	)

Other Income (Expense)
Interest, Net		(5,922	)		(4,310	)		(45,408	)

Net Loss Before Taxes		(36,856	)		(18,958	)		(304,834	)

Income and Franchise Tax		(481	)		(482	)		(2,765	)

Net Loss	$	(37,337	)	$	(19,440	)	$	(307,599	)

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.

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
	2011			2010			Stage
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss for the Period	$	(37,337	)	$	(19,440	)	$	(307,599	)
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		(120	)		60			(338	)
Increase (Decrease) in Accounts Payable		(3,164	)		(37,583	)		6,094
Increase (Decrease) in Related Party Accounts Payable		1,150			1,000			25,739
Increase (Decrease) in Interest Payable		5,922			3,255			44,353
Decrease (Increase) in Intercompany Dues		-			-			56,684
Net Cash Used in Operating Activities		(33,549	)		(52,708	)		(162,467	)

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 Payable		-			(445	)		(445	)
Proceeds from Related Party Notes Payable		33,323			53,675			174,395
Net Cash Provided by Financing Activities		33,323			53,230			174,130

Net (Decrease) Increase in Cash		(226	)		522			63
Cash at Beginning of Period		289			39			-
Cash at End of Period	$	63		$	561		$	63

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:	`
Cash paid during the year for:
Interest	$	-		$	1,055		$	-
Franchise and Income Taxes	$	481		$	482		$	2,765

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Accounts Payable Satisfied through Contributed Capital
and Property and Equipment	$	-		$	-		$	56,684
Common Stock Issued for Stock Receivable	$	-		$	-		$	-

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

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, 2011 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 three months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years.

Nature of Operations and Going Concern

The accompanying financial statements have been prepared on the basis of accounting principles applicable to a “going concern”, which assume that Pegasus Tel., Inc. (hereto referred to as the “Company”) will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.

Several conditions and events cast doubt about the Company’s ability to continue as a “going concern.” The Company has incurred net losses of approximately $(308,000) for the period from February 19, 2002 (inception) to March 31, 2011, has an accumulated deficit, has recurring losses, has minimal revenues and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained. In the interim, shareholders of the Company have committed to meeting its operating expenses. Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide them with the opportunity to continue as a “going concern”.

These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a “going concern”. While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the “going concern” assumption used in preparing these financial statements, there can be no assurance that these actions will be successful.

If the Company were unable to continue as a “going concern,” then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses, and the balance sheet classifications used.

Organization and Basis of Presentation

On February 19, 2002, Pegasus Tel, Inc., a Delaware company, was formed as a wholly owned subsidiary of American Industries.

On March 28, 2002, American Industries, Inc. and Pegasus Tel, Inc. entered into an agreement with Pegasus Communications, Inc., a New York corporation, to acquire 100% of the outstanding shares of Pegasus Communications, Inc. in exchange for 72,721,966 shares of common stock of American Industries, Inc. Pegasus Tel, Inc. continued as the surviving corporation and Pegasus Communications, Inc. was merged out of existence.

The Company is in the development stage, and has not commenced planned principal operations. The Company has a December 31 year end.

Nature of Business

The Company is primarily in the business of providing the use of outdoor payphones, and providing telecommunication services.

PEGASUS TEL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents to the extent the funds are not being held for investment purposes.

Revenue Recognition

The Company derives its primary revenue from the sources described below, which includes Dial Around revenues, coin collections, telephone equipment repairs, and sales. Other revenue generated by the company includes sales commissions.

Coin revenues are recorded in an equal amount to the coins collected. Revenues on commissions and telephone equipment and sales are realized on the date when the telephone repair services are provided or the telecommunication supplies are received by the customer. Dial Around revenues are earned when a customer uses the Company’s payphone to gain access to a different long distance carrier than is already programmed into the phone. The Dial Around revenue is recognized when the billing and collection agent of the Company, APCC, calculates and compensates the Company for the use of the payphone on a quarterly basis by billing the actual party’s long distance carrier that received the calls. The date of the Dial Around revenue recognition is determined when this compensation is collected and deposited into the Company’s bank account.

The Company recognizes revenues in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition." SAB 104 clarifies application of U. S. generally accepted accounting principles to revenue transactions. The Company recognizes revenue when the earnings process is complete. That is, when the arrangements of the goods are documented, the pricing becomes final and collectibility is reasonably assured. An allowance for bad debt is provided based on estimated losses. For revenue received in advance for goods, the Company records a current liability classified as either deferred revenue or customer deposits. As of March 31, 2011, there was no deferred revenue.

Allowance for Doubtful Accounts

The Company recognizes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectibility. Bad debt reserves are maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. As of March 31, 2011, the Company has determined an allowance for doubtful accounts is not necessary.

Concentration of Credit Risk

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company had cash and cash equivalents of $63 and $289 as of March 31, 2011 and December 31, 2010 all of which was fully covered by Federal depository insurance.

Accounts Receivable

Accounts Receivable consists of Local Service revenue and Commission Revenue. The Accounts Receivable was $338 and $218 as of March 31, 2011 and December 31, 2010 respectively.

Pervasiveness of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

PEGASUS TEL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

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, 2010 and March 31, 2011.

Financial Instruments

The Company’s financial assets and liabilities consist of cash, accounts receivable, and accounts payable. Except as otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values due to the short-term maturities of these instruments.

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No.109, “Accounting for Income Taxes.” SFAS No.109 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities.

Reclassification

Certain reclassifications have been made in the 2010 financial statements to conform to the March 31, 2011 presentation.

Recent Accounting Standards

In January 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-01 (ASU 2011-01) Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. ASU 2011-01 temporarily delay the effective date of the disclosures about troubled debt restructurings. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, the guidance is anticipated to be effective for interim and annual period ending after June 15, 2011. The Company does not expect the provisions of ASU 2011-01 to have a material effect on its financial position, results of operations or cash flows.

PEGASUS TEL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - INCOME TAXES

As of December 31, 2010, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $261,000 that may be offset against future taxable income through 2025. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.

	2010			2009
Net Operating Losses	$	88,740		$	72,080
Valuation Allowance		(88,740	)		(72,080	)
	$	-		$	-

The provision for income taxes differ from the amount computed using the federal US statutory income tax rate as follows:

	2010			2009
Provision (Benefit) at US Statutory Rate	$	16,660		$	13,260
Other Adjustments		-			-
Increase (Decrease) in Valuation Allowance		(16,660	)		(13,260	)
	$	-		$	-

The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and causes a change in management's judgment about the recoverability of deferred tax assets, the impact of the change on the valuation is reflected in current income.

NOTE 3- DEVELOPMENT STAGE COMPANY

The Company has not begun principal operations and as is common with a development stage company, the Company will have recurring losses during its development stage. The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses.

PEGASUS TEL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

NOTE 4 – UNCERTAIN TAX POSITIONS

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of FIN 48 did not have a material impact on the company’s financial position and results of operations. At January 1, 2010, the company had no liability for unrecognized tax benefits and no accrual for the payment of related interest.

Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related to unrecognized tax benefits during 2010. In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities.

With few exceptions, the company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2007. The following describes the open tax years, by major tax jurisdiction, as of January 1, 2010:

United States (a)

2007– Present

(a) Includes federal as well as state or similar local jurisdictions, as applicable.

NOTE 5 - COMMITMENTS

As of March 31, 2011, all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities.

NOTE 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.

PEGASUS TEL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

NOTE 6 - COMMON STOCK TRANSACTIONS (Continued)

On March 23, 2009, Pegasus filed a Form 15 (File No. 000-52628) with the Securities and Exchange Commission pursuant to which the Company de-registered its class of Common Stock under the Securities Exchange Act of 1934, as amended.

On October 15, 2009, the Company filed a Form S-1 Registration Statement with the Securities and Exchange Commission to register the Common Stock under the Securities Exchange Act of 1934, as amended, and on December 28, 2009 the Company’s Registration Statement went effective.

On July 21, 2010 John F. Passalaqua resigned as Director and Secretary of Pegasus Tel and Joseph C. Passalaqua was appointed as Director and Secretary. A stock purchase agreement was filed stating that Joseph C. Passalaqua purchased 2,702,386 shares of Pegasus Tel. common stock from John F. Passalaqua for $20,000.

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 $0.0001 per share of Series A Preferred Stock. Pegasus issued the Series A Preferred Stock pursuant to Section 4(2) of the Securities Act due to the fact that it did not involve a public offering of securities. The shares of Series A Preferred Stock are “restricted securities” (as such term is defined in Rule 144 of the Securities Act.

On August 18, 2008 and pursuant to the Series A Preferred Stock Certificate of Designation and Securities Purchase Agreement, Pegasus converted an aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of 18,000,000 shares of Pegasus common stock. Pegasus issued the common stock pursuant to Section 4(2) of Securities Act due to the fact that it did not involve a public offering of securities. The shares of common stock are “restricted securities.”

NOTE 8 – RELATED PARTY ACCOUNTS PAYABLE

As of March 31, 2011, the Company had Related Party Accounts Payable in the amount of $14,842 due to Lyboldt-Daly, Inc. for Bookkeeping expenses. Joseph Passalaqua (a major shareholder of the Company) is President and Sole Director of Lyboldt-Daly, Inc.

During 2006, a Shareholder and Officer of the Company, Joseph Passalaqua, advanced the company $10,673. This is a Related Party Accounts Payable. As of March 31, 2011, the Company owes $10,673.

During 2006, a Shareholder and Officer of the Company, Carl Worboys, advanced the Company $224. This is a Related Party Accounts Payable. As of March 31, 2011, the Company owes $224.

PEGASUS TEL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

NOTE 9 – RELATED PARTY NOTES PAYABLE

In 2006, 2007, 2008, and 2011 a Shareholder and Officer of the Company, Mary Passalaqua, advanced the Company $5,000, $30,300, $18,300, and $18,100 respectively. The notes are accruing between 10%,15%, and 18% simple interest per annum and are payable in full upon demand. As of March 31, 2011, the Company owed a total principle balance of $71,700 related to these notes and has accrued $25,681 in simple interest.

In 2007, 2008 and 2010, a Shareholder of the Company, Joseph Passalaqua has advanced the company $5,000, $9,887, and $1,800 respectively. The notes are accruing between 10% and 18% in simple interest per annum and is payable in full upon demand. On January 21, 2010, $1,500 was paid to Joseph Passalaqua as a partial repayment, with $1,055 paid to loan interest and $445 paid to loan principal by the Company. As of March 31, 2011, the Company owed a total principle balance of $16,242 related to these notes and has accrued $5,475 in simple interest.

In 2010 and 2011, Cobalt Blue LLC has advanced the Company $70,785 and $15,223 respectively. Mary Passalaqua is the Managing Member of Cobalt Blue LLC and is a Shareholder of the Company. These note are accruing 18% in simple interest per annum and is payable in full upon demand. As of March 31, 2011, the Company owed a total principle balance of $86,008 related to these notes and has accrued $13,197 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.

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.

PEGASUS TEL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

NOTE 11 – SUBSEQUENT EVENTS

On March 30, 2011, the members of the board of directors (the “Board”) of Pegasus Tel, Inc. (the “Company”) approved by unanimous written consent, and the stockholders of the Company holding a majority in interest of the Company’s voting equity approved by written consent, the appointment of Mr. Anthony DiBiase, Jr. as Chief Executive Officer and as a member of the Board, effective as of March 30, 2011. Also on that date, the Company entered into a Common Stock Purchase Agreement (the “Agreement”) with two shareholders (collectively, the “Majority Shareholders”), who, immediately prior to the consummation of the sale (the “Sale”) of the Company’s common stock (“Common Stock”) contemplated in the Agreement, together held a majority of the issued and outstanding shares of the Company’s Common Stock, and a subscriber (the “Buyer”) for shares of the Company’s Common Stock. After the issuance of the shares to the Buyer pursuant to the Sale, such shares shall constitute a majority of the issued and outstanding shares of the Company’s Common Stock. The terms of the Agreement are still being negotiated. Once the Agreement is finalized, the Agreement will be contingent upon a payment of $100,000 from the Buyer. As of the date of this filing, the Agreement is not yet effective and no Shares have been issued.

On April 5, 2011, $25,000 of the debt held in promissory notes was converted into 2,000,000 shares of Pegasus Tel. Common stock.

On May 2, 2011, $2,000 of the debt held in promissory notes was converted into 2,000,000 shares of Pegasus Tel. Common Stock.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

FORWARD LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may," "will," "expect," "anticipate," "estimate," "continue," or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are unable to accurately predict or control. Those events as well as any cautionary language in this registration statement provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in this Form 10-Q could have a material adverse effect on our business, operating results and financial condition.

BASIS OF PRESENTATION

The unaudited financial statements of Pegasus Tel, Inc., a Delaware corporation (“Pegasus”, “Pegasus Tel.”, “the Company”, “our”, or “we”), should be read in conjunction with the notes thereto. In the opinion of management, the unaudited financial statements presented herein reflect all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation. Interim results are not necessarily indicative of results to be expected for the entire year.

We prepare our financial statements in accordance with U.S. generally accepted accounting principals, which require that management make estimates and assumptions that affect reported amounts. Actual results could differ from these estimates.

Certain statements contained below are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

DESCRIPTION OF BUSINESS

Pegasus Tel, Inc., or Pegasus, was incorporated under the laws of the State of Delaware on February 19, 2002 to enter into the telecommunication business.

On 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.

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 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, 2011, 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.

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, 2011.

No.:		Location	March 31, 2011
	1	Andes Hotel 110 Main St., Andes, NY 13731	$	30
	2	Andes Public Booth 21 Main St., Andes, NY 13731	$	5
	3	Margaretville Central School 415 Main St., Margaretville, NY 12455	$	50
	4	Margaretville Memorial Hospital 42084 State Hwy. 28, Margaretville, NY 12455 (downstairs)	$	10
	5	Margaretville Memorial Hospital 42084 State Hwy. 28, Margaretville, NY 12455 (upstairs)	$	10
	6	Mountainside Residential Care 42158 State Hwy. 28, Margaretville, NY 12455 (1 st Floor)	$	146
	7	Mountainside Residential Care 42158 State Hwy. 28, Margaretville, NY 12455 (2 nd Floor)	$	146
	8	Mountainside Residential Care 42158 State Hwy. 28, Margaretville, NY 12455 (3 rd Floor)	$	146
	9	Town of Middletown 42339 State Hwy. 28, Margaretville, NY 12455	$	146
	10	Hess Mart 42598 State Hwy. 28, Margaretville, NY 12455	$	199
	11	Arkville Country Store 43525 State Hwy. 28, Arkville, NY 12406	$	10

		Total Revenues	$	898

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.

Seasonality

Our revenues from payphone operation are affected by seasonal variations, geographic distribution of payphones and type of location. Because we operate in the northeastern part of the country with many of the payphones located outdoor, weather patterns affect our revenue streams. Revenues drop off significantly during winter and conversely show an increase in the spring and summer. Revenues are generally lowest in the first quarter and highest in the third quarter.

Significant Customers

We do not rely on a major customer for our revenue. We have a variety of small single businesses as well as some small chain stores that we service. We do not believe that we would suffer dramatically if any one customer or small chain decided to stop using our phones.

Significant Vendors

We must buy dial tone for each payphone from the local exchange carrier. As long as we pay the carrier bill, it is required to provide a dial tone. As a regulated utility, the exchange carrier may not refuse to provide us service. Alternate service exists in certain areas where Verizon competitors are located. We use alternate local service providers when we can get a better price for the service. We use long distance providers on all the payphones.

Intellectual Property

As we purchase phones from other companies, we upgrade them with "smart card" payphone technology. The upgrade is a circuit board with improved technology. The “smart card” technology allows us to determine on a preset time basis the operational status of the payphone. We are given a license to use the “smart card” technology from Quortech, the founder and manufacturer of “smart card” technology. The technology informs us when the coins in the phone have to be collected, the number and types of calls that have been made from each phone, as well as other helpful information that helps us provide better service to our payphone using public. This upgrade of the phones reduces the number and frequency of service visits due to outages and other payphone-related problems and, in turn, reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry including Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays.

We do not own any patents or trademarks. Companies in the telecommunications industry and other industries in which we compete own large numbers of patents, copyrights and trademarks and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition, the possibility of intellectual property claims against us grows. We might not be able to withstand any third-party claims or rights against their use.

Government Regulation

We are subject to varying degrees of regulation by federal, state, local and foreign regulators. The implementation, modification, interpretation and enforcement of these laws and regulations vary and can limit our ability to provide many of our services. Our ability to compete in our target markets depends, in part, upon favorable regulatory conditions and the favorable interpretations of existing laws and regulations.

FCC Regulation and Interstate Rates

Our services are subject to the jurisdiction of the Federal Communications Commission (FCC) with respect to interstate telecommunications services and other matters for which the FCC has jurisdiction under the Communications Act of 1934, as amended.

Payphone users can circumvent the usual payment method and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around” numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications Commission, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service providers receive compensation for these “dial-around” calls.

The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). If the FCC regulation requiring sellers of long distance toll free services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream. We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the future. It is possible for future regulations to be so financially demanding that they cause us to go out of business. We are not aware of any proposed regulations or changes to any existing regulations.

Telecommunications Act of 1996

The Telecommunications Act of 1996, regulatory and judicial actions and the development of new technologies, products and services have created opportunities for alternative telecommunication service providers, many of which are subject to fewer regulatory constraints. We are unable to predict definitively the impact that the ongoing changes in the telecommunications industry will ultimately have on our business, results of operations or financial condition. The financial impact will depend on several factors, including the timing, extent and success of competition in our markets, the timing and outcome of various regulatory proceedings and any appeals, and the timing, extent and success of our pursuit of new opportunities resulting from the Telecommunications Act of 1996 and technological advances.

Research and Development

We have not expended any money in the last two fiscal years on research and development activities.

Employees

The company does not have any employees. Anthony DiBiase, Jr. is our Chief Executive Officer and Director, Joseph C. Passalaqua is our Chief Financial Officer, Secretary and Director and Carl E. Worboys is our President and Director.

CRITICAL ACCOUNTING POLICIES & ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. The amounts of assets and liabilities reported in our balance sheet, and the amounts of revenues and expenses reported for each of our fiscal periods, are affected by estimates and assumptions which are used for, but not limited to, the accounting for allowance for doubtful accounts, goodwill and intangible asset impairments, restructurings, inventory and income taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of our consolidated financial statements.

Use of Estimates

It is important to note that when preparing the financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain estimates and assumptions that affect the amounts reported and disclosed in the financial statements and related notes. Actual results could differ if those estimates and assumptions approve to be incorrect.

On an ongoing basis, we evaluate our estimates, including those related to estimated customer life, used to determine the appropriate amortization period for deferred revenue and deferred costs associated with licensing fees, the useful lives of property and equipment and our estimates of the value of common stock for the purpose of determining stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Off- Balance Sheet Arrangements

We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Cash and Cash Equivalents

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, 2011, there was no deferred revenue. The Company derives its primary revenue from the sources described below, which includes dial-around revenues, operator service revenue, coin collections, telephone equipment repairs, and sales. Other revenue generated by the company includes sales commissions.

Our installed payphone base generates revenue from two principal sources: coin-calls and non-coin calls.

1. Coin calls: Coin calls represent calls paid for by customers who deposit coins into the payphones. Coin call revenue is recorded as the actual amount of coins collected from the payphones.

Coin revenues are recorded in an equal amount to the coins collected.

2. Non-Coin calls: Non-coin revenue includes commissions from operator service telecommunications companies and a “dial-around” commission of $0.494 per call that the FCC requires sellers of long distance toll free services to pay payphone owners. The commissions for operator services are paid 45 days in arrears. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC).

The Dial Around revenue is recognized when the billing and collection agent of the Company, APCC, calculates and compensates the Company for the use of the payphone on a quarterly basis by billing the actual party’s long distance carrier that received the calls. The date of the Dial Around revenue recognition is determined when this compensation is collected and deposited into the Company’s bank account.

The Operator Service revenue is recognized when the collection agents of the Company, Legacy Long Distance and US Intercom calculates and compensates the Company for the use of operator services on a monthly basis. The date of the Operator Service revenue recognition is determined when this compensation is collected and deposited into the Company’s bank account.

Revenues on commissions, telephone equipment and sales are realized when the services are provided and payment for such services is deemed certain.

COSTS RELATED TO OUR OPERATION

The principal costs related to the ongoing operation of our payphones include telecommunication costs, commissions and depreciation. Telecommunication expenses consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance costs. Commission expense represents payments to owners or operators of the premises at which a payphone is located.

GOING CONCERN QUALIFICATION

In their Independent Auditor's Report for the fiscal years ending December 31, 2010, Robison, Hill & Co. stated that several conditions and events cast substantial doubt about our ability to continue as a “going concern.” At December 31, 2010, we had $289 cash on hand, $218 in accounts receivable and an accumulated deficit of $(270,262). At March 31, 2011, we had $63 cash on hand, $338 in accounts receivable and an accumulated deficit of $(307,599). See “Liquidity and Capital Resources.”

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2011, we had $63 in cash and cash equivalents respectively. Our primary source of liquidity has been from borrowing from Joseph C. Passalaqua, a major shareholder of the Company and officer of the Company, and Mary Passalaqua, a major shareholder, to cover expenses and liabilities.

As of March 31, 2011 we have notes payable to Joseph C. Passalaqua in the amount $16,242, notes payable to Mary Passalaqua in the amount of $71,700, and a note payable to Cobalt Blue LLC, with Mary Passalaqua as the sole Managing Member, in the amount of $86,008. These notes payable bear a simple interest rate between 10% and 18% per annum and are payable upon demand. As of March 31, 2011 the accrued interest on the notes payable to Joseph Passalaqua, Mary Passalaqua and Cobalt Blue LLC, were $44,353.

As of March 31, 2011, the Company owed $25,739 in Related Party Accounts Payable. As of March 31, 2011 this balance includes $14,842 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 Passalaqua is also a major shareholder of the Company and 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 $33,549 during the three-month period ended March 31, 2011.

Net cash provided by investing activities was $0 during the three-month period ended March 31, 2011.

Net cash provided by financing activities was $33,323 during the three-month period ended March 31, 2011.

Our expenses to date are largely due to professional fees that include accounting fees and legal fees.

To date, we have had minimal revenues; and we require additional financing in order to finance our business activities on an ongoing basis. Our future capital requirements will depend on numerous factors including, but not limited to, continued progress in finding a merger candidate and the pursuit of business opportunities. We are actively pursuing alternative financing and have had discussions with various third parties, although no firm commitments have been obtained to date. In the interim, shareholders of the Company have committed to meet our minimal operating expenses. We believe that actions presently being taken to revise our operating and financial requirements provide them with the opportunity to continue as a “going concern,” although no assurances can be given.

WORKING CAPTIAL

We had total assets of $507 and total liabilities of $212,905 resulting in a working capital deficit of $(212,398) for the year ended December 31, 2010. We had total assets of $401 and total liabilities of $250,136 resulting in working capital deficit of $(249,735) for the three months ended March 31, 2011.

THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2010

REVENUES

Our total revenue decreased by $404, from $1,302 for the three months ended March 31, 2010 to $898 for the three months ended March 31, 2011. This decrease was primarily due to a lower volume of coin calls and operator assisted calls at payphone locations.

Our coin call decreased by $297, from $544 for the three months ended March 31, 2010 to $247 for the three months March 31, 2011. This decrease was primarily due increase was primarily due to a lower volume of coin calls at payphone locations.

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 by $107, from $218 for the three months ended March 31, 2010 to $111 for the three months ended March 31, 2011. 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, 2010 and the three months ended March 31, 2011. 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, 2011, two customers made up the local service revenue:

Mountainside Residential Care Center, Lake Katrine, New York

Town of Middletown, Margaretville, New York

COST OF SALES

Our overall cost of services decreased $113, from $905 in the three months ended March 31, 2010, to $792 in the three months ended March 31, 2011. The principal costs related to the ongoing operation of our payphones include telecommunication costs, commissions and depreciation. Telecommunication costs consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance costs. 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 decreased by $113, from $862 in the three months ended March 31, 2010, to $749 in the three months ended March 31, 2011. Commissions were the same for both periods, $43 for the three months ended March 31, 2010 and March 31, 2011. There was no Depreciation expense in 2010 or 2011. As of March 31, 2011, 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.

OPERATION AND ADMINISTRATIVE EXPENSES

Operating expenses increased by $15,995, from $15,045 for the three months ended March 31, 2010 to $31,040 for the three months ended March 31, 2011. Professional fees increased by $18,006, from $11,500 for the three months ended March 31, 2010 to $29,506 for the three months ended March 31, 2011. 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 legal fees when comparing the same period ending 2011 and 2010. Outside Services expenses decreased by $2,092 in the three months ended March 31, 2011 when compared with the same period ending in 2010. General and Administrative expenses, which is primarily consists of office expenses and finance charges, increased by $81 in the three months ended March 31, 2011 when compared with the same period ending in 2010. The increase in expenses in the three months ending March 31, 2011 when compared with the three months ending March 31, 2010 was primarily due to increase in legal fees. 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.

·	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.

·	Options. We do not have a stock option plan in place nor are there any outstanding exercisable for 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 April 5, 2011, $25,000 of the debt held in promissory notes was converted into 2,000,000 shares of Pegasus Tel. Common stock.

On May 2, 2011, $2,000 of the debt held in promissory notes was converted into 2,000,000 shares of Pegasus Tel. Common Stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from the fact that the area in which we do business is highly competitive and constantly evolving. The market in which we do business is highly competitive and constantly evolving. We face competition from the larger and more established companies, from companies that may develop new technology, that have greater resources, including but not limited to, a larger sales force, more money, larger manufacturing capabilities and greater ability to expand their markets also cut into our potential payphone customers. Many of our competitors have longer operating histories, significantly greater financial strength, nationwide advertising coverage and other resources that we do not have. Our competitors might introduce a less expensive or more improved payphone. Also, the last several years have shown a marked increase in the use of cellular phones and toll free services which cut into our potential payphone customer base. These, as well as other factors can have a negative impact on our income.

Options, Warranties and Other Equity Items

There are no outstanding options or warrants to purchase, nor any securities convertible into, the our common shares. Additionally, there are no shares that could be sold pursuant to Rule 144 under the Securities Act or that we had agreed to register under the Securities Act for sale by security holders. Further, there are no common shares of the Company being, or proposed to be, publicly offered by the Company.

No Trading Market

There is currently no market for our common stock. As the registration statement is now effective, we intend to solicit a registered broker/dealer to apply with FINRA to have our common stock quoted on the OTCBB Bulletin Board (OTCBB). We cannot assure that FINRA will approve the application or that a market for our common stock will develop or maintained. If not, your investment might be illiquid.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

For purposes of this Item 4, the term disclosure controls and procedures means controls and other procedures of the Company (i) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (15 U.S.C. 78a et seq. and hereinafter the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “Commission”), and (ii) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures do not yet comply with the requirements in (i) and (ii) above.

Our Chief Executive Officer and Chief Financial Officer have reviewed the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) as of the end of the period covered by this report and have concluded that (i) the Company’s disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Commission, and that (ii) the Company’s controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There was no change in our internal control over financial reporting identified in connection with our evaluation that occurred during our last quarter (our fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Subsequent to filing on March 15, 2011 our Annual Report on Form 10-K for the year ended December 31, 2010 with the Commission, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management has concluded that the Company’s internal controls over financial reporting are not sufficient because as noted in the Annual Report, we have limited resources available. As we obtain additional funding and employ additional personnel, we will implement programs recommended by the Treadway Commission to ensure the proper segregation of duties and reporting channels.

Our independent public accountant, Robison, Hill & Company, has not conducted an audit of our controls and procedures regarding internal control over financial reporting. Consequently, Robison, Hill & Company expresses no opinion with regards to the effectiveness or implementation of our controls and procedures with regards to internal control over financial reporting.

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

The Company's management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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, 2011, we had $63 in cash and cash equivalents on hand and an accumulated deficit of $(307,599).

As of March 31, 2011, the Company owed $25,739 in Related Party Accounts Payable.

As of March 31, 2011, the Company owed $173,950 in Related Party Notes payable and $44,353 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.

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.

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.

If the FCC regulation requiring sellers of long distance toll free services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream. We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the future. It is possible for future regulations to be so financially demanding that they cause us to go out of business.

We are highly dependent on our three officers, Anthony DiBiase, Jr. , Joseph C. Passalaqua, and Carl Worboys. The loss of any of them would have a material adverse affect on our business and prospects.

We currently have only three officers, Anthony DiBiase, Jr., Joseph C. Passalaqua, and Carl Worboys. Anthony DiBiase, Jr. serves as our Chief Executive Officer and Director and Joseph C. Passalaqua serves as our Chief Financial Officer, Secretary and Director and Carl Worboys serves as our President and Director. The loss of any 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.

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. If 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended March 31, 2011 there were no sales of unregistered securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. OTHER INFORMATION

None.

PART III. EXHIBITS

ITEM 6. EXHIBITS

Exhibit No.	Description
3.1(1)	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.

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:		ANTHONY DIBIASE, JR.
Date: May 23, 2011		Anthony DiBiase, Jr. Chief Executive Officer and Director (Principal Executive Officer)

By:		JOSEPH C. PASSALAQUA
Date: May 23, 2011		Joseph C. Passalaqua Chief Financial Officer , Secretary and Director (Principal Financial Officer)

By:		CARL E. WORBOYS
Date: May 23, 2011		Carl E. Worboys President and Director

Attached files

PEGASUS TEL, INC. Reports

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