U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-K





(Mark
One)





|X|
ANNUAL REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
the fiscal year ended December 31, 2009





|_|
TRANSITION REPORT UNDER 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 registrant as specified in its charter)


______________________________________________





DELAWARE
            
            41-2039686(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)118
      Chatham Road, Syracuse, NY
            
            13203(Address
      of principal executive offices)
            
            (zip
      code)





Registrant's
      telephone number, including area code:
              Issuer’s
      telephone number:   (315)
      491-8262
              
              Carl
      E. Worboys
              118
      Chatham Road
              Syracuse,
      NY  13203
              Telephone:
      (315) 491-8262


With a
copy to:





The
Sourlis Law Firm


Virginia
K. Sourlis, Esq.


214 Broad
Street


Red Bank,
New Jersey 07701


www.SourlisLaw.com


Telephone:
(732) 530-9007


Facsimile:
(732) 530-9008


_____________________________________________





Securities
registered under Section 12(b) of the Exchange Act:


None.





Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $.0001 par value per share


(Title of
Class)








1








Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [  ] No [X]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [  ] No [X]





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes [X]
No [  ]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [  ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):





Large
      accelerated filer [  ]
            Accelerated
      filer [  ]Non-accelerated
      filer [  ]
            Smaller
      reporting company [ X ](Do
      not check if a smaller reporting company)





Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act).


Yes
[  ]   No [ X ]





As of
December 31, 2009, 20,215,136 shares of the Company's $.0001 par value common
stock were issued and outstanding.





State
issuer’s revenues for its most recent fiscal year: $4,771





As of
March 24, 2010 the aggregate market value of the 7,107,991 shares common stock
held by non-affiliates was approximately $711 based upon the par value of
$.0001. As of December 31, 2009, there were 20,215,136 shares of common stock
outstanding.





Documents
incorporated by reference: None.





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






2







PEGASUS
      TEL.TABLE
      OF CONTENTSPART
      IITEM
      1.
            BUSINESS
            4ITEM
      1.A
            RISK
      FACTORS
            8ITEM
      2.
            PROPERTIES
            13ITEM
      3.
            LEGAL
      PROCEEDINGS
            13ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            13PART
      IIITEM
      5.
            MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
            14ITEM
      6.
            SELECTED
      FINANCIAL DATA
            14ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            15ITEM
      7.A
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            21ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
            22ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            40ITEM
      9.A
            CONTROLS
      AND PROCEDURES
            40ITEM
      9.B
            OTHER
      INFORMATION
            41PART
      IIIITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            42ITEM
      11.
            EXECUTIVE
      COMPENSATION
            43ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
            44ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
            45ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            45PART
      IVITEM
      16.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
            46SIGNATURES








3








PART I.





FORWARD
LOOKING STATEMENTS





When used
in this Prospectus, the words or phrases “will likely result,” “we expect,”
“will continue,” “anticipate,” “estimate,” “project,” ”outlook,” “could,”
“would,” “may,” or similar expressions are intended to identify forward-looking
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, each of which speaks only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. Such risks and uncertainties include, among others,
success in reaching target markets for products in a highly competitive market
and the ability to attract future customers, the size and timing of additional
significant orders and their fulfillment, the success of our business emphasis,
the ability to finance and sustain operations, the ability to raise equity
capital in the future despite, and the size and timing of additional significant
orders and their fulfillment. We have no obligation to publicly release the
results of any revisions, which may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after the
date of such statements.





ITEM 1.  BUSINESS
..





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





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





On
September 21, 2006, the Company filed Amended and Restated Certificate of
Incorporation increasing its authorized capital to 110,000,000 shares, of which
100,000,000 shares were designated as Common Stock, par value $0.0001 per share,
and the remaining 10,000,000 as Preferred Stock, par value $0.0001 per
share.  The designations and the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of such shares shall be
determined by the Board of Directors from time to time, without stockholder
approval.





On May 7,
2007, we filed a Registration Statement on Form 10-SB (File No.: 0-52628), or
the Registration Statement, with the SEC to register the Pegasus common stock
under Section 12(g) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. The Registration Statement went effective on July 6, 2007 through
the operation of law 60 days after its initial filing. On March 23, 2009, we
filed with the SEC a Form 15 to deregister our common stock under Section 12(g)
of the Exchange Act and to terminate our status as a reporting company under the
Exchange Act.





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).


4





On August
18, 2008, Sino Gas International Holdings, Inc., a Utah corporation, or Sino,
(OTCBB: SGAS), our former parent company, distributed to its stockholders of
record as of August 15, 2008, 100% of the issued and outstanding common stock of
Pegasus.  The ratio of distribution was one (1) share of common stock
of Pegasus for every twelve (12) shares of  common stock of Sino
(1:12).  Fractional shares were rounded up to the nearest
whole-number.  An aggregate of 2,215,136 shares of Pegasus common
stock were issued pursuant to the distribution to an aggregate of 167 Sino
stockholders. The Pegasus common stock issued were and remain “restricted
securities” (as defined in Rule 144 of the Securities Act of 1933, as
amended).


On August
18, 2008 and pursuant to the Certificate of Designation, Pegasus converted an
aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of
18,000,000 shares of Pegasus common stock.  Pegasus issued the common
stock pursuant to Section 3(a)(9) of the Securities Act due to the fact that the
securities were exchanged upon conversion of the Series A Preferred Stock held
by existing security holders and there was no commission or other remuneration
paid or given directly or indirectly for soliciting such exchange.





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





On
October 15, 2009, the Company filed a Form S-1 Registration Statement with the
Securities and Exchange Commission and on December 28, 2009 the Company’s
Registration Statement went effective.





Services and
Products





We own,
operate and manage privately owned public payphones in the County of Delaware,
State of New York. As of December 31, 2009, we owned, operated, and managed
11 payphones, with 2 payphones removed when compared with 2008.  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
audited fiscal years ended December 31, 2009.


No.:
            
            Location
            
            20091
            
            Andes
      Hotel
              110
      Main St., Andes, NY  13731
            
            $
            3322
            
            Andes
      Public Booth
              21
      Main St., Andes, NY  13731
            
            $
            2403
            
            Margaretville
      Central School
              415
      Main St., Margaretville, NY 12455
            
            $
            4004
            
            Margaretville
      Memorial Hospital
              42084
      State Hwy. 28, Margaretville, NY 12455 (downstairs)
            
            $
            2505
            
            Margaretville
      Memorial Hospital
              42084
      State Hwy. 28, Margaretville, NY 12455 (upstairs)
            
            $
            2056
            
            Mountainside
      Residential Care
              42158
      State Hwy. 28, Margaretville, NY 12455 (1 st Floor)
            
            $
            6607
            
            Mountainside
      Residential Care
              42158
      State Hwy. 28, Margaretville, NY 12455 (2 nd Floor)
            
            $
            6008
            
            Mountainside
      Residential Care
              42158
      State Hwy. 28, Margaretville, NY 12455 (3 rd Floor)
            
            $
            5609
            
            Town
      of Middletown
              42339
      State Hwy. 28, Margaretville, NY 12455
            
            $
            54010
            
            Hess
      Mart
              42598
      State Hwy. 28, Margaretville, NY  12455
            
            $
            74711
            
            Arkville
      Country Store
              43525
      State Hwy. 28, Arkville, NY  12406
            
            $
            237Total
      Revenues
            
            $
            4,771





5








The local
telephone switch controls the traditional payphone technology. The local switch
does not provide any services in the payphone that can benefit the owner of the
phone. As we purchase phones from other companies, we upgrade them with "smart
card" payphone technology which we license from Quortech. The upgrade is a
circuit board with improved technology. The “smart card” technology allows us to
determine the operational status of the payphone. It also tells us when the
coins in the phone have to be collected, the number and types of calls that have
been made from each phone, as well as other helpful information that helps us
provide better service to our payphone using public. This upgrade of the phones
reduces the number and frequency of service visits due to outages and other
payphone-related problems and, in turn, reduces the maintenance costs. Other
companies manufacture the components of the payphones for the industry including
Universal Communications and TCI, which provides handsets, key pads, totalizers,
and relays.





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





The FCC
requires the sellers of long distance toll free services to pay the payphone
owner $0.494 cents per call. These funds are remitted quarterly through a
service provided by the American Public Communication Council
(APCC).





Market and
Competition





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. We have attempted to address this issue
by avoiding locations that service business travelers. For many years, these
locations were the most lucrative, but now they are the locations most impacted
by the cellular user.





The large
former Bell companies and other large 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.





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.





6











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.







7





Research and
Development





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




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.





Employees





The
company does not have any employees.  John F. Passalaqua is our Chief
Financial Officer, Secretary and Director and Carl E. Worboys is our President
and Director.





No trading
market





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





Dividend
Policy





We have
never paid 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.





Industry
Trends





We
operate 11 payphones in upstate New York.  However, industry trends in
the payphone industry are not specific to upstate New York; but, rather, mirror
what is happening in the industry nationwide.  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.





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.





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.





At
December 31, 2009, we had $39 in cash on hand and an accumulated deficit of
$(220,870), causing our auditors to express 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.


8


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
December 31, 2009, we had $39 in cash and cash equivalents on hand and an
accumulated deficit of $(220,870).





As of
December 31, 2009, the Company owed $20,489 in Related Party Accounts Payable.
As of December this balance includes $9,592 due to Lyboldt-Daly Inc. for
bookkeeping expenses and $10,673 due to Joseph C. Passalaqua (a major
shareholder of the Company and brother to John F. Passalaqua, an officer of the
Company) is President and Sole Director of Lyboldt-Daly, Inc.  It also
includes $224 owed to Carl Worboys, an officer of the Company.  These
amounts are non-interest bearing.





As of
December 31, 2009, the Company owed a total balance of $68,487 in Related Party
Notes Payable and had accrued $20,470 in simple interest.  These notes
are owed to shareholders of the Company, Mary Passalaqua in the amount of
$53,600 that are bearing simple interest at 10% and 15% per annum and to Joseph
C. Passalaqua in the amount of $14,887 that are bearing interest at 10% and 18%.
As of December 31, 2009, the Company owed a total accrued interest of $17,046
and $3,424 in simple interest in regards to these notes.





All notes
are payable upon demand. 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.





If
it were determined that our spin-off from our former parent company, Sino Gas
International Holdings, Inc., in August 2008 violated federal or state
securities laws, we could incur monetary damages, fines or other damages which
could have a material, adverse effect on our cash flow, financial condition and
prospects.





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 “Spin-off”).  The ratio of the 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).





We may
have inadvertently violated the federal and state securities laws in connection
with our Spin-off.   In connection with the Spin-off, on May 7, 2007,
Sino Gas caused Pegasus to file a Registration Statement on Form 10-SB (File
No.: 0-52628) with the SEC to register the Pegasus common stock under Section
12(g) of the Securities Exchange Act of 1934 and, on November 28, 2007, Sino Gas
filed with the SEC an Information Statement on Schedule 14C to inform
shareholders of record that it was effecting the
Spin-off.







9





In the
course of its review of our Registration Statement on Form S-1, of which this
Prospectus is a part, the staff of the SEC provided comments requesting further
information about the Spin-off and indicated its concern that the Pegasus Shares
may have been issued without proper registration or an available exemption from
registration. Under Staff Legal Bulletin No. 4 (“SLB 4”) promulgated by the
Division of Corporation Finance (the “Division”) of the Securities and Exchange
Commission (the “SEC”), the Division expressed its view that the shares of a
subsidiary spun off from a reporting company are not required to be registered
under the Securities Act of 1933, as amended (the “Securities Act”) when the
following five conditions are met: (i) the parent shareholders
do not provide consideration for the spun-off shares; (ii) the spin-off is
pro-rata to the parent shareholders; (iii) the parent provides adequate
information about the spin-off and the subsidiary to its shareholders and to the
trading markets; (iv) the parent has a valid business purpose for the spin-off;
and (iv) if the parent spins-off "restricted securities," it has held those
securities for at least two years.





If it
were determined that the Spin-off did not satisfy the conditions for an
exemption from registration, it would mean that the issuance of the Pegasus
Shares violated Section 5 of the Securities Act and potentially the state
securities laws of the U.S. states in which the holders of record for the
Spin-off resided.  The consequences of such a finding could be the
imposition by the SEC and relevant state regulators of monetary fines or other
sanctions as provided under relevant federal and state securities
laws.  Such regulators could also require us to make a rescission
offer, which is an offer to repurchase the securities, to the holders of Pegasus
Shares.





A finding
that the issuance of the Pegasus Shares was in violation of federal or state
securities law could also give certain current and former holders of the Pegasus
Shares a private right of action to seek a rescission remedy under Section
12(a)(2) of the Securities Act.  In general, this remedy allows a
successful claimant to sell its shares back to the parent company in return for
their original investment.





We are
unable to quantify the extent of any monetary damages that we might incur if,
monetary fines were imposed, rescission were required or one or more other
claims were successful.  However, we can give no assurance that the
damages resulting from any such action or claims will not have a material,
adverse effect on our cash flow, financial condition and
prospects.  As of the date of this prospectus, we are not aware of any
pending or threatened claims that the Spin-Off violated any federal or state
securities laws.





Based
upon facts known to us at this time, we do not believe that assertion of such
claims by any of our current or former holders of the Pegasus Shares is
probable.  However, there can be no assurance that any such claim will
not be asserted in the future or that the claimant in any such action will not
prevail.  The possibility that such claims may be asserted in the
future will continue until the expiration of the applicable federal and state
statutes of limitations, which generally vary from one to three years from the
date of sale.  Claims under the anti-fraud provisions of the federal
securities laws, if relevant, would generally have to be brought within two
years of discovery, but not more than five years after occurrence.





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. We have attempted to address this issue
by avoiding locations that service business travelers. For many years, these
locations were the most lucrative, but now they are the locations most impacted
by the cellular user.






10





The large
former Bell companies who provide local service dominate the industry. These
companies have greater financial ability than us, and provide the greatest
competitive challenge. However, we compete with these companies by paying a
commission to the site owner. The commission is an enticement for the site owner
to use our phone on its site. We believe we are able to provide a higher
quality customer service because the phones alert us to any technical
difficulties, and we can service them promptly. The ability to immediately know
that a problem exists with a payphone is very important because down time for a
phone means lost revenue for us.





Our
non-coin revenue is primarily attributable to “dial-around” commissions. If the
FCC reduces or repeals the “dial-around” commission, our revenues could be
materially adversely affected.





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





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





The FCC
requires the sellers of long distance toll free services to pay the payphone
owner $0.494 cents per call. These funds are remitted quarterly through a
service provided by the American Public Communication Council
“APCC.”





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





We
are highly dependent on our two executive officers, Carl E. Worboys and John F.
Passalaqua. The loss of either of them would have a material adverse affect on
our business and prospects.





We
currently have only two executive officers, Carl E. Worboys and John F.
Passalaqua. Carl E. Worboys serves as our President and Director, and John F.
Passalaqua serves as our Chief Financial Officer, Secretary and Director. The
loss of either executive officer could have a material adverse effect on our
business and prospects.





If
we cannot attract, retain, motivate and integrate additional skilled personal,
our ability to compete will be impaired.





The
Company has no employees and many of our current and potential competitors have
employees. Our success depends in large part on our ability to attract, retain
and motivate highly qualified management and technical personnel. We face
intense competition for qualified personnel. The industry in which we compete
has a high level of employee mobility and aggressive recruiting of skilled
personnel. If we are unable to continue to employ our key personnel or to
attract and retain qualified personnel in the future, our ability to
successfully execute our business plan will be jeopardized and our growth will
be inhibited.





We
will depend on outside manufacturing sources and suppliers.





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





We will
have limited control over the actual production process. Moreover, difficulties
encountered by any one of our third party manufacturers which result in product
defects, delayed or reduced product shipments, cost overruns or our inability to
fill orders on a timely basis, could have an adverse impact on our business.
Even a short-term disruption in our relationship with third party manufacturers
or suppliers could have a material adverse effect on our operations. We do not
intend to maintain an inventory of


11


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.




12




There
currently is no trading market for our common stock and we cannot assure that
one will develop or be maintained. In not, your investment might be
illiquid.


Upon the
effectiveness of this registration statement, we intend to solicit a
market-maker to apply with FINRA (formerly, the NASD) to have our common stock
quoted on the OTC Bulletin Board (OTCBB). We cannot assure that a market will
develop or maintained.  In not, your investment might be
illiquid.








If
a trading market develops for our common stock, we will be subject to SEC
regulations relating to “penny stock” and the market for our common stock could
be adversely affected.





The SEC
has adopted regulations concerning low-priced stock, or “penny stocks.” The
regulations generally define "penny stock" to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions. If our
shares are offered at a market price less than $5.00 per share, and do not
qualify for any exemption from the penny stock regulations, our shares may
become subject to these additional regulations relating to low-priced
stocks.





The penny
stock regulations require that broker-dealers, who recommend penny stocks to
persons other than institutional accredited investors make a special suitability
determination for the purchaser, receive the purchaser's written agreement to
the transaction prior to the sale and provide the purchaser with risk disclosure
documents that identify risks associated with investing in penny stocks.
Furthermore, the broker-dealer must obtain a signed and dated acknowledgment
from the purchaser demonstrating that the purchaser has actually received the
required risk disclosure document before effecting a transaction in penny stock.
These requirements have historically resulted in reducing the level of trading
activity in securities that become subject to the penny stock rules. The
additional burdens imposed upon broker-dealers by these penny stock requirements
may discourage broker-dealers from effecting transactions in the common stock,
which could severely limit the market liquidity of our common stock and our
shareholders' ability to sell our common stock in the secondary
market.





ITEM 2.    
PROPERTIES





At the
present time we do not own or lease any real property.  Our operations
are conducted our of Carl Worboy’s residence, located at 118 Chatham Road,
Syracuse, NY 13203. Carl Worboys provides us this office space free of
charge.





ITEM 3.    
LEGAL
PROCEEDINGS





Not
Applicable. We are not a party to any legal proceedings nor are we aware of any
investigation, claim or demand made on the company that may reasonably result in
any legal proceedings.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS .





Not
Applicable.


13








PART II.





ITEM 5.  MARKET FOR
REGISTRANTS RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF
EQUITY SECURITIES .





(a)
            Market
      Information. The Company's common stock is not trading on any
      public trading market or stock
exchange.





(b)  Holders.  As
of December 31, 2009, there were approximately 213 record holders of 20,215,136
shares of the Company’s common stock.





(c)  Dividend Policy. We
have not declared or paid any cash dividends on our common stock and we do not
intend to declare or pay any cash dividend in the foreseeable
future.  The payment of dividends, if any, is within the discretion of
our Board of Directors and will depend on our earnings, if any, our capital
requirements and financial condition and such other factors as our Board of
Directors may consider.





(d) 
Securities Authorized
for Issuance Under Equity Compensation Plans. We have not authorized the
issuance of any of our securities in connection with any form of equity
compensation plan.





(e)
            Recent Sales of
      Unregistered Securities.  During the 12 months ended
      December 31, 2009, there were no sales of common stock. We did not have
      any sales of securities that were not registered under the Securities Act
      of 1933, as amended.





(f)
Transfer
Agent


Fidelity
Stock Transfer Company


8915
South 700 East, Suite 102


Sandy,
Utah  84070


Phone:
801-562-1300


Fax: 801-233-0589








ITEM 6. SELECTED FINANCIAL DATA
..





The table
below summarizes our audited balance sheet at December 31, 2009 compared to
December 31, 2008 and statement of operations for the fiscal year ended December
31, 2009 compared to December 31, 2008.





At
              December
      31,2009
              (Audited)
            
            
            2008
              (Audited)Balance
      Sheet:Cash
            
            $
            39
            
            
            $
            618Total
      Assets
            
            $
            247
            
            
            $
            2,160Total
      Liabilities
            
            $
            163,253
            
            
            $
            126,573Total
      Stockholders’ Equity (Deficit)
            
            $
            (163,006)
            
            
            $
            (124,413)





For
      the Fiscal Year Ended
              December
      31,2009
              (Audited)
            
            
            2008
              (Audited)Statement
      of Operations :Revenue
            
            $
            4,771
            
            
            $
            6,747Net
      Loss
            
            $
            (38,593)
            
            
            $
            (40,882)Net
      Loss Per Share of Common Stock
            
            
            --
            
            
            
            --







14





ITEM
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS





Forward Looking
Statements





Some of
the information in this section contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
"estimate" and "continue," or 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 of our financial
      condition; and-
            state
      other "forward-looking"
information.





We
believe it is important to communicate our expectations. However, there may be
events in the future that we are not able to accurately predict or over which we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."





ORGANIZATION
AND BASIS OF PRESENTATION





The
following discussion and analysis is based on the audited financial statements
for the years ended December 31, 2009 and 2008 of Pegasus Tel, Inc., a Delaware
corporation  (“Pegasus” the “Company,” “our,” or “we”). All
significant inter-company amounts have been eliminated. In the opinion of
management, the audited financial statements presented herein reflect all
adjustments (consisting only of normal recurring adjustments) necessary for fair
presentation. Interim results are not necessary indicative of results to be
expected for the entire year.





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





Certain
of the 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 such forward-looking statements. We
have limited assets of $247 as of December 31, 2009.  In 2009 a
majority of the assets were in the form of accounts receivable from customers
that purchased payphone services.





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


15


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.





Revenue Recognition
Policies





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, 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.





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.





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





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





Off- Balance Sheet
Arrangements





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





Cash and Cash
Equivalents





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





SERVICES
AND PRODUCTS





We own,
operate and manage privately owned public payphones in the County of Delaware,
State of New York. As of December 31, 2009, we owned, operated and managed 11
payphones. 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.





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.





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.


16





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).





If we are
unable to achieve or sustain profitability, or if operating losses increase in
the future, we may not be able to remain a viable company and may have to
discontinue operations. Our expenses have historically exceeded our revenues and
we have had losses in all fiscal years of operation, including those in fiscal
years 2008 and 2009, and the losses are projected to continue in 2010. Our net
losses were $(40,882) and $(38,593) through the fiscal years ended 2008 and
2009, respectively. We have a cumulative net loss from February 19, 2002 (Date
of Inception) to December 31, 2009 of $(220,870). We have been concentrating on
the development of our products, services and business plan. There is no
assurance that we will be successful in implementing our business plan or that
we will be profitable now or in the future.





COSTS
RELATED TO OUR OPERATION





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





GOING
CONCERN QUALIFICATION





In their
Independent Auditor's Report for the fiscal years ending December 31, 2009 and
2008, Robison, Hill & Co. stated that several conditions and events cast
substantial doubt about our ability to continue as a “going
concern.”  We have incurred net losses of approximately $(220,000)
from our inception on February 19, 2002 to December 31, 2009.  At
December 31, 2009, we had $39 cash on hand, $208 in accounts receivable and an
accumulated deficit of $(220,870). See “Liquidity and Capital
Resources.”





THE
FISCAL YEAR ENDED DECEMBER 31, 2009, COMPARED TO THE FISCAL YEAR ENDED DECEMBER
31, 2008.





REVENUES





Our total
revenue decreased by $1,976, from $6,747 for the year ended December 31, 2008 to
approximately $4,771 for the year ended December 31, 2009. This decrease was
primarily due to a decline in payphone customers and a lower volume of calls. In
the fiscal years ended 2008 and 2009, the company lost 2 payphone customer
locations in each year respectively. We foresee revenues decreasing further in
light of the growing trend of cell phone use. We anticipate remedying this
situation by strategically placing payphones in key areas, especially where cell
phone reception is not reliable.





Our coin
call decreased by $768, from $2,276 for the year ended December 31, 2008 to
approximately $1,508 for year ended December 31, 2009.  This decrease
was primarily due to a lower volume of calls required by payphone
customers.





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 $848 from $1,951 for the year ended December 31, 2008 to $1,103 for
the year ended December 31, 2009. This decrease was primarily due to a decline
in payphone customers and a lower volume of calls. In the fiscal years ended
2008 and 2009, the company lost 2 payphone customer locations in each year
respectively 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).








17





Our local
service revenue which is comprised primarily of service for payphone
customers decreased by $360 from $2,520 for the year ended December 31,
2008 to $2,160 for the year ended December 31, 2009. 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 December 31,
2009 two customers made up the local service revenue:


Mountainside
Residential Care Center, Lake Katrine, New York


Town of
Middletown, Margaretville, New York





COST
OF SERVICES





Our
overall cost of services decreased by $211, from $3,843 for the year ended
December 31,2008, to $3,632 for the year ended December 31, 2009.  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
$104 for the year ended December 31, 2009 when compared to the same period in
2008.  Commissions decreased by $107 for the year ended December 31,
2009 when compared to the same period in 2008 due to a lower volume of calls.
There was no Depreciation expense in 2008 or 2009. As of December
31, 2009, the payphone equipment was fully depreciated.





Once a
low revenue payphone is identified, we offer the site owner an opportunity to
purchase the equipment. If the site owner does not purchase the payphone, we
remove it from the site. Also a correction was made at the central office of
Margaretville Telephony Company to provide a higher level of uninterrupted
service to increase revenue in the future. We own telephone equipment which
provides a service for a number of years. The term of service is commonly
referred to as the "useful life" of the asset. Because an asset such as
telephone equipment or motor vehicle is expected to provide service for many
years, it is recorded as an asset, rather than an expense, in the year acquired.
A portion of the cost of the long-lived asset is reported as an expense each
year over its useful life and the amount of the expense in each year is
determined in a rational and systematic manner.





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





OPERATION
AND ADMINISTATIVE EXPENSES





Operating
expenses decreased by $5,081, from $35,489 for the year ended December 31, 2008
to $30,408 for the year ended December 31, 2009. Professional fees decreased
from $31,970 for the fiscal year ended December 31, 2008 to $28,369 for the
fiscal year ended December 31, 2009.  Professional fees include fees the
Company pays for accountants, bookkeepers and attorneys throughout the year
for performing various tasks. This decrease was primarily due to decrease in
legal fees when comparing the same period ending 2008 and 2009. Outside Services
expenses increased by $1,566 in the fiscal year ended December 31, 2009. General
and Administrative expenses, which is primarily consists of office expenses and
finance charges, decreased by $3,046 in the fiscal year ended December 31, 2009
due to a credit issued for finance charges in 2009.  Our expenses to date are
largely due to professional fees that include accounting, bookkeeping and legal
fees.





LIQUIDITY
AND CAPITAL RESOURCES





In their
2009 audit report, our auditors have expressed their doubt as to our ability to
continue as a going concern.  Our primary source of liquidity has been
from borrowing funds from certain executive officers and principal stockholders
related to certain of our executive officers. As of December 31, 2009 and 2008,
we had $39 and $618 in cash and cash equivalents respectively. Our net loss for
years ended December 31, 2009 and 2008 were $(38,593) and $(40,882)
respectively.  Our accounts receivable for the years ended December
31, 2009 and 2008 were $208 and $1,542, respectively.  The accumulated
deficit as of December 31, 2009 was $ (220,870).








18





As of
December 31, 2008, the Company owed $20,489 in Related Party Accounts Payable.
As of December this balance includes $9,592 due to Lyboldt-Daly Inc. for
bookkeeping expenses and $10,673 due to Joseph C. Passalaqua (a major shareholder
of the Company and brother to John F. Passalaqua, an officer of the Company) is
President and Sole Director of Lyboldt-Daly, Inc.  It also includes
$224 owed to Carl Worboys, an officer of the Company.  These amounts
are non-interest bearing.





As of
December 31, 2009, the Company owed $68,487 in Related Party Notes
Payable.  These notes are owed to Shareholders of the Company, Joseph
C. Passalaqua and Mary Passalaqua.  These notes are accruing simple
interest of 10%, 15% and 18% annually. As of December 31, 2009, the Company owed
a total principle balance of $68,487 related to these notes and had accrued
$20,470 in simple interest.





Net cash
used in operating activities was $579 during the twelve-month period ended
December 31, 2009, mainly representative of the net loss incurred during 2009.
This compares to net cash used in operating activities of $28,174 or the
twelve-month period ended December 31, 2008.





Net cash
provided by investing activities was $0 during twelve-month period ended
December 31, 2009.  This compares to net cash provided by investing
activities of $0 for the twelve-month period ended December 31,
2008.





Net cash
provided by financial activities was $0 during twelve-month period ended
December 30, 2009, representing the proceeds from related party notes in the
amount of $0 and the sale of common stock totaling $0. This compares to net cash
provided by financing activities of $28,367 during the twelve-month period ended
December 31, 2008 due to proceeds from related party notes of $28,187 and the
sale of preferred stock that was later converted to common stock totaling
$180.





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.





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 Annual 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.






19





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 Common stock, with a
par value of $0.0001. There are an aggregate of 0 shares of Common Stock issued
and outstanding as of the date of this Annual Report.





COMMON
AND PREFERRED STOCK TRANSACTIONS





On
February 19, 2002, we filed a Certificate of Incorporation with the Secretary of
State of Delaware.  Our authorized capital was 1,000 shares of common
stock, no par value.





On
September 21, 2006, we filed an Amended and Restated Certificate of
Incorporation increasing our authorized capital to 110,000,000 shares, of which
100,000,000 shares were designated as Common Stock, par value $0.0001 per share,
and the remaining 10,000,000 as Preferred Stock, par value $0.0001 per
share.  The designations and the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of such shares shall be
determined by the Board of Directors from time to time, without stockholder
approval.





On May
15, 2007, the Company filed an Amended Certificate of Incorporation and there
was forward stock split 5,100 to 1.  This change is retro-active and
therefore changes the 1,000 shares of common stock issued on December 31, 2003
to 5,100,000 shares of common stock.  The par value remains at $.0001
per share.





On August
5, 2008, we filed a Certificate of Designations, Powers, Preferences and Rights
(the “Certificate of Designation”) with the Secretary of State of the State of
Delaware thereby designating 2,000,000 shares of preferred stock as Series A
Convertible Preferred Stock, $0.0001 (the “Series A Preferred
Stock”).  Prior to the filing of the Certificate of Designation, there
were no shares of preferred stock designated or issued. Pursuant to the
Certificate of Designation, each share of Series A Preferred Stock may be
converted at any time by Pegasus or the holders thereof into ten (10) fully-paid
and non-assessable shares of Pegasus Common Stock.





On August
15, 2008, Pegasus issued an aggregate of 1,800,000 shares of Series A Preferred
Stock to an aggregate of 17 individuals pursuant to a Securities Purchase
Agreement for $0.0001per share of Series A Preferred Stock. Pegasus issued the
Series A Preferred Stock pursuant to an exemption under Section 4(2) of the
Securities Act due to the fact that it did not involve a public offering of
securities. The shares of Series A Preferred Stock are “restricted securities”
(as such term is defined in the Securities Act).





On August
18, 2008, Sino Gas International Holdings, Inc., a Utah corporation, or Sino
Gas, (OTCBB: SGAS), our former parent company, distributed to its stockholders
of record as of August 15, 2008, 100% of the issued and outstanding common stock
of Pegasus (the “Spin-off”).  The ratio of distribution was one (1)
share of common stock of Pegasus for every twelve (12) shares
of  common stock of Sino (1:12).  Fractional shares were
rounded up to the nearest whole-number.  An aggregate of 2,215,136
shares of Pegasus common stock were issued pursuant to the distribution to an
aggregate of 167 Sino stockholders. The Pegasus common stock issued were
“restricted securities” (as defined in Rule 144 of the Securities Act of 1933,
as amended).





On August
18, 2008 and pursuant to the Certificate of Designation, Pegasus converted an
aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of
18,000,000 shares of Pegasus common stock.  Pegasus issued the common
stock pursuant to Section 3(a)(9) of the Securities Act due to the fact that the
securities were exchanged upon conversion of the Series A Preferred Stock held
by existing security holders and there was no commission or other remuneration
paid or given directly or indirectly for soliciting such exchange.






20





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


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





ITEM 7A.  QUANTATIVE 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. 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.





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. Companies who have a larger sales force, more money, larger
manufacturing capabilities and greater ability to expand their markets also cut
into our potential customers. Many of our competitors have longer operating
histories, significantly greater financial strength, nationwide advertising
coverage, brand identification and other resources that we do not have. Our
competitors might introduce less expensive or more improved merchandise. These,
as well as other factors, can negatively impact our business
strategy.





The
competition from cellular phones is a very serious threat that can result in
substantially less revenue per payphone. We have attempted to address this issue
by avoiding locations that service business travelers. For many years, these
locations were the most lucrative, but now they are the locations most impacted
by the cellular user.





The large
former Bell companies and other large companies who provide local service
dominate the industry. These companies have greater financial ability than us,
and provide the greatest competitive challenge.





Market
Price





There is
no trading market for our common stock at present and there has been no trading
market to date.  There is no assurance that a trading market will ever
develop or, if such a market does develop, that it will continue.





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.




21




ITEM 8.  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA .




PageIndependent
      Registered Public Accountants’ Report
            23Balance
      Sheets
            24December
      31, 2009 andDecember
      31, 2008Statements
      of Operations for the year ended December 31, 2009 and
            25for
      the year ended December 31, 2007 and the cumulative period
      fromFebruary
      19, 2002 (inception) to December 31, 2009Statement
      of Stockholders' Equity
            26Since
      February 19, 2002 (inception) to December 31, 2009Statements
      of Cash Flows for year ended December 31, 2009 and
            27for
      the year ended December 31, 2008 and  the cumulative period
      fromFebruary
      19, 2002 (inception) to December 31, 2009Notes
      to Financial Statements
            28




22


ROBISON, HILL & CO.
              
              
              
              Certified
      Public AccountantsA
      PROFESSIONAL CORPORATIONBRENT
      M. DAVIES, CPADAVID
      O. SEAL, CPAW.
      DALE WESTENSKOW, CPABARRY
      D. LOVELESS, CPASTEPHEN
      M. HALLEY, CPA
 
 
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and
 Stockholders
of Pegasus Tel, Inc.
 
 We have
audited the accompanying balance sheets of Pegasus Tel, Inc. (a development
stage company) as of December 31, 2009 and 2008, and the related statements of
income, stockholders’ equity and cash flows for each of the years in the
two-year period ended December 31, 2009. Pegasus Tel, Inc.’s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pegasus Tel, Inc. as of December
31, 2009 and 2008, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has incurred net losses of approximately
$220,000, has a liquidity problem and has minimal revenues, which raise
substantial doubt about its ability to continue as a going
concern.  Management’s plans in regard to these matters are also
described in Note 1.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 
 
 /s/
Robison, Hill & Co.
 Certified
Public Accountants
 
 Salt Lake
City, UT
 March 24,
2010










23




PEGASUS TEL, INC.(A
      Development Stage Company)BALANCE SHEETSDecember
      31,2009
              
              
              2008Assets:Cash
      and Cash Equivalents
              
              $
              39
              
              
              $
              618Accounts
      Receivable
              
              
              208
              
              
              
              1,542Total
      Current Assets
              
              
              247
              
              
              
              2,160Total
      Assets
              
              $
              247
              
              
              $
              2,160Liabilities:Accounts
      Payable
              
              $
              53,807
              
              
              $
              28,074Related
      Party Accounts Payable
              
              
              20,489
              
              
              
              18,691Accrued
      Interest
              
              
              20,470
              
              
              
              11,321Related
      Party Notes Payable
              
              
              68,487
              
              
              
              68,487Total
      Current Liabilities
              
              
              163,253
              
              
              
              126,573Total
      Liabilities
              
              
              163,253
              
              
              
              126,573Stockholders'
      Equity:Preferred
      Stock,  Par value $0.0001, Authorized 10,000,000
      sharesIssued
      0 shares at  December 31, 2009 and December 31,
    2008
              
              
              -
              
              
              
              -Common
      Stock, Par value $0.0001, Authorized 100,000,000 sharesIssued  20,215,136
      shares at  December 31, 2009 and December 31,
    2008
              
              
              2,022
              
              
              
              2,022Paid-In
      Capital
              
              
              55,842
              
              
              
              55,842Deficit
      Accumulated During Development Stage
              
              
              (220,870
              )
              
              
              (182,277
              )Total
      Stockholders' Equity
              
              
              (163,006
              )
              
              
              (124,413
              )Total
      Liabilities and Stockholders' Equity
              
              $
              247
              
              
              $
              2,160The
      accompanying notes are an integral part of these financial
      statements.






24




PEGASUS TEL, INC.(A
      Development Stage Company)STATEMENTS OF OPERATIONSCumulativeSinceFebruary
      19,2002For
      the Year Ended
              
              
              Inception
      ofDecember
      31,
              
              
              Development2009
              
              
              2008
              
              
              StageRevenues
              
              $
              4,771
              
              
              $
              6,747
              
              
              $
              65,217Costs
      of Services
              
              
              (3,632
              )
              
              
              (3,843
              )
              
              
              (62,418
              )Gross
      Margin
              
              
              1,139
              
              
              
              2,904
              
              
              
              2,799ExpensesAccounting
              
              
              14,757
              
              
              
              11,525
              
              
              
              65,084Advertising
              
              
              -
              
              
              
              -
              
              
              
              770Related
      Party Bookkeeping
              
              
              3,612
              
              
              
              4,445
              
              
              
              14,377General
      and Administrative
              
              
              (469
              )
              
              
              2,577
              
              
              
              11,109Legal
              
              
              10,000
              
              
              
              16,000
              
              
              
              84,790Outside
      Services
              
              
              2,508
              
              
              
              942
              
              
              
              25,433Operating
      Expenses
              
              
              30,408
              
              
              
              35,489
              
              
              
              201,563Operating
      Income (Loss)
              
              
              (29,269
              )
              
              
              (32,585
              )
              
              
              (198,764
              )Other
      Income (Expense)Interest,
      Net
              
              
              (9,149
              )
              
              
              (7,880
              )
              
              
              (20,470
              )Net
      Loss Before Taxes
              
              
              (38,418
              )
              
              
              (40,465
              )
              
              
              (219,234
              )Income
      and Franchise Tax
              
              
              (175
              )
              
              
              (417
              )
              
              
              (1,636
              )Net
      Loss
              
              $
              (38,593
              )
              
              $
              (40,882
              )
              
              $
              (220,870
              )Loss
      per Share, Basic &Diluted
              
              $
              (0.00
              )
              
              $
              (0.00
              )Weighted
      Average SharesOutstanding
              
              
              20,215,136
              
              
              
              10,676,557The
      accompanying notes are an integral part of these financial
      statements.






25




PEGASUS TEL, INC.(A Development Stage
    Company)STATEMENT OF STOCKHOLDERS'
      EQUITYDeficitAccumulatedSinceFebruary
      19,2002
              
              
              TotalInception
      of
              
              
              Stockholders'Preferred
      Stock
              
              
              Common
      Stock
              
              
              Paid
      in
              
              
              Development
              
              
              EquityShares
              
              
              Par
      Value
              
              
              Shares
              
              
              Par
      Value
              
              
              Capital
              
              
              Stage
              
              
              DeficiencyBalance
      at February 19, 2002
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (25,809
              )
              
              
              (25,809
              )Balance
      at December 31, 2002
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (25,809
              )
              
              
              (25,809
              )December
      31, 2003, Stock Issued as Intercompany Dues
              
              
              -
              
              
              
              -
              
              
              
              1,000
              
              
              
              1
              
              
              
              999
              
              
              
              -
              
              
              
              1,000Forward
      Stock Split 5,100 to 1
              
              
              -
              
              
              
              -
              
              
              
              5,099,000
              
              
              
              509
              
              
              
              (509
              )
              
              
              
              
              
              
              -Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (15,704
              )
              
              
              (15,704
              )Balance
      at December 31, 2003
              
              
              -
              
              
              
              -
              
              
              
              5,100,000
              
              
              
              510
              
              
              
              490
              
              
              
              (41,513
              )
              
              
              (40,513
              )Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (6,508
              )
              
              
              (6,508
              )Balance
      at December 31, 2004
              
              
              -
              
              
              
              -
              
              
              
              5,100,000
              
              
              
              510
              
              
              
              490
              
              
              
              (48,021
              )
              
              
              (47,021
              )Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (11,067
              )
              
              
              (11,067
              )Balance
      at December 31, 2005
              
              
              -
              
              
              
              -
              
              
              
              5,100,000
              
              
              
              510
              
              
              
              490
              
              
              
              (59,088
              )
              
              
              (58,088
              )December
      31, 2006, Capital Contributed
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              56,684
              
              
              
              -
              
              
              
              56,684Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (16,596
              )
              
              
              (16,596
              )Balance
      at December 31, 2006
              
              
              -
              
              
              
              -
              
              
              
              5,100,000
              
              
              
              510
              
              
              
              57,174
              
              
              
              (75,684
              )
              
              
              (18,000
              )Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (65,711
              )
              
              
              (65,711
              )Balance
      at December 31, 2007
              
              
              -
              
              
              
              -
              
              
              
              5,100,000
              
              
              
              510
              
              
              
              57,174
              
              
              
              (141,395
              )
              
              
              (83,711
              )August
      15, 2008, Spin-Off Completed and all Common Stocknot Distributed to the Shareholders was Cancelled
              
              
              -
              
              
              
              -
              
              
              
              (2,884,864
              )
              
              
              (288
              )
              
              
              288
              
              
              
              -
              
              
              
              -August
      15, 2008 Issued Convertible Preferred Class A Stock
              
              
              1,800,000
              
              
              
              180
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              180for CashAugust
      18, 2008, Convertible Preferred Class A Stock
              
              
              (1,800,000
              )
              
              
              (180
              )
              
              
              18,000,000
              
              
              
              1,800
              
              
              
              (1,620
              )
              
              
              -
              
              
              
              -Converted to Common StockNet
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (40,882
              )
              
              
              (40,882
              )Balance
      at December 31, 2008
              
              
              -
              
              
              
              -
              
              
              
              20,215,136
              
              
              
              2,022
              
              
              
              55,842
              
              
              
              (182,277
              )
              
              
              (124,413
              )Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (38,593
              )
              
              
              (38,593
              )Balance
      at December 31, 2009
              
              
              -
              
              
              
              -
              
              
              
              20,215,136
              
              
              $
              2,022
              
              
              $
              55,842
              
              
              $
              (220,870
              )
              
              $
              (163,006
              )The
      accompanying notes are an integral part of these financial
      statements






26




PEGASUS TEL, INC.(A
      Development Stage Company)STATEMENTS OF CASH FLOWSCumulativeSinceFebruary
      19,2002For
      the Year Ended
                
                
                Inception
      ofDecember
      31,
                
                
                Development2009
                
                
                2008
                
                
                StageCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss for the Period
                
                $
                (38,593
                )
                
                $
                (40,882
                )
                
                $
                (220,870
                )Adjustments
      to reconcile net loss to net cashprovided
      by operating activities:Depreciation
      and Amortization
                
                
                -
                
                
                
                -
                
                
                
                12,600Changes
      in Operating Assets and LiabilitiesDecrease
      (Increase) in Accounts Receivable
                
                
                1,334
                
                
                
                369
                
                
                
                (208
                )Increase
      (Decrease) in Accounts Payable
                
                
                25,733
                
                
                
                424
                
                
                
                53,807Increase
      (Decrease) in Related Party Accounts Payable
                
                
                1,798
                
                
                
                4,035
                
                
                
                20,489Increase
      (Decrease) in Interest Payable
                
                
                9,149
                
                
                
                7,880
                
                
                
                20,470Decrease
      (Increase) in Intercompany Dues
                
                
                -
                
                
                
                -
                
                
                
                56,684Net
      Cash Used in Operating Activities
                
                
                (579
                )
                
                
                (28,174
                )
                
                
                (57,028
                )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
                
                
                
                180Related
      Party Notes Payable
                
                
                -
                
                
                
                28,187
                
                
                
                68,487Net
      Cash Provided by Financing Activities
                
                
                -
                
                
                
                28,367
                
                
                
                68,667Net
      (Decrease) Increase in Cash
                
                
                (579
                )
                
                
                193
                
                
                
                39Cash
      at Beginning of Period
                
                
                618
                
                
                
                425
                
                
                
                -Cash
      at End of Period
                
                $
                39
                
                
                $
                618
                
                
                $
                39SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATION:Cash
      paid during the year for:Interest
                
                $
                -
                
                
                $
                -
                
                
                $
                -Franchise
      and Income Taxes
                
                $
                175
                
                
                $
                417
                
                
                $
                1,636SUPPLEMENTAL DISCLOSURE OF NON-CASH
      INVESTINGAND FINANCING ACTIVITIES:Accounts
      Payable Satisfied through Contributed Capitaland
      Property and Equipment
                
                $
                -
                
                
                $
                -
                
                
                $
                56,684Common
      Stock Issued for Stock Receivable
                
                $
                -
                
                
                $
                -
                
                
                $
                -The
      accompanying notes are an integral part of these financial
      statements.


27


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.
 
 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
$220,000 for the period from February 19, 2002 (inception) to December 31, 2009,
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.
  28
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Organization and Basis of
Presentation
 
 On
February 19, 2002, Pegasus Tel, Inc., a Delaware company, was formed as a wholly
owned subsidiary of American Industries.
 
 On March
28, 2002, American Industries, Inc. and Pegasus Tel, Inc. entered into an
agreement with Pegasus Communications, Inc., a New York corporation, to acquire
100% of the outstanding shares of Pegasus Communications, Inc. in exchange for
72,721,966 shares of common stock of American Industries,
Inc.  Pegasus Tel, Inc. continued as the surviving corporation and
Pegasus Communications, Inc. was merged out of existence.
 
 The
company is in the development stage, and has not commenced planned principal
operations.  The Company has a December 31 year end.
 
 Nature of
Business
 
 The
Company is primarily in the business of providing the use of outdoor payphones,
and providing telecommunication services.
 
 Cash and Cash
Equivalents
 
 For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with a maturity of 90 days or less to be cash
equivalents to the extent the funds are not being held for investment
purposes.
 
 Revenue
Recognition
 
 The
Company derives its primary revenue from the sources described below, which
includes dial-around revenues, coin collections, telephone equipment repairs,
and sales. Other revenue generated by the company includes sales
commissions.
  29
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Revenue Recognition
(continued)
 
 Coin
revenues are recorded in an equal amount to the coins
collected.  Revenues on commissions and telephone equipment and sales
are realized on the date when the telephone repair services are provided or the
telecommunication supplies are received by the customer. Dial Around revenues
are earned when a customer uses the Company’s payphone to gain access to a
different long distance carrier than is already programmed into the phone. The
Dial Around revenue is recognized when the billing and collection agent of the
Company, APCC, calculates and compensates the Company for the use of the
payphone on a quarterly basis by billing the actual party’s long distance
carrier that received the calls.  The date of the Dial Around revenue
recognition is determined when this compensation is collected and deposited into
the Company’s bank account.
 
 The
Company recognizes revenues in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin (SAB) number 104, "Revenue
Recognition."  SAB 104 clarifies application of U. S. generally
accepted accounting principles to revenue transactions.  The Company
recognizes revenue when the earnings process is complete.  That is,
when the arrangements of the goods are documented, the pricing becomes final and
collectibility is reasonably assured. An allowance for bad debt is provided
based on estimated losses. For revenue received in advance for goods, the
Company records a current liability classified as either deferred revenue or
customer deposits. As of December 31, 2009, 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 December 31, 2009, the Company has determined
an allowance for doubtful accounts is not necessary.
  30
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Concentration of Credit
Risk
 
 The
Company has no significant off-balance-sheet concentrations of credit risk such
as foreign exchange contracts, options contracts or other foreign hedging
arrangements.  The Company had cash and cash equivalents of $39 and
$618 as of December 31, 2009 and 2008 all of which was fully covered by federal
depository insurance.
 
 Accounts
Receivable
 
 Accounts
Receivable consists of Local Service revenue and Commission Revenue. The
Accounts Receivable was $208 and $1,542 in 2009 and 2008
respectively.
 
 Pervasiveness of
Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Loss per
Share
 
 Basic
loss per share has been computed by dividing the loss for the period applicable
to the common stockholders’ by the weighted average number of common shares
outstanding during the period.  There were no common equivalent shares
outstanding during the periods ended December 31, 2009.
 
 Financial
Instruments
 
 The
Company’s financial assets and liabilities consist of cash and 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.
 
  31
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Income
Taxes
 
 The
Company accounts for income taxes under the provisions of SFAS No.109,
“Accounting for Income Taxes.”  SFAS No.109 requires recognition of
deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
 
 Reclassification
 
 Certain
reclassifications have been made in the 2008 financial statements to conform to
the December 31, 2009 presentation.
 
 Recent Accounting
Standards
 
 In
October 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update 2009-13 (ASU 2009-13), which provided an update to
ASC 605.  ASU 2009-13 addresses how to separate deliverables and how
to measure and allocate arrangement consideration to one or more units of
accounting in multiple-deliverable arrangements. The amendments in this update
will be effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. The
Company is currently evaluating the impact that this update will have on its
Financial Statements.
 
 In June
2009, the FASB created the Accounting Standards Codification, which is codified
as ASC 105.  ASC 105 establishes the codification as the single
official non-governmental source of authoritative accounting principles (other
than guidance issued by the SEC) and supersedes and effectively replaces
previously issued GAAP hierarchy framework.  All other literature that
is not part of the codification will be considered
non-authoritative.  The codification is effective for interim and
annual periods ending on or after September 15, 2009.  The Company has
applied the codification, as required, beginning with the 2009 Form
10-K.  The adoption of the codification did not have a material impact
on the Company’s financial position, results of operations or cash
flows.
 
  32
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Recent Accounting Standards
(Continued)
 
 In June
2009, the FASB updated ASC 855, which established principles and requirements
for subsequent events.  This guidance details the period after the
balance sheet date which the Company should evaluate events or transactions that
may occur for potential recognition or disclosure in the financial statements,
the circumstances under which the Company should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the required disclosures for such events.  ASC 855 is effective
for interim and annual periods ending after June 15, 2009.  The
implementation of ASC 855 did not have a material effect on the Company’s
financial statements.  The Company adopted ASC 855, and has evaluated
all subsequent events through February 25, 2010.
 
 In April
2009, the FASB updated ASC 820 to provide additional guidance for estimating
fair value when the volume and level of activity for the asset or liability have
decreased significantly.  ASC 820 also provides guidance on
identifying circumstances that indicate a transaction is not orderly. The
implementation of ASC 820 did not have a material effect on the Company’s
financial statements.
 
 In April
2009, the FASB updated ASC 825 regarding interim disclosures about fair value of
financial instruments.  ASC 825 requires disclosures about fair value
of financial instruments in interim reporting periods of publicly traded
companies that were previously only required to be disclosed in annual financial
statements. The implementation of ASC 825 did not have a material effect on the
Company’s financial statements.
 
 In April
2009, the FASB updated ASC 320 for proper recognition and presentation of
other-than-temporary impairments.  ASC 320 provides additional
guidance designed to create greater clarity and consistency in accounting for
and presenting impairment losses on securities.  The implementation of
ASC 320 did not have a material effect on the Company’s consolidated financial
statements.
 
 
  33
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 2 - INCOME
TAXES
 
 As of
December 31, 2009, the Company had a net operating loss carry forward for income
tax reporting purposes of approximately $212,000 that may be offset against
future taxable income through 2025.  Current tax laws limit the amount
of loss available to be offset against future taxable income when a substantial
change in ownership occurs.  Therefore, the amount available to offset
future taxable income may be limited.  No tax benefit has been
reported in the financial statements, because the Company believes there is a
50% or greater chance the carry-forwards will expire
unused.  Accordingly, the potential tax benefits of the loss
carry-forwards are offset by a valuation allowance of the same
amount.
 
 2009
              
              
              2008Net
      Operating Losses
              
              $
              72,080
              
              
              $
              58,820Valuation
      Allowance
              
              
              (72,080
              )
              
              
              (58,820
              )$
              -
              
              
              $
              -
 
 The
provision for income taxes differ from the amount computed using the federal US
statutory income tax rate as follows:
 
 2009
              
              
              2008Provision
      (Benefit) at US Statutory Rate
              
              $
              13,260
              
              
              $
              13,900Other
      Adjustments
              
              
              -
              
              
              
              (109
              )Increase
      (Decrease) in Valuation Allowance
              
              
              (13,260
              )
              
              
              (13,791
              )$
              -
              
              
              $
              -
 
 The
Company evaluates its valuation allowance requirements based on projected future
operations.  When circumstances change and causes a change in
management's judgment about the recoverability of deferred tax assets, the
impact of the change on the valuation is reflected in current
income.
  34
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 3- DEVELOPMENT STAGE
COMPANY
 
 The
Company has not begun principal operations and as is common with a development
stage company, the Company will have recurring losses during its development
stage.  The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business.  However, the Company does not have
significant cash or other material assets, nor does it have an established
source of revenues sufficient to cover its operating costs and to allow it to
continue as a going concern.  In the interim, shareholders of the
Company have committed to meeting its minimal operating expenses.
 
 NOTE 4 – UNCERTAIN TAX
POSITIONS
 
 Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. The adoption of the provisions of FIN 48
did not have a material impact on the company’s financial position and results
of operations. At January 1, 2008, the company had no liability for unrecognized
tax benefits and no accrual for the payment of related interest.
 
 Interest
costs related to unrecognized tax benefits are classified as “Interest expense,
net” in the accompanying statements of operations. Penalties, if any, would be
recognized as a component of “Selling, general and administrative expenses”. The
Company recognized $0 of interest expense related to unrecognized tax benefits
during 2008.  In many cases the company’s uncertain tax positions are
related to tax years that remain subject to examination by relevant tax
authorities.
 
 With few
exceptions, the company is generally no longer subject to U.S. federal, state,
local or non-U.S. income tax examinations by tax authorities for years before
2006. The following describes the open tax years, by major tax jurisdiction, as
of January 1, 2009:
 
 United
      States (a)
              
              2006–
      Present
 
 (a) Includes federal as well as state
or similar local jurisdictions, as applicable.
 
  35
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 5 -
COMMITMENTS
 
 As of
December 31, 2009, 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.
 
  36
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 7 - PREFERRED STOCK
TRANSACTIONS
 
 On August
5, 2008, Pegasus filed a Certificate of Designations, Powers, Preferences and
Rights (the “Certificate of Designation”) with the Secretary of State of the
State of Delaware thereby designating 2,000,000 shares of preferred stock as
Series A Convertible Preferred Stock, $0.0001 (the “Series A Preferred
Stock”).  The Certificate of Incorporation of Pegasus authorizes the
designation and issuance of an aggregate of ten million (10,000,000) shares of
preferred stock in one or more series with all rights and privileges determined
by the Board of Directors of Pegasus.  Prior to the filing of the
Certificate of Designation, there were no shares of preferred stock designated
or issued. Pursuant to the Certificate of Designation, a copy of which is filed
as an exhibit hereto, each share of Series A Preferred Stock may be converted at
any time by Pegasus or the holders thereof into ten (10) fully-paid and
non-assessable shares of Pegasus Common Stock.
 
 On August
15, 2008, Pegasus issued an aggregate of 1,800,000 shares of Series A Preferred
Stock to an aggregate of 17 individuals pursuant to a Securities Purchase
Agreement for $0.0001per share of Series A Preferred Stock. Pegasus issued the
Series A Preferred Stock pursuant to Section 4(2) of the Securities Act due to
the fact that it did not involve a public offering of securities. The shares of
Series A Preferred Stock are “restricted securities” (as such term is defined in
Rule 144 of the Securities Act.
 
 On August
18, 2008 and pursuant to the Series A Preferred Stock Certificate of Designation
and Securities Purchase Agreement, Pegasus converted an aggregate of 1,800,000
shares of Series A Preferred Stock into an aggregate of 18,000,000 shares of
Pegasus common stock.  Pegasus issued the common stock pursuant to
Section 4(2) of Securities Act due to the fact that it did not involve a public
offering of securities. The shares of common stock are “restricted
securities.”
 
 NOTE 8 – RELATED PARTY
ACCOUNTS PAYABLE
 
 As of
December 31, 2009, the Company had Related Party Accounts Payable in the amount
of $9,592 due to Lyboldt-Daly, Inc. for Bookkeeping expenses.  Joseph
Passalaqua (a major shareholder of the Company and brother to John F.
Passalaqua, an officer of the Company) is President and Sole Director of
Lyboldt-Daly, Inc.
 
 During
2006, a Shareholder of the Company, Joseph Passalaqua, advanced the company
$10,673. This is a Related Party Accounts Payable. As of December 31, 2009 the
Company owes $10,673.
 
 During
2006, an Officer of the Company, Carl Worboys, advanced the Company $224. This
is a Related Party Accounts Payable. As of December 31, 2009, the Company owes $
224.
  37
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 9 – RELATED PARTY NOTES
PAYABLE
 
 During
2008, 2007, and 2006 a Shareholder of the Company, Mary Passalaqua, advanced the
Company $18,300, $30,300, and $5,000, respectively.  The notes are
accruing between 10% and 15% simple interest per annum and are payable in full
upon demand. As of Decmeber 31, 2009, the Company owed a total principle balance
of $53,600 related to these notes and has accrued $17,046 in simple
interest.
 
 During
2008 and 2007, a Shareholder of the Company, Joseph Passalaqua has advanced the
company $9,887 and $5,000, respectively. The notes are accruing between 10% and
18% in simple interest per annum and is payable in full upon
demand.  As of December 31, 2009, the Company owed a total principle
balance of $14,887 related to these notes and has accrued $3,424 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.
  38
  PEGASUS TEL,
INC.
 (A Development Stage
Company)
 NOTES TO FINANCIAL
STATEMENTS
 (Continued)
 
 NOTE 10 – SPIN OFF
(Continued)
 
 On August
15, 2008, Pegasus issued an aggregate of 1,800,000 shares of Series A Preferred
Stock to an aggregate of 17 individuals pursuant to a Securities Purchase
Agreement for $0.0001per share of Series A Preferred Stock. Pegasus issued the
Series A Preferred Stock pursuant to Section 4(2) of the Securities Act due to
the fact that it did not involve a public offering of securities. The shares of
Series A Preferred Stock were restricted securities.
 
 On August
18, 2008 and pursuant to the Certificate of Designation, Pegasus converted an
aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of
18,000,000 shares of Pegasus common stock.  Pegasus issued the common
stock pursuant to Section 4(2) of Securities Act due to the fact that it did not
involve a public offering of securities. The shares of common stock are
restricted securities.
 
 On March
23, 2009, Pegasus filed a Form 15 (File No. 000-52628) with the Securities and
Exchange Commission pursuant to which the Company de-registered its class of
Common Stock under the Securities Exchange Act of 1934, as amended.
 
 NOTE 11 – SUBSEQUENT
EVENTS
 
 The
Company evaluated all events subsequent to December 31, 2009 through March 24,
2010, the financial statements issuance date, and concluded that there are
no significant or material transactions to be reported for the period from
January 1, 2010 to March 24, 2010.
 
  39





ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUTING AND
FINANCIAL DISCLOSURE





Not Applicable. There
are not and have not been any disagreements between the Registrant and its
accountants on any matter of accounting principles, practices or financial
statement disclosure.





ITEM
9A.  CONTROLS AND PROCEDURES





The
Company's Chief Executive Officer is responsible for establishing and
maintaining disclosure controls and procedures for the Company.





Evaluation of Disclosure
Controls and Procedures





Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the United States Securities
and Exchange Commission.  Our Chief Executive Officer and Chief
Financial Officer have reviewed the effectiveness of our “disclosure controls
and procedures” (as defined in the Securities Exchange Act of 1934 Rules
13a-15(f) and 15d-15(f) as of the end of the period covered by this report and
have concluded that the disclosure controls and procedures are effective to
ensure that material information relating to the Company is recorded, processed,
summarized, and reported in a timely manner.  There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the last day they were
evaluated by our Chief Executive Officer and Chief Financial
Officer.





Changes in Internal Controls
over Financial Reporting





During
the period ended December 31, 2009, there was been no change in internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect our internal control over financial reporting.





There are
not and have not been any disagreements between the Registrant and its
accountants on any matter of accounting principles, practices or financial
statement disclosure.





Report of Management on
Internal Control Over Financial Reporting





The
management of the Registrant is responsible for establishing and maintaining
adequate internal control over financial reporting. The Registrant’s internal
control over financial reporting is a process, under the supervision of the
principal executive officer and the principal financial officer, designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the Registrant’s financial statements for external
purposes in accordance with United States generally accepted accounting
principles (GAAP). Internal control over financial reporting includes those
policies and procedures that:





●
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the Registrant’s
      assets;





●
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of the financial statements in accordance with generally
      accepted accounting principles, and that receipts and expenditures are
      being made only in accordance with authorizations of management and the
      board of directors; and





●
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Registrant’s assets
      that could have a material effect on the financial
    statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.





40





The
Registrant’s management conducted an assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, which
assessment identified material weaknesses in internal control over financial
reporting. A material weakness is a control deficiency, or a combination of
deficiencies in internal control over financial reporting that creates a
reasonable possibility that a material misstatement in annual or interim
financial statements will not be prevented or detected on a timely basis. Since
the assessment of the effectiveness of our internal control over financial
reporting did identify a material weakness, management considers its internal
control over financial reporting to be ineffective.





To the
extent reasonably possible, given our limited resources, our goal is, upon
consummation of a merger with a private operating company, to separate the
responsibilities of principal executive officer and principal financial officer,
intending to rely on two or more individuals. We will also seek to expand our
current board of directors to include additional individuals willing to perform
directorial functions. Since the recited remedial actions will require that we
hire or engage additional personnel, this material weakness may not be overcome
in the near term due to our limited financial resources. Until such remedial
actions can be realized, we will continue to rely on the advice of outside
professionals and consultants.





This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. We were not required to have, nor have we, engaged our independent
registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Commission that permit us to
provide only management’s report in this annual report.








ITEM 9B.  OTHER
INFORMATION .





None.





41








PART III





ITEM 10. DIRECTORS EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE





The
following table sets forth the names and ages of our current directors,
executive officers and key consultants as well as the principal offices and
positions held by each person. We are managed by our Board of Directors.
Currently, the Board has two members. Our executive officers serve at the
discretion of the Board of Directors. There are no family relationships between
any of the directors and executive officers. In addition, there was no
arrangement or understanding between any executive officer and any other person
pursuant to which any person was selected an executive officer.








Name
            
            Age
            
            Position
      with Pegasus
            
            Year
      First Became a DirectorCarl  E.
      Worboys
            
            67
            
            President
      and Director
            
            2004John
      F. Passalaqua
            
            74
            
            Chief
      Financial Officer, Secretary and Director
            
            2004





Biographies





Carl E.
Worboys is a practicing attorney in the State of New York.  He has
been active in the public payphone business for several clients.  From
1992 to 2004, Mr. Worboys was in charge of regulatory affairs for American
Telecommunications Enterprises, Inc., a long distance carrier, and is
responsible for the development of payphone leasing programs for the
carrier.  From October 2004 to September 2006, Mr. Worboys served as
an executive officer and director of Dolce Ventures, Inc.





John F.
Passalaqua has been serving as the Chief Financial Officer, Secretary and
Director of the company since October 2004. Mr. Passalaqua served as technical
support employee for several payphone companies in the local area, including
Daytone, Inc., a New York based phone company from September 2001 to September
2004. He was elected an officer and director of Dolce Ventures, Inc. in October
2004 through September 2006.





Family Relationships amongst
Directors and Officers:





None of
the Officers or Directors are related.





Involvement in Certain Legal
Proceedings





During
the past five years no director or executive officer of the company (i) has been
involved as a general partner or executive officer of any business which has
filed a bankruptcy petition; (ii) has been convicted in any criminal proceeding
nor is subject to any pending criminal proceeding; (iii) has been subjected to
any order, judgment or decree of any court permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; and (iv) has been found by a court,
the Commission or the Commodities Futures Trading Commission to have violated a
federal or state securities or commodities law.





Compliance with Section
16(a) of the Securities Exchange Act of 1934





Section 16(a)
of the Exchange Act requires the Company’s directors and officers, and persons
who beneficially own more than 10% of a registered class of the Company’s equity
securities, to file reports of beneficial ownership and changes in beneficial
ownership of the Company’s securities with the SEC of forms 3, 4 and 5.
Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.Item 405 of Regulation S-B
requires every small business issuer that has a class of equity securities
registered pursuant to Section 12 of the Exchange Act to identify each person
who, at any time during the fiscal year, was a director, officer or beneficial
owner of more than 10 percent of any class of equity securities registered
pursuant to Section 12 of the Exchange Act that failed to file on a timely
basis, as disclosed in the above forms as well as other
information.  On March 23, 2009, we filed with the SEC a Form 15 to
deregister our common stock under Section 12 of the Exchange Act and to
terminate our status as a reporting company under the Exchange
Act.  On October 15, 2009, the Company filed a Form S-1 Registration
Statement with the SEC to register our common stock pursuant to Section 12 of
the Exchange Act. On December 28, 2009 the Company’s Registration Statement went
effective.





42







Significant
Employees





The
Company has no employees.  Our executive officers and directors serve
as such on as-needed basis. The Company does not have any consultants or third
parties.





Committees of the Board of
Directors





Because
of our limited resources, our Board does not currently have an established audit
committee or executive committee. The current members of the Board perform the
functions of an audit committee, governance/nominating committee, and any other
committee on an as needed basis. If and when the Company grows its business
and/or becomes profitable, the Board intends to establish such
committees.





Code of Business Conduct and
Code of Ethics





Our Board
has not adopted a Code of Business Conduct and Ethics due to the Company’s
limited size. As our business grows, we anticipate adopting a Code of Business
Conduct and Ethics.





ITEM
11.     EXECUTIVE COMPENSATION





During
the last fiscal year ended December 31, 2009, no compensation has been awarded
to, earned by or paid to our officers or directors. Management has agreed to act
without compensation until authorized by the Board of Directors, which is not
expected to occur until we have generated revenues from operations. As of the
date of this registration statement, we have no funds available to pay officers
or directors. Further, our officers and directors are not accruing any
compensation pursuant to any agreement with us.





Indemnity





The
Articles of Incorporation provide for indemnification to the full extent
permitted by the laws of the State of Delaware for each person who becomes a
party to any civil or criminal action or proceeding by reason of the fact that
he, or his testator, or intestate, is or was a director or officer of the
corporation or served any other corporation of any type or kind, domestic or
foreign in any capacity at the request of the corporation.





Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors or officers pursuant to the foregoing provisions, we are
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy, as expressed in the Securities Act and
is, therefore, unenforceable.





Director
Compensation





We do not
currently pay any cash fees to our directors, but we pay directors’ expenses in
attending board meetings. During the year ended December 31, 2009, no director
expenses were reimbursed.





Employment
Agreements





The
Company is not a party to any employment agreements.


43







ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





The table
on the following page sets forth certain information concerning the beneficial
ownership of our common stock by (i) each person known by us to be the owner of
more than 5% of our outstanding common stock, (ii) each director, (iii) each
Named Executive Officer, and (iv) all directors and executive officers as a
group, without naming them. In general, “beneficial ownership” includes those
shares a shareholder has the power to vote or the power to transfer, and stock
options and other rights to acquire common stock that are exercisable currently
or become exercisable within 60 days.





Except as
indicated otherwise, the persons named in the table below have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.  Unless otherwise indicated, the address of each of reporting person
is c/o Pegasus Tel, Inc., 118 Chatham Road, Syracuse, NY 13203.





Beneficial
      Owner
            
            Amount
      and Nature of
              Beneficial
      Ownership
              As
      of the Record Date
            
            
            Percentage of
      Beneficial OwnershipCarl
      E. Worboys
              President
      and Director
              (Principal
      Executive Officer)
            
            
            2,502,189
            
            
            12.38
            %John
      F. Passalaqua (2)
              Chief
      Financial Officer, Secretary and Director
              (Principal
      Financial/Accounting Officer)
            
            
            3,103,367
            
            
            15.35
            %Joseph
      C. Passalaqua (3)
            
            
            7,501,285
            
            
            37.10
            %Mary
      Passalaqua (4)
            
            
            7,501,285
            
            
            37.10
            %All
      Officers and Directors as a group (without naming them) (2
      persons)
            
            
            5,605,556
            
            
            27.73
            %





(1)
            Based
      on 20,215,136 shares of common stock issued and outstanding as of the date
      of this prospectus.(2)
            Includes
      401,285 shares of common stock held by Inna Sheveleva.  Inna
      Sheveleva is the wife of John F. Passalaqua, Chief Financial Officer,
      Secretary and Director of the Company.(3)
            Includes
      2,500,000 shares of common stock held by Mary Passalaqua.  Mary
      Passalaqua is the wife of Joseph C. Passalaqua.(4)
            Includes
      5,001,285 shares of common stock held by Joseph C.
      Passalaqua.  Joseph C. Passalaqua is the husband of Mary
      Passalaqua.





44







ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPDENCE





As of
December 31, 2009, we had a related party accounts payable to Joseph C.
Passalaqua in the amount of $10,673 and $14,887 in notes payable that are
accruing 10% and 18% interest bearing per annum. As of December 31, 2009,
$14,887 in principle and $3,424 accrued in simple interest. We also have notes
payable to Mary Passalaqua in the amount of $53,600 that are accruing 10% and
15% interest bearing per annum. As of December 31, 2009, $53,600 in principle
and $17,046 accrued in simple interest. Joseph C. Passalaqua is the brother of
John F. Passalaqua, our Chief Financial Officer and Secretary and husband to
Mary Passalaqua.  Mary Passalaqua is sister-in-law of John F.
Passalaqua, our Chief Financial Officer, Secretary and Joseph C. Passalaqua’s
wife.





ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





We became
a reporting Company when our registration statement became effective on December
18, 2006. Robison Hill & Company ("RHC") is the Company's independent
registered public accountant.





Audit Fees and Audit Related
Fees





Aggregate
fees billed by the Company's principal accountants, Robison, Hill & Company,
for audit services related to the most recent two fiscal years, and for other
professional services billed in the most recent two fiscal years, were as
follows:





FISCAL
      2009
            
            
            FISCAL
      2008Audit
      Fees (1)
            
            $
            14,261
            
            
            $
            10,850Tax
      Fees (2)
            
            $
            496
            
            
            $
            675Other
      Fees
            
            None
            
            
            None





(1)
Comprised of the audit of the Company's annual financial statements and reviews
of the Company's quarterly financial statements, as well as consents related to
and reviews of other documents filed with the Securities and Exchange
Commission.





(2)
Comprised of preparation of all federal and state corporate income tax returns
for the Company and its subsidiaries. Under the Sarbanes-Oxley Act of 2002, all
audit and non-audit services performed by the Company's independent accountants
must now be approved in advance by the Audit Committee to assure that such
services do not impair the accountants' independence from the Company. The
Company does not have an Audit Committee, therefore, the Board of Directors
reviews and approves audit and permissible non-audit services performed by
Robinson, Hill & Company, as well as the fees charged by Robinson, Hill
& Company for such services.





We do not
currently have a standing audit committee. The services described above were
approved by our Board of Directors.


45




ITEM 16.EXHIBITS





Exhibit
      No.
            Description3.1(1)
            Articles
      of Incorporation, dated February 19, 20023.2(1)
            Amended
      Articles of Incorporation, dated September 21, 20063.3(1)
            Amendment
      to the Articles of Incorporation, dated September 18,
  2006.3.4(2)
            Amendment
      to Articles of Incorporation, date May 15, 20073.5(3)
            Certificate
      of the Designations, Powers Preferences and Rights of the Series A
      Convertible Preferred Stock3.5(1)
            By-laws4.1(1)
            Form
      of Common Stock Certificate10.1
      (3)
            Series
      A Preferred Stock Purchase Agreement10.2
      (4)
            $1,205
      18% Promissory Note, dated December 2, 2008, for the benefit of Joseph C.
      Passalaqua10.3
      (4)
            $8,682
      18% Promissory  Note, dated August 13, 2008, for the benefit of
      Joseph C. Passalaqua10.4
      (4)
            $5,000
      10% Promissory Note, dated December 13, 2007, for the benefit of Joseph C.
      Passalaqua10.5
      (4)
            $400
      10% Promissory Note, dated March 21, 2008, for the benefit of Mary
      Passalaqua10.6
      (4)
            $17,900
      10% Promissory Note, dated January 24, 2008, for the benefit of Mary
      Passalaqua10.7
      (4)
            $15,300
      15% Promissory Note, dated June 11, 2007, for the benefit of Mary
      Passalaqua10.8
      (4)
            $15,000
      15% Promissory Note, dated April 26, 2007, for the benefit of Mary
      Passalaqua10.9
      (4)
            $5,000
      10% Promissory Note, dated October 24, 2006, for the benefit of Mary
      PassalaquaExhibit
      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
      amendedExhibit
      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
      amendedExhibit
      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 2002Exhibit
      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.





46





SIGNATURES





In
accordance with the requirements of the Securities Act of 1933, as amended, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements of filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in Weston, Florida,
United States, on December 17, 2009.








PEGASUS
      TEL, INC.By:
            /s/ CARL
      E. WORBOYSCarl
      E. WorboysPresident,
      Director, Chief Executive Officer(Principal
      Executive Officer)By:
            /s/
      JOHN F. PASSALAQUAJohn
      F. Passalaqua
              Secretary,
      Director, and Chief Financial Officer
              (Principal
      Financial Officer
              and
      Principal Accounting Officer)











In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.








Signature
            
            Title
            
            Date/s/ CARL
      E. WORBOYS
            
            President,
      Director, and Chief Executive Officer
              (Principal
      Executive Officer
            
            Date: March
      24, 2010Carl
      E. Worboys/s/
      JOHN F. PASSALAQUA
            
            Secretary,
      Director, and Chief Financial Officer
              (Principal
      Financial Officer
              and
      Principal Accounting Officer)
            
            Date: March
      24, 2010John
      F. Passalaqua