UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-KSB





(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, 2007





OR





£           TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from ________ to ________





Commission
File No. 0-5268





PEGASUS TEL,
INC.


(Name of
small business issuer in its charter)





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





118 Chatham Road, Syracuse,
    NY
            13203(Address
      of principal executive offices)
            (Zip
      Code)





Issuer’s
telephone number:  (315)
476-5769





Copies
to:


The
Sourlis Law Firm


Virginia
K. Sourlis, Esq.


The
Galleria


2 Bridge
Avenue


Red Bank,
New Jersey 07701


(732)
530-9007


www.SourlisLaw.com





Securities
registered under Section 12(b) of the
Act:                                  None





Securities
registered under Section 12(g) of the Exchange Act: Common Stock, par value
$0.0001 per share





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.  £





Check
whether the Company (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x
No £





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Company’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.  £





Check whether the Company is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes£Nox





1





State
issuer’s revenues for most recent fiscal year: $10,059.





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act):





There is
currently no trading market for the Company’s common stock. As of December 31,
2007, there were 5,100,000 shares of common stock held by non-affiliates, par
value of $.0001





State the
number shares outstanding of each of the issuer’s classes of common equity, as
of the latest practicable date:  As of December 31, 2007, there were
5,100,000 shares of common stock issued and outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE:





None








2





TABLE OF
CONTENTS




FORWARD-LOOKING STATEMENTS
              4PART I
              4Item 1. Description of
      Business.
              4Item 2. Description of
      Property.
              10Item 3. Legal
      Proceedings.
              10Item 4. Submission of Matters to
      a Vote of Security Holders.
              10PART
II
              11Item 5. Market for Common Equity,
      Related Stockholder Matters and Issuer Purchases of Equity
      Securities.
              11Item 6. Management’s Discussion
      and Analysis or Plan of Operation.
              11Item 7. Financial
      Statements.
              21Item 8. Changes in and
      Disagreements with Accountants on Accounting and Financial
      Disclosure.
              21Item 8A(T). Controls and
      Procedures
              21Item 8B. Other
      Information.
              21PART
    III
              22Item 9. Directors, Executive
      Officers, Promoters, Control Persons and Corporate Governance; Compliance
      with Section 16(a) of the Exchange Act.
              22Item 10. Executive
      Compensation.
              23Item 11. Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters.
              24Item 12. Certain Relationships
      and Related Transactions, and Director
    Independence
              25Item 13. Exhibits and Reports on
      Form 8-K
              25Item 14.  Principal
      Accountant Fees and Services
              26SIGNATURES
              27







3





FORWARD-LOOKING
STATEMENTS





Certain
statements made in this Annual Report on Form 10-KSB are “forward-looking
statements” (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of Pegasus Tel, Inc.,
a Delaware corporation (the “Company”) to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. The
Company’s plans and objectives are based, in part, on assumptions involving the
continued expansion of business. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.








PART I





Item 1. Description of Business.







Overview




Pegasus
Tel, Inc., a Delaware corporation, or Pegasus, was incorporated under the laws
of the State of Delaware on February 19, 2002 to enter into the
telecommunication business. Our company is a wholly-owned subsidiary of Sino Gas
International Holdings, Inc., a Utah corporation, or Sino Gas.





Sino Gas
intends to spin off Pegasus. As described below, the business purposes and
geographical focus of Sino Gas and Pegasus are disparate in nature, with Sino
Gas engaged in the development of natural gas distribution systems in People’s
Republic of China, or the PRC or China, and Pegasus owning and operating a total
of 15 payphones in New York State as of December 31, 2007. Due to these reasons,
Sino Gas believes it is in its stockholders’ best interests to spin-off
Pegasus.





On May
16, 2007, Sino Gas filed a Definitive Information Statement on Schedule 14C with
the SEC in connection with our spin-off from Sino Gas and commenced mailing the
Definitive Information Statement to its stockholders. In connection with our
Form 10-SB discussed below, we received comments from the SEC regarding the
Definitive Information Statement and we and Sino Gas are currently preparing an
amendment to the Information Statement. Upon filing an amended Definitive
Information Statement on 14C, Sino Gas will effectuate the spin-off no earlier
than 20 days from the commencement date of mailing the Information Statement and
Annual Report on Form 10-KSB to its stockholders of record as of the established
record date.





In
preparation of our spin-off from Sino Gas, 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. Upon the effectiveness of the Registration
Statement, we became subject to the reporting requirements of the Exchange Act,
and accordingly, are required to file periodic and other reports and other
required information with the SEC.








4





Summary
of Trust Agreement





On
November 1, 2007, a trust agreement (the “Trust” or “Agreement”) was entered
into between Sino Gas International Holdings, Inc. (“Sino”) and Carl Worboys,
Esq. (“Trustee”). It was resolved by the Board of Directors of Sino that 100% of
the shares of Pegasus Tel, Inc., (“Pegasus”) a wholly-owned subsidiary of Sino,
be distributed pro rata to the Shareholders of Sino, effectively spinning off
Pegasus from Sino to operate as an independent entity not affiliated with
Sino.





In order
to legally effectuate this distribution of shares, Pegasus is required to file
an information statement with the Securities and Exchange Commission (“SEC” or
“Commission”). As of the date of this annual report, no information statement
has been filed with the SEC. The parties have agreed to place all of the
distribution shares in the custody of the Trustee, an Attorney at Law, pending
the filing and Notice of Effectiveness with the SEC of the required information
statement.





The
Trustee shall hold the distribution shares in trust for the benefit of the Sino
shareholders, and is not legally permitted to distribute such shares until all
of the conditions of the spinoff have occurred.





See Exhibit 10.1 attached hereto for
the complete text of the Trust Agreement.





Reasons
for the spin-off:





We
believe our spin-off in the best interest of Sino Gas and Pegasus and their
stockholders due to the companies’ disparate business purposes and geographical
focus. We also believe that the spin-off will result in various benefits to Sino
Gas and Pegasus, including, but not limited to, the following:





·
            Separating
      Sino Gas’s natural gas distribution business in China from Pegasus’
      payphone business in New York State. This in turn will allow the
      management of each company to focus solely on the opportunities and
      challenges specific to each markedly distinct
  business.





·
            Eliminating
      competition for capital between our businesses; including greater investor
      clarity, which should allow the investment community to better understand
      and evaluate Pegasus’ business and Sino Gas’s businesses. We anticipate
      that this may expand the pool of capital available to each
      entity.





·
            Increasing
      the long term value of Pegasus’ common stock. In addition, the spin-off
      will enable Sino Gas and Pegasus to offer management and employees equity
      incentives that are economically aligned with the financial performance of
      their respective businesses; and





·
            Allowing
      us to make acquisitions using our stock, if we choose to make such
      acquisitions.





Power
over the terms of the spin-off:





Sino
Gas’s Board of Directors may amend or modify the spin-off at any time prior to
the distribution date, and may abandon the spin-off at any time prior to the
distribution of the Pegasus’ shares.





No
trading market:





No public
market currently exists for our common stock. We intend to secure and request
that a broker-dealer / market maker submit an application to FINRA in order to
make a market for our shares and for the shares to be quoted on the OTC Bulletin
Board. Stocks traded on the OTC are usually thinly traded, highly volatile, and
not followed by analysis. Investors in our stock may experience a loss or
liquidity problem with their share holdings.








5





Dividend
Policy:





We
currently anticipate that no cash dividends will be paid on our common stock in
the foreseeable future. Our Board periodically will reevaluate this dividend
policy taking into account our operating results, capital needs, and the terms
of our existing financing arrangements and other factors.





Available
information:




From the
effective date of our Registration Statement on Form 10-SB, we have been subject
to the reporting requirements of the Exchange Act, including the filing of
quarterly, annual and current reports with the SEC. Any person or entity may
read and copy our reports with the SEC at the SEC's Public Reference Room at 100
F Street N.E., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Room by calling the SEC toll free at 1-800-SEC-0330. The
SEC also maintains an Internet site at http://www.sec.gov where reports, proxies
and informational statements on public companies may be viewed by the
public.






Services and
Products




We own,
operate and manage privately owned public payphones in the County of Delaware,
State of New York. As of December 31, 2007, we owned, operating and managed 15
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.







The chart
below describes the specific location of each of our 15 payphones and the amount
of revenue generated by each payphone for the audited fiscal years ended
December 31, 2007 and 2006.





6










As
      of December 31,No.:
            
            Location
            
            2007
            
            
            20061
            
            Andes
      Hotel
              110
      Main St.,Andes,
      NY  13731
            
            $
            205
            
            
            $
            1502
            
            Andes
      Public Booth
              21
      Main St.,Andes,
      NY  13731
            
            $
            100
            
            
            $
            503
            
            A&
      P Super Food Mart
              36
      Bridge St.,Margaretville,
      NY  12455  (outside)
            
            $
            985
            
            
            $
            2004
            
            A&
      P Super Food Mart
              36
      Bridge St.,Margaretville,
      NY  12455  (inside)
            
            $
            735
            
            
            $
            1605
            
            MargaretvilleCentral
      School
              415
      Main St.,Margaretville,
      NY 12455
            
            $
            1,065
            
            
            $
            206
            
            MargaretvilleMemorial
      Hospital
              42084
      State Hwy. 28,Margaretville,
      NY 12455 (downstairs)
            
            $
            1,095
            
            
            $
            1607
            
            MargaretvilleMemorial
      Hospital
              42084
      State Hwy. 28,Margaretville,
      NY 12455 (upstairs)
            
            $
            1,234
            
            
            $
            808
            
            MountainsideResidential
      Care
              42158
      State Hwy. 28,Margaretville,
      NY 12455 (1st
      Floor)
            
            $
            1,685
            
            
            $
            4609
            
            MountainsideResidential
      Care
              42158
      State Hwy. 28,Margaretville,
      NY 12455 (2nd
      Floor)
            
            $
            800
            
            
            $
            30010
            
            MountainsideResidential
      Care
              42158
      State Hwy. 28,Margaretville,
      NY 12455 (3rd
      Floor)
            
            $
            630
            
            
            $
            38011
            
            Town
      of Middletown
              42339
      State Hwy. 28, Margaretville, NY 12455
            
            $
            1,435
            
            
            $
            8012
            
            Hess
      Mart
              42598
      State Hwy. 28, Margaretville, NY  12455
            
            $
            30
            
            
            $
            4813
            
            Arkville
      Country Store
              43525
      State Hwy. 28, Arkville, NY  12406
            
            $
            20
            
            
            $
            1514
            
            Hanah
      Country Club
              44447
      State Hwy. 30, Margaretville, NY  12455
      (Seasonal)
            
            $
            20
            
            
            $
            1515
            
            Summerfield’s
      Rest.
              654
      Main St., Margaretville, NY
    12455  (Seasonal)
            
            $
            20
            
            
            $
            20Total Revenues
            
            $
            10,059
            
            
            $
            2,138










7





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 on a preset time basis 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.




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 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. 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.





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).










8





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.








9





Telecommunications
Act of 1996




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





Research and
Development





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




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


We have
one full-time employee and one part-time employee. John F. Passalaqua, our Chief
Financial Officer, Secretary and Director, works for us on a full-time basis.
Carl E. Worboys, our President and Director, works for us on part-time and an
as-needed basis. We have no other employees.





Item 2. Description of Property.





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.




To the
knowledge of management, there is no litigation pending or threatened against
us.





Item 4. Submission of Matters to a Vote of Security
Holders.





None











10





PART
II








Item 5. Market for Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.





Our
Certificate of Incorporation authorizes the issuance of 100 million
(100,000,000) shares of common stock, par value $0.0001 per share, and 10
million (10,000,000) shares of preferred stock, par value $0.0001 per
share.  As of December 31, 2007, there were 5.1 million (5,100,000)
shares of common stock outstanding and no shares of preferred stock neither
designated nor were outstanding.





No
Trading Market





No public
market currently exists for our securities. Upon our spin-off from Sino Gas, we
intend to secure and request that a broker-dealer / market maker submit an
application to FINRA (formerly the NASD) in order to make a market for our
common stock and for the shares to be quoted on the OTC Bulletin Board. Stocks
traded on the OTC and pink sheets are usually thinly traded, highly volatile,
and not followed by analysis. Investors in our stock may experience a loss or
liquidity problem with their share holdings.





Dividend
Policy





We have
never declared or paid dividends on our common stock. We currently intend to
retain all future earnings for use in the operation and expansion of our
business and do not anticipate paying any cash dividends on common stock in the
foreseeable future. Any future dividends will be at the discretion of the board
of directors, after taking into account various factors, including among others,
operations, current and anticipated cash needs and expansion plans, the income
tax laws then in effect, the requirements of Delaware law, and any restrictions
that may be imposed by our future credit arrangements.




Recent
Sales of Unregistered Securities




We have
not issued or sold any unregistered securities within the past three
years.








Item 6. Management’s Discussion and Analysis or Plan of
Operation.




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.




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).





11





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, access to more capital, 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 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.




Industry
Trends




Technological,
regulatory and market changes have provided telephone companies with
opportunities and challenges. These changes have allowed service providers to
broaden the scope of their own competitive offerings. Current and potential
competitors for network services include other telephone companies, cable
companies, wireless service providers, foreign telecommunications providers,
satellite providers, electric utilities, Internet service providers, providers
of VoIP services, and other companies that offer network services using a
variety of technologies. Many of these companies have a strong market presence,
brand recognition and existing customer relationships, all of which contribute
to intensifying competition.




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.





Costs
related to our operations.





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.








12





RISKS ASSOCIATED WITH OUR
BUSINESS





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, 2007, we had $425 in cash and cash equivalents on hand and an
accumulated deficit of $141,395, 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.







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, 2007, we had $425 in cash and cash equivalents on hand and an
accumulated deficit of $141,395.  As of December 31, 2007, we had a
related party accounts payable to Joseph Passalaqua in the amount of $10,673 and
a $5,000 note that is 10% interest bearing per annum, a note payable to Mary
Passalaqua in the amount of $35,300 that is 10% interest bearing per annum and a
related party accounts payable to Carl Worboys in the amount of $224 that is
non-interest bearing.  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.




Our
future financings could substantially dilute our stockholders or restrict our
flexibility.




We will
need additional funding which may not be available when needed. 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.





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.





13







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.





We
need additional employees. If we cannot attract, retain, motivate and integrate
additional skilled personnel, our ability to compete will be
impaired.




Other
than John F. Passalaqua, our Chief Financial Officer, Secretary and Director,
and Carl E. Worboys, our President and Director, works for us on part-time and
an as-needed basis, we have no other 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 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 will
have limited control over the actual production process. Moreover, difficulties
encountered by any one of our third party manufacturers which result in product
defects, delayed or reduced product shipments, cost overruns or our inability to
fill orders on a timely basis, could have an adverse impact on our business.
Even a short-term disruption in our relationship with third party manufacturers
or suppliers could have a material adverse effect on our operations. We do not
intend to maintain an inventory of sufficient size to protect ourselves for any
significant period of time against supply interruptions, particularly if we are
required to obtain alternative sources of supply.





14







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.





15







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.





Fiscal
year ended December 31, 2007 compared to the fiscal year ended December 30,
2006





Results
of Operations





Our total
revenue increased by approximately $7,921, or approximately 370%, from
approximately $2,138 for the year ended December 31, 2006 to approximately
$10,059 for the year ended December 31, 2007. This increase was primarily due to
a correction in the current year of a previous disruption of service at the
central office of Margaretville Telephony Company, the Company’s sole dial tone
provider. Another factor is the company increasing the reliability of service
and upgrading our current products in revenue generating areas. In fiscal year
2006, we removed five unprofitable locations.





Our coin
call revenues increased by approximately $3,891, or approximately 2,882%, from
approximately $135 for the year ended December 31, 2006 to approximately $4,026
for year ended December 31, 2007.  This increase was primarily due to
a correction in the current year of a previous problem of disrupted service at
the central office of Margaretville Telephony Company, the Company’s sole dial
tone provider.





Our
non-coin call revenue, or commission income, which is comprised primarily of
“dial around” revenue and operator service revenue increased by
approximately  $4,030, or approximately 201%, from approximately
$2,003 for the year ended December 31, 2006 to $6,033 for the year ended
December 31, 2007. This increase was primarily due to a correction in the
current year of a previous problem of disruption of service at the central
office of Margaretville Telephony Company, the Company’s sole dial tone
provider.  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).





Costs
of services





Our
overall cost of services decreased by $697, or approximately 10.5%, from $6,601
for the year ended December 21, 2006, to $5,904 for the year ended December 31,
2006.  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. Telecommunication costs decreased by $445 for the year
ended December 31, 2007 when compared to the same period in
2006.  Commissions increased by $1,639 for the year ended December 31,
2007 when compared to the same period in 2006 due to a higher volume of calls.
Depreciation decreased by $1,891 for the year ended December 31, 2007 when
compared to the same period in 2006.





16





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





Operation
and administrative expenses





Operating
expenses increased by $54,486, or approximately 455%, from $11,973 for the year
ended December 31, 2006, to $66,459 for the year ended December 31, 2007.
Professional fees increased by $55,319 in 2007, from $9,929 for the fiscal year
ended December 31, 2006 to $65,248 for the fiscal year ended December 31,
2007.  This increase was primarily due to increased professional fees
to accountants and attorneys throughout the year for performing various tasks.
Advertising expenses decreased by $770 in 2007 when compared to
2006.  Expenses for outside services decreased by $615 in 2007. Office
expenses, which primarily make up the General and Administrative expenses,
increased by $552 in 2007, from $ 659 in the fiscal year ended December 31, 2006
to $1,211 in the fiscal year ended December 31, 2006.





Going
Concern Qualification





In their
Independent Auditor's Report for the fiscal years ending December 31, 2006 and
December 31, 2007, Robison, Hill & Co., our auditors, states that we have
incurred annual losses since inception raising substantial doubt about our
ability to continue as a going concern.





Liquidity
and Capital Resources





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, 2007, we had $ 425 in cash and cash equivalents and
an accumulated deficit of $ 141,395.  As of December 31, 2006, we had
$ 205 in cash and cash equivalents on hand and accumulated deficits of $ 75,684.
Our net loss for year ended December 31, 2007 increased by $
65,711.  Our accounts receivable for the year ended December 31, 2006
and December 31, 2007 was $ 240 and $ 1,911 respectively.





As of
December 31, 2007, the company owes $ 51,197 in notes payable to officers of the
company.  These notes include, $10,673 owed to Joseph Passalaqua that
is a related party accounts payable and a note for $ 5,000 that is accruing 10%
simple interest per annum, $35,300 in notes payable owed to Mary Passalaqua that
are accruing between 10% and 15% simple interest per annum, and a related party
accounts payable  of $224 owed to Carl Worboys.  All notes
are payable upon demand. Although we believe that our current cash from
borrowings will be insufficient to fund our operations and to satisfy our
long-term liquidity needs for the next twelve months, we intend to raise
additional capital from future borrowings and financings.





Off-BalanceSheetArrangements





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.





Critical Accounting Policies
& Estimates





The
following describes critical accounting policies and estimates:





17





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 as well as in U.S. dollar exchange rates with
the Russian ruble, among others, as well as our estimates of the value of common
stock for the purpose of determining stock-based compensation. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable, the results of which form the basis for making
judgments about the carrying values of assets and liabilities.





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.





As the
reports and actual deposit of the Dial Around revenue is received four months
after the quarter ends, the revenue is recognized based on an estimate
using the in the previous year's corresponding quarter. It is recorded as an
accounts receivable until the report and direct deposit are received.  At
the time the report is received an adjustment is made to the exact amount
received.





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.





Recent Accounting
Standards





In
February 2007, the FASB issued SFAS no, 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
provides companies with an option to report selected financials assets and
liabilities at fair value.  The objective of SFAS 159 is to reduce
both complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities
differently.  Generally accepted accounting principles have required
different measurement attributes for different assets and liabilities that can
create artificial volatility in earnings.  The FASB has indicated it
believes that SFAS 159 helps to mitigate this type of accounting-induced
volatility by enabling companies to report related assets and liabilities at
fair value, which would likely reduce the need for companies to comply with
detailed rules for hedge accounting.  SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities.  SFAS 159 does not eliminate disclosure
requirements included in other accounting standards, including requirements for
disclosures about fair value measurements included in SFAS 157 and SFA No. 107,
“Disclosures about Fair Value of Financial Instruments.”SFAS 159 is effective
for the Company as of the beginning of fiscal year 2008.  The adoption
of this pronouncement is not expected to have an impact on the Company’s
financial position, results of operations or cash flows.








18





In
December 2007, the FASB issued SPAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary (previously referred to as minority interests). SFAS
160 also requires that a retained noncontrolling interest upon the
deconsolidation of a subsidiary be initially measured at its fair value. Upon
adoption of SFAS 160, the Company would be required to report any noncontrolling
interests as a separate component of stockholders’ deficit. The Company would
also be required to present any net income attributable to the stockholders of
the Company separately in its condensed consolidated statement of operations.
SFAS 160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. SFAS 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS 160 shall be applied prospectively.
SFAS 160 would have an impact on the presentation and disclosure of the
noncontrolling interests of any non-wholly owned business acquired in the
future.





In
December 2007, the Financial Accounting Standards Board ( “FASB”) issued
Statement of Financials Accounting Standards (“SFAS”) No. 141R, “Business
Combinations” (“SFAS 141R”), which replaces SPAS No. 141 “Business
Combinations”. SFAS 141R establishes principles and requirements for determining
how an enterprise recognizes and measures the fair value of certain assets and
liabilities acquired in a business combination, including noncontrolling
interest, contingent consideration, and certain acquired contingencies. SFAS
141R also requires acquisition-related transaction expenses and restructuring
cost be expensed as incurred rather than capitalized a component of the business
combination. SFAS 141R will be applicable prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. SFAS 141R would have
an impact on accounting for any business acquired after the effective date of
this pronouncement.





In March
2008, the FASB issued No. 161, “Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133.  (“SFAS
161").  SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities and thereby improves the transparency of
financial reporting.  This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. This Statement encourages, but does
not require, comparative disclosures for earlier periods at initial
adoption.  Management is currently evaluating the effects of this
statement, but it is not expected to have any impact on the Company’s financial
statements.





Allowance for Doubtful
Accounts





The
Company recognizes an allowance for doubtful accounts to ensure accounts
receivable are not overstated due to uncollectibility. Bad debt reserves are
maintained for all customers based on a variety of factors, including the length
of time the receivables are past due, significant one-time events and historical
experience. An additional reserve for individual accounts is recorded when the
Company becomes aware of a customer’s inability to meet its financial
obligation, such as in the case of bankruptcy filings or deterioration in the
customer’s operating results or financial position.  If circumstances
related to customers change, estimates of the recoverability of receivables
would be further adjusted. As of September 30, 2007, the Company has determined
an allowance for doubtful accounts is not necessary.





Fixed
Assets





Fixed
assets are stated at cost. Depreciation expense for the nine months ended
September 30, 2006 and September 30, 2007, were $716 and $509 respectively.
Depreciation and amortization are computed using the straight-line and
accelerated methods over the estimated economic useful lives of the related
assets as follows:


Asset
            
            RatePayphone
      Equipment
            
            5
      years








19





Upon sale
or other disposition of property and equipment, the cost and related accumulated
depreciation or amortization are removed from the accounts and any gain or loss
is included in the determination of income or loss. Expenditures for maintenance
and repairs are charged to expense as incurred.  Major overhauls and
betterments are capitalized and depreciated over their estimated economic useful
lives.





Maintenance
and repairs are charged to operations; betterments are
capitalized.  The cost of property sold or otherwise disposed of and
the accumulated depreciation thereon are eliminated from the property and
related accumulated depreciation accounts, and any resulting gain or loss is
credited or charged to income.





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.





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 period ended September 30, 2007.





Financial
Instruments





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





Income
Taxes





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





Reclassification





Certain
reclassifications have been made in the 2006 financial statements to conform to
the September 30, 2007 presentation.








20





Item 7. Financial Statements.





The
Company’s audited financial statements for the years ended December 31, 2007 and
2006 and the notes thereto are immediately preceding the signature page of this
Annual Report on Form 10-KSB.





Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.





None





Item 8A(T). Controls and Procedures





The
Company’s management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is designed to ensure that information required to
be disclosed by the Company in the reports that the Company files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer’s management, including its principal executive
officer or officers and principal financial officer or officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.





In
accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was
completed under the supervision and with the participation of the Company’s
management, including the Company’s principal executive officer and principal
financial officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures as of the end of the period covered
by this Annual Report. Based on that evaluation, the Company’s Principal
Executive Officer and Principal Financial Officer concluded that the Company’s
disclosure controls and procedures are effective, to provide reasonable
assurance that information required to be disclosed in the Company’s reports
filed or submitted under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the Commission’s rules and
forms. There have been no changes to the Company’s internal controls over
financial reporting that occurred during our last fiscal quarter of the year
ended December 31, 2007, that materially affected, or were reasonably likely to
materially affect, our internal controls over financial reporting.




Report
of Management on Internal Control Over Financial Reporting
  This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting or an attestation report of the
Company’s registered public accounting firm due to a transition period
established by the rules of the Securities and Exchange Commission for newly
public companies.


Item 8B. Other Information.







None








21





PART
III





Item 9. Directors, Executive Officers, Promoters, Control Persons and
Corporate Governance; Compliance with Section 16(a) of the Exchange
Act.





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
            
            65
            
            President
      and Director
            
            2004John
      F. Passalaqua
            
            72
            
            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.





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.








22





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.  As of the date hereof, our executive officers and
directors: Carl E. Worboys (President and Director) and John F. Passalaqua
(Chief Financial Officer, Secretary and Director) and the stockholders listed in
Item 11 who beneficially own more than 10% of our common stock have not filed
their Forms 3, 4 or 5 with the Securities and Exchange
Commission.  Such persons are anticipated to file such forms in the
future.





Code
of Ethics





We have
not adopted a Code of Business Conduct and Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions in that our officers and
directors serves in all the above capacities.





Item 10. Executive Compensation.




No
compensation has been awarded to, earned by or paid to our officers or directors
since our inception in 2002. Management has agreed to act without compensation
until authorized by our Board of Directors. As of the date of this Annual
Report, 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, 2007, no director
expenses were reimbursed.





Employment
Agreements





The
Company is not a party to any employment agreements.








23





Item 11.  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 assuming the completion of the spin-off to
stockholders of record as of August 31, 2006, the Record Date. 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 Ownership
              (1)Sino
      Gas International Holdings, Inc.
              The
      Farmhouse
              558
      Lime Rock Road
              Lime
      Rock, CT  06039
            5,100,000
            100%Carl
      E. Worboys
              President
      and Director
            0
            --John
      F. Passalaqua
              Chief
      Financial Officer, Secretary and Director
            0
            --All
      Officers and Directors as a group (without naming them) (2
      persons)
            0
            --




(1)
            Based
      on 5,100,00 shares of common to stock issued and outstanding as of
      December 31, 2007 and reflects a 5,100 to one (5,100:1) forward stock
      split, for an aggregate of 5,100,000 shares of common stock, effected on
      May 15, 2007.








Summary
of Trust Agreement





On
November 1, 2007, a trust agreement (the “Trust” or “Agreement”) was entered
into between Sino Gas International Holdings, Inc. (“Sino”) and Carl Worboys,
Esq. (“Trustee”). It was resolved by the Board of Directors of Sino that 100% of
the shares of Pegasus Tel, Inc., (“Pegasus”) a wholly-owned subsidiary of Sino,
be distributed pro rata to the Shareholders of Sino, effectively spinning off
Pegasus from Sino to operate as an independent entity not affiliated with
Sino.





24





In order
to legally effectuate this distribution of shares, Pegasus is required to file
an information statement with the Securities and Exchange Commission (“SEC” or
“Commission”). As of the date of this annual report, no information statement
has been filed with the SEC. The parties have agreed to place all of the
distribution shares in the custody of the Trustee, an Attorney at Law, pending
the filing and Notice of Effectiveness with the SEC of the required information
statement.





The
Trustee shall hold the distribution shares in trust for the benefit of the Sino
shareholders, and is not legally permitted to distribute such shares until all
of the conditions of the spinoff have occurred.





See Exhibit 10.1 attached hereto for
the complete text of the Trust Agreement.







Securities
Authorized for Issuance under Equity Compensation Plans




None.





Item 12. Certain Relationships and Related Transactions, and
Director Independence





Except as
set forth below, no transactions have occurred since the beginning of the
Company’s last fiscal year or are proposed with respect to which a director,
executive officer, security holder owning of record or beneficially more than 5
% of any class of the Company’s securities or any member of the immediate
families of the foregoing persons had or will have a direct or indirect material
interest:








Item 13. Exhibits and Reports on Form 8-K





(a)           The
following exhibits required by Item 601 of Regulation S-B are filed with this
Annual Statement.








Exhibit
      No.
            Description3.1*
            Articles
      of Incorporation, dated February 19, 20023.2*
            Amended
      Articles of Incorporation, dated September 21, 20063.3*
            Amendment
      to the Articles of Incorporation, dated September 18,
  2006.3.4**
            Amendment
      to Articles of Incorporation, date May 15, 20073.5*
            By-laws4.1*
            Form
      of Common Stock Certificate10.1
            Trust
      Agreement – Carl E. Worboys31.1
            Rule
      13a-14/15d-14(a) Certification of Carl E. Worboys31.2
            Rule
      13a-14/15d-14(a) Certification of John F. Passalaqua32.1
            Section
      1350 Certification of Carl E. Worboys32.2
            Section
      1350 Certification of John F.
Passalaqua





* Filed
as an exhibit to the Company’s Form 10-SB/Amendment No. 1 (File No.: 000-52628)
filed with the SEC on May 7, 2007 and incorporated by reference
herein.





**Filed as an exhibit to the
Company’s Form 10-SB (File No.: 000-52628) filed with the SEC on October 16,
2007 and incorporated by reference herein.








(b)           Reports
on Form
8-K.                                           None








25





Item 14.  Principal Accountant Fees and
Services





Robison,
Hill & Co. is the Company’s independent registered public accounting firm.
The Company does not have a separately standing audit committee. The Company’s
Board of Directors, which consists of two members, Carl Worboys, the Company’s
President, and John F. Passalaqua, the Company’s Chief Financial Officer,
perform the duties and responsibilities of the audit committee, including the
appointment and oversight of the Company’s independent registered public
accounting firm.





Audit
Fees





The
aggregate fees billed by Robison, Hill & Co. for professional services
rendered for the audit of our annual financial statements and review of
financial statements included in our Form 10-KSB or services that are normally
provided in connection with statutory and regulatory filings were $ 15,430and
$0 for fiscal year ended December 31, 2007 and 2006,
respectively.








Audit-Related
Fees





Robison,
Hill & Co.  fees billed for assurance and related services related
to the audit or review of the Company’s financial statements were $0
and  $0 for the fiscal years ended December 31, 2007 and 2006,
respectively.





Tax
Fees





Robison,
Hill & Co. fees billed for professional services for tax compliance, tax
advice, and tax planning were $170 and $0 for the fiscal years ended December
31, 2007 and 2006.





All
Other Fees





Robison,
Hill & Co. fees billed for other products and services were $ 0 for the
fiscal years ended December 31, 2007 and 2006.











26








































PEGASUS
TEL, INC.


(A
Development Stage Company)











-:-











INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS’ REPORT








DECEMBER
31, 2007





















































CONTENTS








PageIndependent Registered Public Accountants’
      Report
            F -1Balance SheetsDecember 31, 2007 andDecember 31, 2006
            F - 3Statements of Operations for the year ended December 31, 2007
      andFor the year ended December 31, 2006 and the cumulative period
      fromFebruary 19, 2002 (inception) to December 31,
      2007
            F - 4Statement of Stockholders' EquitySince February 19, 2002 (inception) to December 31,
      2007
            F - 5Statements of Cash Flows for year ended December 31, 2007
      andfor the year ended December 31, 2006 and  the
      cumulative period fromFebruary 19, 2002 (inception) to December 31,
      2007
            F - 6Notes to Financial Statements
            F - 7













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 ACCOUNTANTS
 
 Pegasus
Tel, Inc.
 (A
Development Stage Company)
 
 We have
audited the accompanying balance sheets of Pegasus Tel, Inc (a development stage
company) as of December 31, 2007, and 2006, and the related statements of
operations, and cash flows for the years ended December 31, 2007, and 2006, and
the cumulative since February 19, 2002 (inception) to December 31, 2007, and the
statement of stockholder’s equity since February 19, 2002 (inception) to
December 31, 2007.  These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
 
 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 (a development
stage company) as of December 31, 2007, and 2006 and the results of its
operations and its cash flows for the years ended December 31, 2007, and 2006
and the cumulative since February 19, 2002 (inception) to December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America.
   F -
1
 
 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 $141,000, 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, Utah
 March 31,
2008


F -
2





PEGASUS TEL, INC.(A
      Development Stage Company)BALANCE
    SHEETSDecember
      31,2007
            
            
            2006Assets:Cash
      and Cash Equivalents
            
            $
            425
            
            
            $
            205Accounts
      Receivable
            
            
            1,911
            
            
            
            240Total
      Current Assets
            
            
            2,336
            
            
            
            445Property
      and Equipment:Payphone
      Equipment
            
            
            12,600
            
            
            
            12,600Less
      Accumulated Depreciation
            
            
            (12,600
            )
            
            
            (12,091
            )Net
      Property and Equipment
            
            
            -
            
            
            
            509Total
      Assets
            
            $
            2,336
            
            
            $
            954Liabilities:Accounts
      Payable
            
            $
            31,409
            
            
            $
            2,962Related
      Party Accounts Payable
            
            
            10,897
            
            
            
            10,897Accrued
      Interest
            
            
            3,441
            
            
            
            95Related
      Party Notes Payable
            
            
            40,300
            
            
            
            5,000Current
      Liabilities
            
            
            86,047
            
            
            
            18,954Total
      Liabilities
            
            
            86,047
            
            
            
            18,954Stockholders'
      Equity:Preferred
      Stock, Par value $0.0001, Authorized 10,000,000shares,
      Issued 0 shares at  December 31, 2007and
      December 31, 2006
            
            
            -
            
            
            
            -Common
      Stock, Par value $0.0001, Authorized 100,000,000shares;
      Issued 5,100,000 shares at  December 31, 2007and
      December 31, 2006
            
            
            510
            
            
            
            510Paid-In
      Capital
            
            
            57,174
            
            
            
            57,174Deficit
      Accumulated During Development Stage
            
            
            (141,395
            )
            
            
            (75,684
            )Total
      Stockholders' Equity
            
            
            (83,711
            )
            
            
            (18,000
            )Total
      Liabilities and Stockholders' Equity
            
            $
            2,336
            
            
            $
            954The
      accompanying notes are an integral part of these financial
      statements.





F -
3





PEGASUS TEL, INC.(A
      Development Stage Company)STATEMENTS OF
      OPERATIONSCumulativeSinceFebruary
      19,2002For
      the Year Ended
            
            
            Inception
      ofDecember
      31,
            
            
            Development2007
            
            
            2006
            
            
            StageRevenues
            
            $
            10,059
            
            
            $
            2,138
            
            
            $
            53,699Costs
      of Services
            
            
            (5,904
            )
            
            
            (6,601
            )
            
            
            (54,943
            )Gross
      Margin
            
            
            4,155
            
            
            
            (4,463
            )
            
            
            (1,244
            )ExpensesAccounting
            
            
            16,200
            
            
            
            7,657
            
            
            
            38,802Advertising
            
            
            -
            
            
            
            770
            
            
            
            770Bookkeeping
            
            
            4,048
            
            
            
            2,272
            
            
            
            6,320General
      and Administrative
            
            
            1,211
            
            
            
            659
            
            
            
            9,001Legal
            
            
            45,000
            
            
            
            -
            
            
            
            58,790Outside
      Services
            
            
            -
            
            
            
            615
            
            
            
            21,983Operating
      Expenses
            
            
            66,459
            
            
            
            11,973
            
            
            
            135,666Other
      (Income) ExpenseInterest,
      Net
            
            
            (3,347
            )
            
            
            (95
            )
            
            
            (3,441
            )Net
      Loss Before Taxes
            
            
            (65,651
            )
            
            
            (16,531
            )
            
            
            (140,351
            )Income
      and Franchise Tax
            
            
            (60
            )
            
            
            (65
            )
            
            
            (1,044
            )Net
      Loss
            
            $
            (65,711
            )
            
            $
            (16,596
            )
            
            $
            (141,395
            )Loss
      per Share, Basic &Diluted
            
            $
            (0.01
            )
            
            $
            (0.00
            )Weighted
      Average SharesOutstanding
            
            
            5,100,000
            
            
            
            5,100,000The
      accompanying notes are an integral part of these financial
      statements.





F -
4





PEGASUS TEL.(A Development Stage
    Company)STATEMENT OF STOCKHOLDERS'
      EQUITYDeficitAccumulatedSinceFebruary
      19,2002
            
            
            TotalInception
      of
            
            
            Stockholders'Common
      Stock
            
            
            Paid
      in
            
            
            Development
            
            
            EquityShares
            
            
            Par
      Value
            
            
            Capital
            
            
            Stage
            
            
            DifficencyBalance
      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
            )The
      accompanying notes are an integral part of these financial
      statements





F -
5




PEGASUS TEL, INC.(A
      Development Stage Company)STATEMENTS OF CASH
      FLOWSCumulativeSinceFebruary
      19,2002For
      the Year Ended
              
              
              Inception
      ofDecember
      31,
              
              
              Development2007
              
              
              2006
              
              
              StageCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss for the Period
              
              $
              (65,711
              )
              
              $
              (16,596
              )
              
              $
              (141,395
              )Adjustments
      to reconcile net loss to net cashprovided
      by operating activities:Depreciation
      and Amortization
              
              
              509
              
              
              
              2,400
              
              
              
              12,600Changes
      in Operating Assets and LiabilitiesDecrease
      (Increase) in Accounts Receivable
              
              
              (1,671
              )
              
              
              2,256
              
              
              
              (1,911
              )Increase
      (Decrease) in Accounts Payable
              
              
              28,447
              
              
              
              (7,807
              )
              
              
              31,409Increase
      (Decrease) in Related Party Payable
              
              
              -
              
              
              
              10,897
              
              
              
              10,897Increase
      (Decrease) in Interest Payable
              
              
              3,346
              
              
              
              95
              
              
              
              3,441Decrease
      (Increase) in Intercompany Dues
              
              
              -
              
              
              
              -
              
              
              
              56,684Net
      Cash Used in Operating Activities
              
              
              (35,080
              )
              
              
              (8,755
              )
              
              
              (28,275
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      cash provided by Investing Activities
              
              
              -
              
              
              
              -
              
              
              
              (11,600
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Related
      Party Notes Payable
              
              
              35,300
              
              
              
              5,000
              
              
              
              40,300Net
      Cash Provided by Financing Activities
              
              
              35,300
              
              
              
              5,000
              
              
              
              40,300Net
      (Decrease) Increase in Cash
              
              
              220
              
              
              
              (3,755
              )
              
              
              425Cash
      at Beginning of Period
              
              
              205
              
              
              `
              
              
              
              -Cash
      at End of Period
              
              $
              425
              
              
              $
              (3,755
              )
              
              $
              425SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATION:Cash
      paid during the year for:Interest
              
              $
              -
              
              
              $
              -
              
              
              $
              -Franchise
      and Income Taxes
              
              $
              60
              
              
              $
              167
              
              
              $
              1,044SUPPLEMENTAL DISCLOSURE OF NON-CASH
      INVESTINGAND FINANCING ACTIVITIES:Accounts
      Payable Satisfied through contributed capitaland
      property and equipment
              
              $
              -
              
              
              $
              56,684
              
              
              $
              56,684The
      accompanying notes are an integral part of these financial
      statements.


F -
6





PEGASUS TEL,
INC.


(A Development Stage
Company)


NOTES TO
FINANCIAL STATEMENTS


December 31,
2007








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
$ 141,400 for the period from February 19, 2002 (inception) to December 31,
2007, 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.





F -
7





PEGASUS TEL,
INC.


(A Development Stage
Company)


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(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.





F -
8





PEGASUS TEL,
INC.


(A Development Stage
Company)


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(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, 2007 and 2006, 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, 2007 and 2006, the Company has
determined an allowance for doubtful accounts is not necessary.





F -
9





PEGASUS TEL,
INC.


(A Development Stage
Company)


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(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 $425 and
$205 as of December 31, 2007 and 2006 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 $ 1,911 and $ 240 in 2007 and 2006
respectively.





Fixed
Assets





Fixed
assets are stated at cost. Depreciation expense for the years ended December
2007 and 2006 were $509 and $2,400 respectively. Depreciation and amortization
are computed using the straight-line and accelerated methods over the estimated
economic useful lives of the related assets as follows:





Asset
            
            RatePayphone
      Equipment
            
            5
      years





Upon sale
or other disposition of property and equipment, the cost and related accumulated
depreciation or amortization are removed from the accounts and any gain or loss
is included in the determination of income or loss. Expenditures for maintenance
and repairs are charged to expense as incurred.  Major overhauls and
betterments are capitalized and depreciated over their estimated economic useful
lives.





Maintenance
and repairs are charged to operations; betterments are
capitalized.  The cost of property sold or otherwise disposed of and
the accumulated depreciation thereon are eliminated from the property and
related accumulated depreciation accounts, and any resulting gain or loss is
credited or charged to income.








F -
10





PEGASUS TEL,
INC.


(A Development Stage
Company)


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(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.





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, 2007 and 2006.





Financial
Instruments





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





Income
Taxes





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








F -
11





PEGASUS TEL,
INC.


(A Development Stage
Company)


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(Continued)





NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Reclassification





Certain
reclassifications have been made in the 2006 financial statements to conform to
the December 31, 2007 presentation.





Recent Accounting
Standards





In
February 2007, the FASB issued SFAS no, 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159
provides companies with an option to report selected financials assets and
liabilities at fair value.  The objective of SFAS 159 is to reduce
both complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities
differently.  Generally accepted accounting principles have required
different measurement attributes for different assets and liabilities that can
create artificial volatility in earnings.  The FASB has indicated it
believes that SFAS 159 helps to mitigate this type of accounting-induced
volatility by enabling companies to report related assets and liabilities at
fair value, which would likely reduce the need for companies to comply with
detailed rules for hedge accounting.  SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities.  SFAS 159 does not eliminate disclosure
requirements included in other accounting standards, including requirements for
disclosures about fair value measurements included in SFAS 157 and SFA No. 107,
“Disclosures about Fair Value of Financial Instruments.”SFAS 159 is effective
for the Company as of the beginning of fiscal year 2008.  The adoption
of this pronouncement is not expected to have an impact on the Company’s
financial position, results of operations or cash flows.





In
December 2007, the FASB issued SPAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary (previously referred to as minority interests). SFAS
160 also requires that a retained noncontrolling interest upon the
deconsolidation of a subsidiary be initially measured at its fair value. Upon
adoption of SFAS 160, the Company would be required to report any noncontrolling
interests as a separate component of stockholders’ deficit. The Company would
also be required to present any net income attributable to the stockholders of
the Company separately in its condensed consolidated statement of operations.
SFAS 160 is effective for fiscal years, and interim periods within
those





F -
12





PEGASUS TEL,
INC.


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(Continued)





NOTE 1 - ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Recent Accounting Standards
(Continued)





fiscal
years, beginning on or after December 15, 2008. SFAS 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS 160 shall be applied prospectively.
SFAS 160 would have an impact on the presentation and disclosure of the
noncontrolling interests of any non-wholly owned business acquired in the
future.





In
December 2007, the Financial Accounting Standards Board ( “FASB”) issued
Statement of Financials Accounting Standards (“SFAS”) No. 141R, “Business
Combinations” (“SFAS 141R”), which replaces SPAS No. 141 “Business
Combinations”. SFAS 141R establishes principles and requirements for determining
how an enterprise recognizes and measures the fair value of certain assets and
liabilities acquired in a business combination, including noncontrolling
interest, contingent consideration, and certain acquired contingencies. SFAS
141R also requires acquisition-related transaction expenses and restructuring
cost be expensed as incurred rather than capitalized a component of the business
combination. SFAS 141R will be applicable prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. SFAS 141R would have
an impact on accounting for any business acquired after the effective date of
this pronouncement.





In March
2008, the FASB issued No. 161, “Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133.  (“SFAS
161").  SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities and thereby improves the transparency of
financial reporting.  This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. This Statement encourages, but does
not require, comparative disclosures for earlier periods at initial
adoption.  Management is currently evaluating the effects of this
statement, but it is not expected to have any impact on the Company’s financial
statements.





F -
13





PEGASUS TEL,
INC.


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(Continued)


NOTE 2 - INCOME
TAXES





As of
December 31, 2007, the Company had a net operating loss carry forward for income
tax reporting purposes of approximately $ 132,437 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.








2007
            
            
            2006Net
      Operating Losses
            
            $
            45,029
            
            
            $
            22,600Valuation
      Allowance
            
            
            (45,029
            )
            
            
            (22,600
            )$
            - -
            
            
            $______ -_





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








2007
            
            
            2006Provision
      (Benefit) at US Statutory Rate
            
            $
            22,342
            
            
            $
            5,600Other
      Adjustments
            
            
            87
            
            
            
            -Increase
      (Decrease)_in Valuation Allowance
            
            
            (22,429
            )
            
            
            (5,600
            )         -$
            -
            
            
            $
            -





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.





F -
14





PEGASUS TEL,
INC.


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(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, 2007, 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 2007.  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
2004. The following describes the open tax years, by major tax jurisdiction, as
of January 1, 2007:





United
      States (a)
            
            2004–
      Present





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








F -
15





PEGASUS TEL,
INC.


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(Continued)





NOTE 5 -
COMMITMENTS





As of
December 31, 2007, 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.





NOTE 7-CONTRIBUTED
CAPITAL





As of
September 9, 2006, Dolce Ventures Inc., the parent company of Pegasus Tel, Inc.,
had a receivable outstanding with the Company in the amount of $56,684. As of
December 31, 2007 Dolce Ventures Inc. forgave this balance and the Company
recorded a contributed capital in the amount of $56,684.





NOTE 8 – INTERCOMPANY
TRANSACTIONS





As
Pegasus Tel, Inc. is the subsidiary of Dolce Ventures Inc., all transactions
between the companies were considered Intercompany Dues.  These
transactions included investments and contributions to Pegasus Tel, Inc. from
Dolce Ventures Inc. to cover outside expenses and liabilities to maintain the
corporation since inception of the Company.  During 2006 Dolce forgave
this payable in the amount of $56,684








F -
16





PEGASUS TEL,
INC.


NOTES TO FINANCIAL
STATEMENTS


December 31,
2007


(Continued)





NOTE 9 – RELATED PARTY
ACCOUNTS PAYABLE





During
2006, an Officer of the Company, Joseph Passalaqua, has advanced the company
$10,673. This is an accounts payable. As of December 31, 2006 and 2007 the
Company owes $10,673.





During
2006, an Officer of the Company, Carl Worboys, has advanced the Company $224.
This is an accounts payable. As of December 31, 2006 and 2007 the Company owes $
224.





NOTE 10 – RELATED PARTY
NOTES PAYABLE





During
2006 and 2007 an Officer of the Company, Mary Passalaqua, has advanced the
Company $ 35,300.  The notes are accruing 10% simple interest per
annum and are payable in full upon demand. As of December 31, 2006 and 2007, the
Company owed $ 5,000 and $ 35,300 related to these notes and had accrued $95 and
$ 3,321 in simple interest, respectively.





During
2007, an Officer of the Company, Joseph Passalaqua has advanced the company $
5,000. The note is accruing 10% simple interest per annum and is payable in full
upon demand.  As of December 31, 2007, the company owes $5,000 on the
related to this note and has accrued $25 in simple interest.








F -
17





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




PEGASUS
      TEL, INC.Date:
      March 31, 2008
            By:
            /s/ CARL
      E. WORBOYSCarl
      E. WorboysPresident
      and Director(Principal
      Executive Officer)








In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.








Date
      March 31, 2008
            
            /s/ CARL
      E. WORBOYSCarl
      E. WorboysPresident,
      and Director
              (Principal
      Executive Officer)Date:
      March 31, 2008
            /s/
      JOHN F. PASSALAQUAJohn
      F. Passalaqua
              Chief
      Financial Officer and Director
              (Principal
      Financial and Accounting Officer)