NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Pegasus Tel, Inc. is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Interim Financial Statements
The unaudited financial statements as of March 31, 2012 and the three months then ended, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of the operations for all three months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years.
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires 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.
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis of accounting principles applicable to a “going concern”, which assume that Pegasus Tel., Inc. (hereto referred to as the “Company”) will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.
Several conditions and events cast doubt about the Company’s ability to continue as a “going concern.” The Company has incurred net losses of approximately $(19,544,045) for the period from February 19, 2002 (inception) to March 31, 2012, 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.
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Table of Content
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PEGASUS TEL, INC. AND SUBSIDIARY
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A Development Stage Company)
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CONSOLIDATED
NOTES
TO FINANCIAL STATEMENTS
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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Continued
If the Company were unable to continue as a “going concern,” then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses, and the balance sheet classifications used.
Organization and Basis of Presentation
On February 19, 2002, Pegasus Tel, Inc., a Delaware company, was formed as a wholly owned subsidiary of American Industries.
On March 28, 2002, American Industries, Inc. and Pegasus Tel, Inc. entered into an agreement with Pegasus Communications, Inc., a New York corporation, to acquire 100% of the outstanding shares of Pegasus Communications, Inc. in exchange for 72,721,966 shares of common stock of American Industries, Inc. Pegasus Tel, Inc. continued as the surviving corporation and Pegasus Communications, Inc. was merged out of existence.
On March 12, 2012 the Company consummated an acquisition agreement to purchase 100% of the outstanding shares of Blue Bull Ventures B.V. for the issuance of 2,436,453 shares of preferred stock series D (referenced in note 12).
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. In addition to the principal operations, the Company plans to expand operations through its acquired subsidiary Blue Bull Ventures B.V. (reference note 12). The Company intends to engage in global investment banking, business consulting and business development business.
Principles of Consolidation
The consolidated financial statements include the accounts of Pegasus Tel, Inc. and its wholly-owned subsidiary Blue Bull Ventures B.V., a Dutch corporation, that was acquired on March 21, 2012. All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Revenue Recognition
The Company derives its primary revenue from the sources described below, which includes Dial Around revenues, coin collections, telephone equipment repairs, and sales. Other revenue generated by the company includes sales commissions.
Coin revenues are recorded in an equal amount to the coins collected. Revenues on commissions and telephone equipment and sales are realized on the date when the telephone repair services are provided or the telecommunication supplies are received by the customer. Dial Around revenues are earned when a customer uses the Company’s payphone to gain access to a different long distance carrier than is already programmed into the phone. The Dial Around revenue is recognized when the billing and collection agent of the Company, APCC, calculates and compensates the Company for the use of the payphone on a quarterly basis by billing the actual party’s long distance carrier that received the calls. The date of the Dial Around revenue recognition is determined when this compensation is collected and deposited into the Company’s bank account.
The Company was incorporated under the laws of the State of Delaware on February 19, 2002 to enter into the telecommunication business.
On March 28, 2002, American Industries, Inc. and the Company 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. The Company continued as the surviving corporation and Pegasus Communications, Inc. was merged out of existence.
On September 21, 2006, the Company filed Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware increasing its authorized capital to 110,000,000 shares, of which 100,000,000 shares were designated as Common Stock, par value $0.0001 per share, and the remaining 10,000,000 as Preferred Stock, par value $0.0001 per share. The designations and the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of such shares shall be determined by the Board of Directors from time to time, without stockholder approval.
On May 7, 2007, the Company filed a Registration Statement on Form 10-SB (File No.: 0-52628), or the Registration Statement, with the U.S. Securities and Exchange Commission (the "SEC") to register the Company's common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Registration Statement went effective on July 6, 2007 through the operation of law 60 days after its initial filing. On March 23, 2009, we filed with the SEC a Form 15 to deregister our common stock under Section 12(g) of the Exchange Act and to terminate our status as a reporting company under the Exchange Act.
On May 15, 2007, the Company filed an Amended Certificate of Incorporation with the Secretary of State of the State of Delaware to effectuate a forward stock split 5,100 to 1. This change is retro-active and therefore changes the 1,000 shares of common stock issued on December 31, 2003 to 5,100,000 shares of common stock. The par value remained at $.0001 per share.
On August 5, 2008, the Company filed a Certificate of Designations, Powers, Preferences and Rights (the “August 2008 Certificate of Designation”) with the Secretary of State of the State of Delaware thereby designating 2,000,000 shares of preferred stock as Series A Convertible Preferred Stock, $0.0001 (the “Series A Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of the Company. Prior to the filing of the August 2008 Certificate of Designation, there were no shares of preferred stock designated or issued. Pursuant to the Certificate of Designation, each share of Series A Preferred Stock may be converted at any time by the Company or the holders thereof into ten (10) fully-paid and non-assessable shares of the Company's Common Stock.
On August 15, 2008, the Company issued an aggregate of 1,800,000 shares of Series A Preferred Stock to an aggregate of 17 individuals pursuant to a Securities Purchase Agreement for $0.0001per share of Series A Preferred Stock. The Company issued the Series A Preferred Stock pursuant to an exemption under Section 4(2) of the Securities Act due to the fact that it did not involve a public offering of securities. The shares of Series A Preferred Stock were “restricted securities” (as such term is defined in the Securities Act).
On August 18, 2008, Sino Gas International Holdings, Inc., a Utah corporation, or Sino, (OTCBB: SGAS), our former parent company, distributed to its stockholders of record as of August 15, 2008, 100% of the issued and outstanding common stock of Pegasus. The ratio of distribution was one (1) share of common stock of our Company for every twelve (12) shares of common stock of Sino (1:12). Fractional shares were rounded up to the nearest whole-number. An aggregate of 2,215,136 shares of our Company's common stock were issued pursuant to the distribution to an aggregate of 167 Sino stockholders. The Company's common stock issued were and remain “restricted securities” (as defined in Rule 144 of the Securities Act of 1933, as amended).
On August 18, 2008 and pursuant to the August 2008 Certificate of Designation, the Company converted an aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of 18,000,000 shares of the Company's common stock. The Company issued the common stock pursuant to Section 3(a)(9) of the Securities Act due to the fact that the securities were exchanged upon conversion of the Series A Preferred Stock held by existing security holders and there was no commission or other remuneration paid or given directly or indirectly for soliciting such exchange.
On March 23, 2009, the Company filed a Form 15 (File No. 000-52628) with the SEC pursuant to which the Company de-registered its class of Common Stock under the Securities Exchange Act of 1934, as amended.
On October 15, 2009, the Company filed a Form S-1 Registration Statement with the SEC and on December 28, 2009 the Company’s Registration Statement went effective.
On February 8, 2011, the Company signed and filed on February 10, 2011 a Certificate of Designations, Powers, Preferences and Rights (the “February 2011 Certificate of Designation”) with the Secretary of State of the State of Delaware thereby cancelled the 2,000,000 Series A Preferred Stock and designated 10,000,000 shares of preferred stock as Series B Convertible Preferred Stock, $0.0001 (the “Series B Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the February 2011 Certificate of Designation, there were 2,000,000 shares of preferred stock designated or issued which were herby cancelled. Pursuant to the February 2011 Certificate of Designation, each share of Series B Preferred Stock may be converted at any time by Pegasus or the holders thereof into 1.49025 post-reverse fully-paid and non-assessable shares of the Company's Common Stock.
On June 13, 2011, the Company signed and filed an Amendment to Certificate of Designations, Powers, Preferences and Rights (the “Amended Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 7,000,000 shares of preferred stock as Series B Convertible Preferred Stock, $0.0001 (the “Amended Series B Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were 10,000,000 shares of Series B Preferred Stock designated or issued which were herby amended. Pursuant to the Amended Certificate of Designation, each share of Amended Series B Preferred Stock may be converted at any time by Pegasus or the holders thereof into 1,711.156 post-reverse fully-paid and non-assessable shares of the Company's Common Stock.
On June 13, 2011, the Company signed and filed a Certificate of Designations, Powers, Preferences and Rights (the “ June 2011 Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 1,000,000 shares of preferred stock as Series C Convertible Preferred Stock, $0.0001 (the “Series C Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were 7,000,000 shares of Amended Series B Preferred Stock designated or issued. Pursuant to the June 2011 Certificate of Designation, each share of Amended Series C Preferred Stock may be converted at any time by Pegasus or the holders thereof into one (1) fully-paid and non-assessable shares of the Company's Common Stock and the voting rights of three hundred fifty (350) shares.
On June 6, 2011, the Company entered into a Asset Purchas Agreement (the "Purchase Agreement") which was superseded on July 14, 2011 (the "Amended Purchase Agreement") with Encounter Technologies, Inc., a Colorado Corporation trading publicly on the Over-the-Counter under the symbol ENTI.PK ("Encounter"). Pursuant to the Amended Purchase Agreement, Pegasus acquired all of Encounter’s rights, title, and interest in and to certain assets and liabilities of Encounter relating to MusicMatrix.com (“MusicMatrix.com”) in consideration of 6,995,206 shares of the Company's Amended Series B Preferred Stock.
On June 30, 2011, the Company signed and filed an July 5, 2011 Amended Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the authorized to twenty billion (20,000,000,000) of which nineteen billion nine hundred ninety million (19,990,000,000) shall be designated as common shares and ten million (10,000,000) shall be designated as preferred shares. The par value remained at $.0001 per share.
On September 26, 2011, the Company signed and filed on September 29, 2011 an Amended Certificate of Incorporation with the Secretary of State of the State of Delaware to declare a four (4%) percent forward stock split for shareholders of record on September 28, 2011. The forward split was never approved by the Financial Industry Regulatory Authority ("FINRA") and was cancelled by the Company on April 9, 2012.
On March 12, 2012, the Company signed and filed on March 15, 2012 an Amendment to Certificate of Designations, Powers, Preferences and Rights (the “March 2012 Amended Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 1,000,000 shares of preferred stock as Series C Convertible Preferred Stock, $0.0001 (the “Amended Series C Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were 7,000,000 shares of Amended Series B Preferred Stock designated or issued and 1,000,000 shares of Series C Preferred Stock designated or issued. Pursuant to the March 2012 Amended Certificate of Designation, each share of Amended Series C Preferred Stock may be converted at any time by Pegasus or the holders thereof into one (1) fully-paid and non-assessable shares of the Company's Common Stock and the voting rights of twenty thousand (20,000) shares.
On March 12, 2012 the Company issued an aggregate of 1,000,000 shares of Amended Series C Preferred Stock to Total-Invest International B.V., a Dutch limited liability company ("Total-Invest") pursuant to a Securities Purchase Agreement for $0.0001per share of Series C Preferred Stock. The Company issued the Series C Preferred Stock pursuant to an exemption under Section 4(2) of the Securities Act due to the fact that it did not involve a public offering of securities. The shares of Series C Preferred Stock were “restricted securities” (as such term is defined in the Securities Act).
On March 21, 2012, the Company entered into a Rescission Agreement with Encounter. The Company and Encounter canceled and rescinded the Purchase Agreement and the Amended Purchase Agreement and declared them to be null and void, ab initio, for all purposes, including, without limitation, for tax purposes. In addition the Company and Encounter agreed that the 6,995,206 shares of the Company's Amended Series B Preferred Stock issued in connection with the Amended Purchase Agreement were cancelled by the Company in accordance with Section 3 of the Amended Certificate of Designation. As a
result of the rescissions and cancellations MusicMatrix.com was returned to Encounter and each party was in the same position it was in immediately prior to the consummation of the Amended Purchase Agreement.
On March 21, 2012, the Company signed and filed on March 26, 2011 in accordance with the Rescission Agreement with Encounter, a Certificate of Elimination of Designations, Powers, Preferences and Rights (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware thereby eliminating the 7,000,000,000 Amended Series B Convertible Preferred Stock, The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Elimination, there were 7,000,000 shares of Amended Series B Preferred Stock designated or issued and 1,000,000 shares of Series C Preferred Stock designated or issued.
On March 21, 2012, the Company signed and filed on March 26, 2012 a Certificate of Designations, Powers, Preferences and Rights (the “ March 2012 Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 3,000,000 shares of preferred stock as Series D Convertible Preferred Stock, $0.0001 (the “Series D Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were1,000,000 shares of Amended Series C Preferred Stock designated or issued. Pursuant to the March 2012 Certificate of Designation, each share of Amended Series D Preferred Stock may be converted at any time by Pegasus or the holders thereof into twenty thousand (20,000) fully-paid and non-assessable shares of the Company's Common Stock and have no voting rights.
On March 21, 2012, the Company acquired Blue Bull Ventures B.V., a Dutch limited liability company that provides venture capital from European private equity and institutional investors as well as advisory and management resources to emerging companies throughout the world, primarily in Europe, including providing financial advice and resources on mergers, acquisitions, restructuring, financing and capital raising from Total-Invest for 2,436,453 Series D Preferred Stock of the Company.
We are subject to the information reporting requirements of the Exchange Act, and accordingly, are required to file periodic reports, including quarterly and annual reports and other information with the Securities and Exchange Commission. Any person or entity may read and copy our reports with the Securities and Exchange Commission at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Room by calling the SEC toll free at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov where reports, proxies and informational statements on public companies may be viewed by the public.
Services and Products
We own, operate and manage privately owned public payphones in the County of Delaware, State of New York. As of December 31, 2011, we owned, operated, and managed 11 payphones. The Company does not have any long-term agreements with the customers of these payphones and they may terminate our license to operate at will. We may pay site owners a commission based on a flat monthly rate or on a percentage of sales. Some of the businesses include, but are not limited to, retail stores, convenience stores, bars, restaurants, gas stations, colleges and hospitals. In the alternative, our agreement with business owners may be to provide the telecommunications services without the payment of any commissions.
The Company on March 21, 2012 acquired Blue Bull Ventures B.V., a Dutch limited liability company that provides venture capital from European private equity and institutional investors. In addition, Blue Bull provides advisory and management resources to emerging companies throughout the world, primarily in Europe, including providing financial advice and resources on mergers, acquisitions, restructuring, financing and capital raising. The Company long term strategic plan is to expand this operation both in Europe and the United States.
The local telephone switch controls the traditional payphone technology. The local switch does not provide any services in the payphone that can benefit the owner of the phone. As we purchase phones from other companies, we upgrade them with "smart card" payphone technology which we license from Quortech. The upgrade is a circuit board with improved technology. The “smart card” technology allows us to determine the operational status of the payphone. It also tells us when the coins in the phone have to be collected, the number and types of calls that have been made from each phone, as well as other helpful information that helps us provide better service to our payphone using public. This upgrade of the phones reduces the number and frequency of service visits due to outages and other payphone-related problems and, in turn, reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry including Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays.
Payphone users can circumvent the usual payment method and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around” numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications Commission, or the FCC, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service providers receive compensation for these “dial-around” calls.
The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC).
Market and Competition
The market in which we do business is highly competitive and constantly evolving. We face competition from the larger and more established companies -- from companies that develop new technology, as well as the many smaller companies throughout the country. The last several years have shown a marked increase in the use of cellular phones and toll free services which cut into our potential payphone customer base. Companies that have greater resources, including but not limited to, a larger sales force, more money, larger manufacturing capabilities and greater ability to expand their markets also cut into our potential payphone customers. Many of our competitors have longer operating histories, significantly greater financial strength, nationwide advertising coverage and other resources that we do not have. Our competitors might introduce a less expensive or more improved payphone. These, as well as other factors can have a negative impact on our income.
The competition from cellular phones is a very serious threat that can result in substantially less revenue per payphone. We have attempted to address this issue by avoiding locations that service business travelers. For many years, these locations were the most lucrative, but now they are the locations most impacted by the cellular user.
The large former Bell companies and other large companies who provide local service dominate the industry. These companies have greater financial ability than us, and provide the greatest competitive challenge. However, we compete with these companies by paying a commission to the site owner. The commission is an enticement for the site owner to use our phone on its site. We believe we are able to provide a higher quality customer service because the phones alert us to any technical difficulties, and we can service them promptly. The ability to immediately know that a problem exists with a payphone is very important because down time for a phone means lost revenue for us.
Significant Customers
We do not rely on a major customer for our revenue. We have a variety of small single businesses as well as some small chain stores that we service. We do not believe that we would suffer dramatically if any one customer or small chain decided to stop using our phones.
Significant Vendors
We must buy dial tone for each payphone from the local exchange carrier. As long as we pay the carrier bill, it is required to provide a dial tone. As a regulated utility, the exchange carrier may not refuse to provide us service. Alternate service exists in certain areas where Verizon competitors are located. We use alternate local service providers when we can get a better price for the service. We use long distance providers on all the payphones.
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
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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
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Our services are subject to the jurisdiction of the Federal Communications Commission (FCC) with respect to interstate telecommunications services and other matters for which the FCC has jurisdiction under the Communications Act of 1934, as amended.
Payphone users can circumvent the usual payment method and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around” numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications Commission, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service providers receive compensation for these “dial-around” calls.
The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). If the FCC regulation requiring sellers of long distance toll free services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream. We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the future. It is possible for future regulations to be so financially demanding that they cause us to go out of business. We are not aware of any proposed regulations or changes to any existing regulations.
Telecommunications Act of 1996
The Telecommunications Act of 1996, regulatory and judicial actions and the development of new technologies, products and services have created opportunities for alternative telecommunication service providers, many of which are subject to fewer regulatory constraints. We are unable to predict definitively the impact that the ongoing changes in the telecommunications industry will ultimately have on our business, results of operations or financial condition. The financial impact will depend on several factors, including the timing, extent and success of competition in our markets, the timing and outcome of various regulatory proceedings and any appeals, and the timing, extent and success of our pursuit of new opportunities resulting from the Telecommunications Act of 1996 and technological advances.
Research and Development
We have not expended any money in the last two fiscal years on research and development activities.
Seasonality
Our revenues from payphone operation are affected by seasonal variations, geographic distribution of payphones and type of location. Because we operate in the northeastern part of the country with many of the payphones located outdoor, weather patterns affect our revenue streams. Revenues drop off significantly during winter and conversely show an increase in the spring and summer. Revenues are generally lowest in the first quarter and highest in the third quarter.
Employees
The company does not have any employees. Jerry Gruenbaum is our Chief Executive Officer, President, Secretary and Director and Nathan Lapkin is our Chief Financial Officer.
Besides its officers, management of the Company expects to use consultants, attorneys, and accountants as necessary, and does not anticipate a need to engage any other full-time employees until absolutely necessary for the operations of the Company. The need for employees and their availability will be addressed in connection with the scope and requirements of the operations of the Company.
Trading market
Our common stock is quoted on the OTC Electronic Bulletin Board (OTCBB) under the symbol PTEL.
Dividend Policy
We have never paid dividends. We do not intend to declare any dividends in the foreseeable future. We presently intend to retain earnings, if any, for the development and expansion of our business.
Industry Trends
We operate 11 payphones in upstate New York. However, industry trends in the payphone industry are not specific to upstate New York; but, rather, mirror what is happening in the industry nationwide. Over the past years, more and more people are opting to use personal cell phones to communicate as compared to pay phones. Cell phone technology has advanced over the recent years and competition has made cell phones and cell phone service plans more affordable to the average consumer. Pay phones have had a hard time competing with cell phones and we do not see this changing in the foreseeable future. Consumers might opt to use pay phones in areas where cell phone reception is nonexistent or unreliable or when consumers do not wish to incur charges for minutes used on their cell phone. This is not specific to upstate New York but apply to the cell phone industry nationwide.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. The amounts of assets and liabilities reported in our balance sheet, and the amounts of revenues and expenses reported for each of our fiscal periods, are affected by estimates and assumptions which are used for, but not limited to, the accounting for allowance for doubtful accounts, goodwill and intangible asset impairments, restructurings, inventory and income taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of our consolidated financial statements.
Use of Estimates
It is important to note that when preparing the financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain estimates and assumptions that affect the amounts reported and disclosed in the financial statements and related notes. Actual results could differ if those estimates and assumptions approve to be incorrect.
On an ongoing basis, we evaluate our estimates, including those related to estimated customer life, used to determine the appropriate amortization period for deferred revenue and deferred costs associated with licensing fees, the useful lives of property and equipment and our estimates of the value of common stock for the purpose of determining stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Revenue Recognition Policies
The Company recognizes revenues in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition." SAB 104 clarifies application of U. S. generally accepted accounting principles to revenue transactions. As of the year ended December 31, 2011 and December 31, 2010, there was no deferred revenue. The Company derives its primary revenue from the sources described below, which includes dial-around revenues, operator service revenue, coin collections, telephone equipment repairs, and sales. Other revenue generated by the company includes sales commissions.
The Dial Around revenue is recognized when the billing and collection agent of the Company, APCC, calculates and compensates the Company for the use of the payphone on a quarterly basis by billing the actual party’s long distance carrier that received the calls. The date of the Dial Around revenue recognition is determined when this compensation is collected and deposited into the Company’s bank account.
The Operator Service revenue is recognized when the collection agents of the Company, Legacy Long Distance and US Intercom calculates and compensates the Company for the use of operator services on a monthly basis. The date of the Operator Service revenue recognition is determined when this compensation is collected and deposited into the Company’s bank account.
Coin revenues are recorded in an equal amount to the coins collected.
Revenues on commissions, telephone equipment and sales are realized when the services are provided and payment for such services is deemed certain.
Off- Balance Sheet Arrangements
We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents to the extent the funds are not being held for investment purposes.
SERVICES AND PRODUCTS
We own, operate and manage privately owned public payphones in the County of Delaware, State of New York. As of March 31, 2012, we owned, operated and managed 11 payphones. We may pay site owners a commission based on a flat monthly rate or on a percentage of sales. Some of the businesses include, but are not limited to, retail stores, convenience stores, bars, restaurants, gas stations, colleges and hospitals. In the alternative, our agreement with business owners may be to provide the telecommunications services without the payment of any commissions.
Seasonality
Our revenues from payphone operation are affected by seasonal variations, geographic distribution of payphones and type of location. Because we operate in the northeastern part of the country with many of the payphones located outdoor, weather patterns affect our revenue streams. Revenues drop off significantly during winter and conversely show an increase in the spring and summer. Revenues are generally lowest in the first quarter and highest in the third quarter.
Our installed payphone base generates revenue from two principal sources: coin-calls and non-coin calls.
1.
Coin calls
:
Coin calls represent calls paid for by customers who deposit coins into the payphones. Coin call revenue is recorded as the actual amount of coins collected from the payphones.
2.
Non-Coin calls
:
Non-coin revenue includes commissions from operator service telecommunications companies and a “dial-around” commission of $0.494 per call that the FCC requires sellers of long distance toll free services to pay payphone owners. The commissions for operator services are paid 45 days in arrears. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC).
If we are unable to achieve or sustain profitability, or if operating losses increase in the future, we may not be able to remain a viable company and may have to discontinue operations. Our expenses have historically exceeded our revenues and we have had losses in all fiscal years of operation, including those in fiscal years 2010 and 2011, and the losses are projected to continue in 2012. Our net losses were $(4,198) and $(37,337) through the quarter ended March 31, 2012 and 2011, respectively. We have a cumulative net loss from February 19, 2002 (Date of Inception) to March 31, 2012 of $(19,544,045). We have been concentrating on the development of our products, services and business plan. There is no assurance that we will be successful in implementing our business plan or that we will be profitable now or in the future.
COSTS RELATED TO OUR OPERATION
The principal costs related to the ongoing operation of our payphones include telecommunication costs, commissions and depreciation. Telecommunication expenses consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance costs. Commission expense represents payments to owners or operators of the premises at which a payphone is located.
GOING CONCERN QUALIFICATION
In their Independent Auditor's Report for the fiscal years ending December 31, 2011 and 2010, Robison, Hill & Co. stated that several conditions and events cast substantial doubt about our ability to continue as a “going concern.” At March 31, 2012, we had $25,341 cash on hand and $135 in accounts receivable. We have incurred a deficit of $(19,544
,045) from our inception to March 31, 2012. See “Liquidity and Capital resources.”
THE QUARTER ENDED MARCH 31, 2012, COMPARED TO THE QUARTER ENDED MARCH 31, 2011.
REVENUES
Our total revenue decreased by $493, from $405 for the quarterr ended March 31, 2011 to $898 for the quarter ended March 31, 2012. This decrease was primarily due to a decline in payphone customers and a lower volume of calls. We foresee revenues decreasing further in light of the growing trend of cell phone use. We anticipate remedying this situation by strategically placing payphones in key areas, especially where cell phone reception is not reliable.
Our non-coin call revenue, or commission income, which is comprised primarily of “dial around” revenue, star 88 commission revenue and operator service revenue decreased for the quarter ended March 31, 2012 primarily due to a decline in payphone customers that made operator assisted calls and a lower volume of total calls. 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).
On March 12, 2012 we acquired Blue Bull Ventures B.V., a Dutch corporation from our control shareholder Total-Invest International B.V. which provides venture capital from European private equity and institutional investors to emerging companies throughout the world. We anticipate this area of our business to grow and generate revenues for us in fiscal year 2012.
COST OF SERVICES
Our overall cost of services decreased by $102, from $792 for the quarter ended March 31, 2011, to $690 for the quarter ended March 31, 2012. The principal costs related to the ongoing operation of our payphones include telecommunication costs, commissions and depreciation. Telecommunication costs consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance costs. Commission expense represents payments to owners or operators of the premises at which a payphone is located and APCC commission fees related to Dial Around processing. There was no Depreciation expense in 2012 or 2011.
As of March 31, 2012 and March 31, 2011, the payphone equipment was fully depreciated.
Once a low revenue payphone is identified, we offer the site owner an opportunity to purchase the equipment. If the site owner does not purchase the payphone, we remove it from the site. Also a correction was made at the central office of Margaretville Telephony Company to provide a higher level of uninterrupted service to increase revenue in the future. We own telephone equipment which provides a service for a number of years. The term of service is commonly referred to as the "useful life" of the asset. Because an asset such as telephone equipment or motor vehicle is expected to provide service for many years, it is recorded as an asset, rather than an expense, in the year acquired. A portion of the cost of the long-lived asset is reported as an expense each year over its useful life and the amount of the expense in each year is determined in a rational and systematic manner.
The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). If the FCC regulation requiring sellers of long distance toll free services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream. We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the future. It is possible for future regulations to be so financially demanding that they cause us to go out of business. We are not aware of any proposed regulations or changes to any existing regulations.
OPERATION AND ADMINISTATIVE EXPENSES
Operating expenses decreased by $27,884, from $31,040 for the quarter ended March 31, 2011 to $3,156 for the quarter ended March 31, 2012.
Professional fees decreased from $24,248 for the quarter ended March 31, 2011 to $2,848 for the quarter ended March 31, 2012. Professional fees include fees the Company pays for accountants, bookkeepers and attorneys throughout the year for performing various tasks. This decrease was primarily due to increase in legal fees from $23,098 for quarter ended March 31, 2011 to $2,848 for quarter ended March 31, 2012 and a decrease in accounting fees from $5,258 for quarter ended March 31, 2011 to $258 for quarter ended March 31, 2012. General and Administrative expenses (G&A) decreased by $1,484 in the quarter ended March 31, 2012. Our expenses to date are largely due to professional fees that include accounting, bookkeeping and legal fees.
LIQUIDITY AND CAPITAL RESOURCES
In their 2011 audit report, our auditors have expressed their doubt as to our ability to continue as a going concern. Our primary source of liquidity has been from borrowing funds from certain executive officers and principal stockholders related to certain of our executive officers. As of quarter ended March 31, 2012 and 2011, we had $25,341 and $285 in cash and cash equivalents respectively. Our net loss for quarter ended March 31, 2012 and 2011 were $(4,198) and $(37,337) respectively. Our accounts receivable for the quarter ended March 31, 2012and 2011 were $135 and $387, respectively. The accumulated deficit as of March 31, 2012 was $ (19,544,045).
As of March 31, 2012, the Company owed $15,766 in Related Party Accounts Payable. As of March 31, 2012 this balance includes $15,542 due to Lyboldt-Daly Inc. for bookkeeping expenses (of which Joseph C. Passalaqua, our former officer and director is President and Sole Director). These amounts are non-interest bearing.
As of March 31, 2012, the Company owed $18,762 in Related Party Notes Payable. These notes are owed to Cobalt Blue LLC, of which Mary Passalaqua, the wife of Joseph C. Passalaqua, our former officer and director is the President. These notes are accruing simple interest between 10%, 15% and 18% annually. As of March 31, 2012, the Company owed a total principle balance of $18,762 related to these notes and had accrued $46,920 in simple interest.
Net cash used in operating activities was $(2,930) during the three-month period ended March 31, 2012, mainly representative of the net loss incurred during 2012. This compares to net cash used in operating activities of $(33,549) during the three-month period ended March 31, 2011
.
Net cash provided by investing activities was $24,136 during three-month period ended March 31, 2012. This compares to net cash provided by investing activities of $0 for the three-month period ended March 31, 2011.
Net cash provided by financial activities was $3,850 during three-month period ended March 31, 2012, representing the proceeds from Related Party Notes in the amount of $2,850 and Preferred Stck issued for cash in the amounts of $1,000. This compares to net cash provided by financing activities of $33,323 during the three-month period ended March 31, 2011 due to proceeds from related party notes of $33,323.
To date, we have had minimal revenues; and we require additional financing in order to finance our business activities on an ongoing basis. Our future capital requirements will depend on numerous factors including, but not limited to, continued progress in finding a merger candidate and the pursuit of business opportunities. We are actively pursuing alternative financing and have had discussions with various third parties, although no firm commitments have been obtained to date. In the interim, shareholders of the Company have committed to meet our minimal operating expenses. We believe that actions presently being taken to revise our operating and financial requirements provide them with the opportunity to continue as a “going concern,” although no assurances can be given.
COMMON STOCK
Our board of directors is authorized to issue 20,000,000,000 shares of Common stock, with a par value of $0.0001. There are an aggregate of 3,510,496,677 shares of Common Stock issued and outstanding, which are held by 228 stockholders as of the date of this Quarterly Report. All shares of our common stock have one vote per share on all matters, including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of the Company's assets available for distribution to them after satisfaction of creditors and preferred stockholders, if any. The holders of our common stock are entitled to equal dividends and distributions per share with respect to the Common Stock when, as and if, declared by the board of directors from funds legally available.
Dividends
We have never declared dividends. We do not intend to declare any dividends in the foreseeable future. We presently intend to retain earnings, if any, for the development and expansion of our business.
Share Purchase Warrants
We have not issued and do not have outstanding any warrants to purchase shares of our common stock.
We do not have a stock option plan in place nor are there any outstanding exercisable for shares of our common stock.
Convertible Securities
On March 12, 2012, the Company issued an aggregate of 1,000,000 shares of Amended Series C Preferred Stock to Total-Invest pursuant to a Securiities Purchase Agreement. Each share of Amended Series C Preferred Stock may be converted at any time by Pegasus or the holders thereof into one (1) fully-paid and non-assessable shares of the Company's Common Stock and the voting rights of twenty thousand (20,000) shares. On March 21, 2012, the Company issued an aggregate of 2,436,453 Series D Preferred Stock to Total-Invest for the acquisition of Blue Bull Ventures B.V., a Dutch limited liability company pursuant to an Acquisition Agreement. Each share of Amended Series D Preferred Stock may be converted at any time by the Company or the holders thereof into twenty thousand (20,000) fully-paid and non-assessable shares of the Company's Common Stock and have no voting rights.
PREFERRED STOCK
Our board of directors is authorized to issue 10,000,000 shares of Common stock, with a par value of $0.0001. There are an aggregate of 3,436,453 shares of Preferred Stock issued and outstanding as of the date of this Annual Report. On March 12, 2012, the Company issued an aggregate of 1,000,000 shares of Amended Series C Preferred Stock to Total-Invest pursuant to a Securiities Purchase Agreement for $1,000. Each share of Amended Series C Preferred Stock may be converted at any time by Pegasus or the holders thereof into one (1) fully-paid and non-assessable shares of the Company's Common Stock and the voting rights of twenty thousand (20,000) shares. On March 21, 2012, the Company issued an aggregate of 2,436,453 Series D Preferred Stock to Total-Invest for the acquisition of Blue Bull Ventures B.V., a Dutch limited liability company pursuant to an Acquisition Agreement. Each share of Amended Series D Preferred Stock may be converted at any time by the Company or the holders thereof into twenty thousand (20,000) fully-paid and non-assessable shares of the Company's Common Stock and have no voting rights.
COMMON AND PREFERRED STOCK TRANSACTIONS
On February 19, 2002, we filed a Certificate of Incorporation with the Secretary of State of Delaware. Our authorized capital was 1,000 shares of common stock, no par value.
On September 21, 2006, we filed an Amended and Restated Certificate of Incorporation increasing our authorized capital to 110,000,000 shares, of which 100,000,000 shares were designated as Common Stock, par value $0.0001 per share, and the remaining 10,000,000 as Preferred Stock, par value $0.0001 per share. The designations and the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of such shares shall be determined by the Board of Directors from time to time, without stockholder approval.
On May 15, 2007, the Company filed an Amended Certificate of Incorporation and there was forward stock split 5,100 to 1. This change is retro-active and therefore changes the 1,000 shares of common stock issued on December 31, 2003 to 5,100,000 shares of common stock. The par value remains at $.0001 per share.
On August 5, 2008, we filed a Certificate of Designations, Powers, Preferences and Rights (the “Certificate of Designation”) with the Secretary of State of the State of Delaware thereby designating 2,000,000 shares of preferred stock as Series A Convertible Preferred Stock, $0.0001 (the “Series A Preferred Stock”). Prior to the filing of the Certificate of Designation, there were no shares of preferred stock designated or issued. Pursuant to the Certificate of Designation, each share of Series A Preferred Stock may be converted at any time by Pegasus or the holders thereof into ten (10) fully-paid and non-assessable shares of Pegasus Common Stock.
On August 15, 2008, Pegasus issued an aggregate of 1,800,000 shares of Series A Preferred Stock to an aggregate of 17 individuals pursuant to a Securities Purchase Agreement for $0.0001per share of Series A Preferred Stock. Pegasus issued the Series A Preferred Stock pursuant to an exemption under Section 4(2) of the Securities Act due to the fact that it did not involve a public offering of securities. The shares of Series A Preferred Stock are “restricted securities” (as such term is defined in the Securities Act).
On August 18, 2008, Sino Gas International Holdings, Inc., a Utah corporation, or Sino Gas, (OTCBB: SGAS), our former parent company, distributed to its stockholders of record as of August 15, 2008, 100% of the issued and outstanding common stock of Pegasus (the “Spin-off”). The ratio of distribution was one (1) share of common stock of Pegasus for every twelve (12) shares of common stock of Sino (1:12). Fractional shares were rounded up to the nearest whole-number. An aggregate of 2,215,136 shares of Pegasus common stock were issued pursuant to the distribution to an aggregate of 167 Sino stockholders. The Pegasus common stock issued were “restricted securities” (as defined in Rule 144 of the Securities Act of 1933, as amended).
On August 18, 2008 and pursuant to the Certificate of Designation, Pegasus converted an aggregate of 1,800,000 shares of Series A Preferred Stock into an aggregate of 18,000,000 shares of Pegasus common stock. Pegasus issued the common stock pursuant to Section 3(a)(9) of the Securities Act due to the fact that the securities were exchanged upon conversion of the Series A Preferred Stock held by existing security holders and there was no commission or other remuneration paid or given directly or indirectly for soliciting such exchange.
On March 23, 2009, Pegasus filed a Form 15 (File No. 000-52628) with the Securities and Exchange Commission pursuant to which the Company de-registered its class of Common Stock under the Securities Exchange Act of 1934, as amended.
On October 15, 2009, the Company filed a Form S-1 Registration Statement with the Securities and Exchange Commission to register the Common Stock under the Securities Exchange Act of 1934, as amended, and on December 28, 2009 the Company’s Registration Statement went effective.
On February 8, 2011, the Company signed and filed on February 10, 2011 a Certificate of Designations, Powers, Preferences and Rights (the “February 2011 Certificate of Designation”) with the Secretary of State of the State of Delaware thereby cancelled the 2,000,000 Series A Preferred Stock and designated 10,000,000 shares of preferred stock as Series B Convertible Preferred Stock, $0.0001 (the “Series B Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the February 2011 Certificate of Designation, there were 2,000,000 shares of preferred stock designated or issued which were herby cancelled. Pursuant to the February 2011 Certificate of Designation, each share of Series B Preferred Stock may be converted at any time by Pegasus or the holders thereof into 1.49025 post-reverse fully-paid and non-assessable shares of the Company's Common Stock.
On June 13, 2011, the Company signed and filed an Amendment to Certificate of Designations, Powers, Preferences and Rights (the “Amended Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 7,000,000 shares of preferred stock as Series B Convertible Preferred Stock, $0.0001 (the “Amended Series B Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were 10,000,000 shares of Series B Preferred Stock designated or issued which were herby amended. Pursuant to the Amended Certificate of Designation, each share of Amended Series B Preferred Stock may be converted at any time by Pegasus or the holders thereof into 1,711.156 post-reverse fully-paid and non-assessable shares of the Company's Common Stock.
On June 13, 2011, the Company signed and filed a Certificate of Designations, Powers, Preferences and Rights (the “ June 2011 Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 1,000,000 shares of preferred stock as Series C Convertible Preferred Stock, $0.0001 (the “Series C Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were 7,000,000 shares of Amended Series B Preferred Stock designated or issued. Pursuant to the June 2011 Certificate of Designation, each share of Amended Series C Preferred Stock may be converted at any time by Pegasus or the holders thereof into one (1) fully-paid and non-assessable shares of the Company's Common Stock and the voting rights of three hundred fifty (350) shares.
On June 6, 2011, the Company entered into a Asset Purchas Agreement (the "Purchase Agreement") which was superseded on July 14, 2011 (the "Amended Purchase Agreement") with Encounter Technologies, Inc., a Colorado Corporation trading publicly on the Over-the-Counter under the symbol ENTI.PK ("Encounter"). Pursuant to the Amended Purchase Agreement, Pegasus acquired all of Encounter’s rights, title, and interest in and to certain assets and liabilities of Encounter relating to MusicMatrix.com (“MusicMatrix.com”) in consideration of 6,995,206 shares of the Company's Amended Series B Preferred Stock.
On June 30, 2011, the Company signed and filed an July 5, 2011 Amended Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the authorized to twenty billion (20,000,000,000) of which nineteen billion nine hundred ninety million (19,990,000,000) shall be designated as common shares and ten million (10,000,000) shall be designated as preferred shares. The par value remained at $.0001 per share.
On September 26, 2011, the Company signed and filed on September 29, 2011 an Amended Certificate of Incorporation with the Secretary of State of the State of Delaware to declare a four (4%) percent forward stock split for shareholders of record on September 28, 2011. The forward split was never approved by the Financial Industry Regulatory Authority ("FINRA") and was cancelled by the Company on April 9, 2012.
On March 12, 2012, the Company signed and filed on March 15, 2012 an Amendment to Certificate of Designations, Powers, Preferences and Rights (the “March 2012 Amended Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 1,000,000 shares of preferred stock as Series C Convertible Preferred Stock, $0.0001 (the “Amended Series C Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were 7,000,000 shares of Amended Series B Preferred Stock designated or issued and 1,000,000 shares of Series C Preferred Stock designated or issued. Pursuant to the March 2012 Amended Certificate of Designation, each share of Amended Series C Preferred Stock may be converted at any time by Pegasus or the holders thereof into one (1) fully-paid and non-assessable shares of the Company's Common Stock and the voting rights of twenty thousand (20,000) shares.
On March 12, 2012 the Company issued an aggregate of 1,000,000 shares of Amended Series C Preferred Stock to Total-Invest International B.V., a Dutch limited liability company ("Total-Invest") pursuant to a Securities Purchase Agreement for $0.0001per share of Series C Preferred Stock. The Company issued the Series C Preferred Stock pursuant to an exemption under Section 4(2) of the Securities Act due to the fact that it did not involve a public offering of securities. The shares of Series C Preferred Stock were “restricted securities” (as such term is defined in the Securities Act).
On March 21, 2012, the Company entered into a Rescission Agreement with Encounter. The Company and Encounter canceled and rescinded the Purchase Agreement and the Amended Purchase Agreement and declared them to be null and void, ab initio, for all purposes, including, without limitation, for tax purposes. In addition the Company and Encounter agreed that the 6,995,206 shares of the Company's Amended Series B Preferred Stock issued in connection with the Amended Purchase Agreement were cancelled by the Company in accordance with Section 3 of the Amended Certificate of Designation. As a
result of the rescissions and cancellations MusicMatrix.com was returned to Encounter and each party was in the same position it was in immediately prior to the consummation of the Amended Purchase Agreement.
On March 21, 2012, the Company signed and filed on March 26, 2011 in accordance with the Rescission Agreement with Encounter, a Certificate of Elimination of Designations, Powers, Preferences and Rights (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware thereby eliminating the 7,000,000,000 Amended Series B Convertible Preferred Stock, The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Elimination, there were 7,000,000 shares of Amended Series B Preferred Stock designated or issued and 1,000,000 shares of Series C Preferred Stock designated or issued.
On March 21, 2012, the Company signed and filed on March 26, 2012 a Certificate of Designations, Powers, Preferences and Rights (the “ March 2012 Certificate of Designation”) with the Secretary of State of the State of Delaware thereby and designating 3,000,000 shares of preferred stock as Series D Convertible Preferred Stock, $0.0001 (the “Series D Preferred Stock”). The Certificate of Incorporation of the Company authorizes the designation and issuance of an aggregate of ten million (10,000,000) shares of preferred stock in one or more series with all rights and privileges determined by the Board of Directors of Pegasus. Prior to the filing of the Certificate of Designation, there were1,000,000 shares of Amended Series C Preferred Stock designated or issued. Pursuant to the March 2012 Certificate of Designation, each share of Amended Series D Preferred Stock may be converted at any time by Pegasus or the holders thereof into twenty thousand (20,000) fully-paid and non-assessable shares of the Company's Common Stock and have no voting rights.
On March 21, 2012, the Company acquired Blue Bull Ventures B.V., a Dutch limited liability company that provides venture capital from European private equity and institutional investors as well as advisory and management resources to emerging companies throughout the world, primarily in Europe, including providing financial advice and resources on mergers, acquisitions, restructuring, financing and capital raising from Total-Invest for 2,436,453 Series D Preferred Stock of the Company.
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 March 31, 2012, we had $25,341 in cash on hand and an accumulated deficit of $(19,544,045), 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 March 31, 2012, we had $25,341 in cash and cash equivalents on hand and an accumulated deficit of $(19,544,045).
As of March 31, 2012, the Company had Related Party Accounts Payable in the amount of $15,542 due to Lyboldt-Daly, Inc. for Bookkeeping expenses. Joseph Passalaqua (a former officer and director of the company) is President and Sole Director of Lyboldt-Daly, Inc.
As of March 31, 2012, the Company owed $18,762 in Related Party Notes Payable. These notes are owed to Shareholders of the Company, Joseph C. Passalaqua, Mary Passalaqua, and Cobalt Blue of which Mary Passalaqua is President. These notes are accruing simple interest of 10%, 15% and 18% annually. As of March 31, 2012, the Company owed a total principle balance of $18,762 related to these notes and had accrued $46,920
in simple interest.
All notes are payable upon demand. We believe that our cash from borrowings will be insufficient to fund our operations and to satisfy our long-term liquidity needs for the next twelve months. We will required to seek additional financing in the future to respond to increased expenses or shortfalls in anticipated revenues, respond to competitive pressures or take advantage of unanticipated acquisition opportunities. We cannot be certain we will be able to find such additional financing on reasonable terms, or at all. If we are unable to obtain additional financing when needed, we could be required to modify our business plan in accordance with the extent of available financing.
We do not have an external credit facility.
We currently do not have an external credit facility. The current economic recession has hampered small businesses, like ours, from obtaining loans and lines of credit from banks and lending agencies. Overall, due to the recession and increasing bank failures, banks have become more selective when granting loans and/or lines of credit to businesses and individuals. If we are unable to grow our business from generating revenues, we may need access to additional capital such as loans and/or lines of credit. We might not qualify for such loans and/or lines of credit. Our failure to secure an external credit facility could prevent us from growing our business or to cease operations.
Our future financings could substantially dilute our stockholders or restrict our flexibility.
We will need additional funding which may not be available when needed. We estimate that we will need $75,000 to continue our operations for the next 12 months. If we are able to raise additional funds and by issuing equity securities, you may experience significant dilution of your ownership interest and holders of these securities may have rights senior to those of the holders of our common stock. If we obtain additional financing by issuing debt securities, the terms of these securities could restrict or prevent us from paying dividends and could limit our flexibility in making business decisions. In this case, the value of your investment could be reduced.
We compete with the growing cell-phone industry and other well-established companies.
The market in which we do business is highly competitive and constantly evolving. We face competition from the larger and more established companies -- from companies that develop new technology, as well as the many smaller companies throughout the country. The last several years have shown a marked increase in the use of cellular phones and toll free services which cut into our potential payphone customer base. Companies that have greater resources, including but not limited to, a larger sales force, more money, larger manufacturing capabilities and greater ability to expand their markets also cut into our potential payphone customers. Many of our competitors have longer operating histories, significantly greater financial strength, nationwide advertising coverage and other resources that we do not have. Our competitors might introduce a less expensive or more improved payphone. These, as well as other factors can have a negative impact on our income.
The competition from cellular phones is a very serious threat that can result in substantially less revenue per payphone. We have attempted to address this issue by avoiding locations that service business travelers. For many years, these locations were the most lucrative, but now they are the locations most impacted by the cellular user.
The large former Bell companies who provide local service dominate the industry. These companies have greater financial ability than us, and provide the greatest competitive challenge. However, we compete with these companies by paying a commission to the site owner. The commission is an enticement for the site owner to use our phone on its site. We believe we are able to provide a higher quality customer service because the phones alert us to any technical difficulties, and we can service them promptly. The ability to immediately know that a problem exists with a payphone is very important because down time for a phone means lost revenue for us.
Our non-coin revenue is primarily attributable to “dial-around” commissions. If the FCC reduces or repeals the “dial-around” commission, our revenues could be materially adversely affected.
Our services are subject to the jurisdiction of the Federal Communications Commission (FCC) with respect to interstate telecommunications services and other matters for which the FCC has jurisdiction under the Communications Act of 1934, as amended.
Payphone users can circumvent the usual payment method and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These “dial-around” numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications Commission, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service providers receive compensation for these “dial-around” calls.
The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by the American Public Communication Council “APCC.”
If the FCC regulation requiring sellers of long distance toll free services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream. We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the future. It is possible for future regulations to be so financially demanding that they cause us to go out of business.
We are highly dependent on our two executive officers, Jerry Gruenbaum and Nathan Lapkin. The loss of either of them would have a material adverse affect on our business and prospects.
We currently have only two executive officers, Jerry Gruenbaum and Nathan Lapkin. Jerry Gruenbaum serves as our Chief Executive Officer, President and Director, and Nathan Lapkin serves as our Chief Financial Officer. The loss of either executive officer could have a material adverse effect on our business and prospects.
If we cannot attract, retain, motivate and integrate additional skilled personal, our ability to compete will be impaired.
The Company has no employees and many of our current and potential competitors have employees. Our success depends in large part on our ability to attract, retain and motivate highly qualified management and technical personnel. We face intense competition for qualified personnel. The industry in which we compete has a high level of employee mobility and aggressive recruiting of skilled personnel. If we are unable to continue to employ our key personnel or to attract and retain qualified personnel in the future, our ability to successfully execute our business plan will be jeopardized and our growth will be inhibited.
We will depend on outside manufacturing sources and suppliers.
As we purchase phones from other companies, we upgrade them with "smart card" payphone technology. The upgrade is a circuit board with improved technology. The “smart card” technology allows us to determine on a preset time basis the operational status of the payphone. We were given a license to use the “smart card” technology from
Quortech, the founder and manufacturer of “smart card” technology. The technology informs us when the coins in the phone have to be collected, the number and types of calls that have been made from each phone, as well as other helpful information that helps us provide better service to our payphone using public. This upgrade of the phones reduces the number and frequency of service visits due to outages and other payphone-related problems and, in turn, reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry including Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays.
We will have limited control over the actual production process. Moreover, difficulties encountered by any one of our third party manufacturers which result in product defects, delayed or reduced product shipments, cost overruns or our inability to fill orders on a timely basis, could have an adverse impact on our business. Even a short-term disruption in our relationship with third party manufacturers or suppliers could have a material adverse effect on our operations. We do not intend to maintain an inventory of sufficient size to protect ourselves for any significant period of time against supply interruptions, particularly if we are required to obtain alternative sources of supply.
We may be unable to adequately protect our proprietary rights or may be sued by third parties for infringement of their proprietary rights.
The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of trade secret, copyright or patent infringement. We may inadvertently infringe a patent of which we are unaware. In addition, because patent applications can take many years to issue, there may be a patent application now pending of which we are unaware that will cause us to be infringing when it is issued in the future. If we make any acquisitions, we could have similar problems in those industries. Although we are not currently involved in any intellectual property litigation, we may be a party to litigation in the future to protect our intellectual property or as a result of our alleged infringement of another's intellectual property, forcing us to do one or more of the following:
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Cease selling, incorporating or using products or services that incorporate the challenged intellectual property;
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Obtain from the holder of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms; or
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Redesign those products or services that incorporate such technology.
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A successful claim of infringement against us, and our failure to license the same or similar technology, could adversely affect our business, asset value or stock value. Infringement claims, with or without merit, would be expensive to litigate or settle, and would divert management resources.
Our employees may be bound by confidentiality and other nondisclosure agreements regarding the trade secrets of their former employers. As a result, our employees or we could be subject to allegations of trade secret violations and other similar violations if claims are made that they breached these agreements.
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 none reimbursable 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.
We are 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.