<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(X)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934. 

     For the fiscal year ended December 31, 1998
                               -----------------

                                       OR

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

     For the transition period from__________ to __________

                         Commission File Number 33-95042
                                                --------

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                          23-2778525
            --------                                          ----------
 (State of other jurisdiction of                            (IRS Employer
  incorporation of organization)                        Identification Number)

 c/o Pegasus Communications Management Company;
 5 Radnor Corporate Center; Suite 454, Radnor, PA               19087
 ------------------------------------------------               -----
      (Address of principal executive offices)                (Zip code)

       Registrant's telephone number, including area code: (888) 438-7488
                                                           --------------
           Securities registered pursuant to section 12(b) of the Act:
                                      None

           Securities registered pursuant to section 12(g) of the Act:
                                      None

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

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

         Number of shares of each class of the registrant's common stock
outstanding as of March 22, 1999:
                 Class A, Common Stock, $0.01 par value     161,500
                 Class B, Common Stock, $0.01 par value       8,500

The Registrant meets the conditions set forth in General Instructions (I)(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
<TABLE>
<CAPTION>


                                                                                                    Page
                                                                                                    ----
<S>            <C>                                                                                 <C>
PART I                                                                                               3
Item 1.         Business                                                                             3
Item 2.         Properties                                                                           8
Item 3.         Legal Proceedings                                                                    8
Item 4.         Submission of Matters to a Vote of Security Holders                                  9

PART II                                                                                              9
Item 5.         Market for the Registrant's Common Equity and Related Stockholder Matters            9
Item 6.         Selected Financial Data                                                              9
Item 7.         Management's Discussion and Analysis of Financial Condition and Results of
                Operations                                                                           10
Item 7A.        Quantitative and Qualitative Disclosures About Market Risk                           17
Item 8.         Financial Statements and Supplementary Data                                          17
Item 9.         Changes in and Disagreements with Accountants on Accounting and Financial
                Disclosure                                                                           17

PART III                                                                                             17

PART IV                                                                                              17
Item 14.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     17

</TABLE>






                                        2

<PAGE>


                      PEGASUS MEDIA & COMMUNICATIONS, INC.

                                     PART I

         This Report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to us that are based on the beliefs of our management, as
well as assumptions made by and information currently available to our
management. When used in this Report, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. Such statements reflect our current
views with respect to future events and are subject to unknown risks,
uncertainties and other factors that may cause actual results to differ
materially from those contemplated in such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally, internationally and in the regions in which we
operate; demographic changes; existing government regulations and changes in, or
the failure to comply with government regulations; competition; the loss of any
significant numbers of subscribers or viewers; changes in business strategy or
development plans; technological developments and difficulties (including any
associated with the Year 2000); the ability to attract and retain qualified
personnel; our significant indebtedness; the availability and terms of capital
to fund the expansion of our businesses; and other factors referenced in this
Report.

         The information in this Report assumes the completion of certain
pending acquisitions described in "Item 1: Business - Recent and Pending
Transactions."

ITEM 1: BUSINESS


General

     Pegasus Media & Communications, Inc. is:

     o   A wholly owned subsidiary of Pegasus Communications Corporation.

     o   An independent provider of DIRECTV(R) with 279,000 subscribers at
         January 31, 1999. We have the exclusive right to distribute DIRECTV
         digital broadcast satellite, or DBS, services to over 3.0 million rural
         households in 31 states. We distribute DIRECTV through the Pegasus
         Communications retail network, a network of approximately 2,000
         independent retailers.

     o   The owner or programmer of nine TV stations affiliated with either Fox,
         UPN or the WB network and the owner of a large cable system in Puerto
         Rico serving approximately 50,000 subscribers.

DIRECTV

         DIRECTV is a service of Hughes Electronics, a subsidiary of General
Motors Corporation. After completing its announced acquisition of United States
Satellite Broadcasting, Inc. and Primestar described below, DIRECTV will offer
in excess of 370 entertainment channels of near laser disc quality video and
compact disc quality audio programming. DIRECTV currently transmits via three
high-power Ku band satellites and has announced its intention to launch a fourth
Ku band satellite in the third quarter of this year. We believe that DIRECTV's
extensive line-up of cable networks, pay-per-view movies and events and sports
packages, including the exclusive "NFL Sunday Ticket," have enabled DIRECTV to
capture a majority market share of existing DBS subscribers and will continue to
drive strong subscriber growth for DIRECTV services in the future. DIRECTV added
1.2 million new subscribers in 1998, which was a greater increase than any other
DBS service and accounted for approximately 48% of all new DBS subscribers in
that year.


                                        3
<PAGE>

DIRECTV Rural Affiliates

         Prior to the launch of DIRECTV's programming service, Hughes
Electronics (which was succeeded by its subsidiary DIRECTV) entered into an
agreement with the National Rural Telecommunications Cooperative, or NRTC,
authorizing the NRTC to offer its members and associates the opportunity to
acquire exclusive rights to distribute DIRECTV programming services in rural
areas of the United States. The NRTC is a cooperative organization whose members
and associates are engaged in the distribution of telecommunications and other
services in predominantly rural areas of the United States. Approximately 250
NRTC members and associates acquired such exclusive rights, thereby becoming
DIRECTV rural affiliates. The DIRECTV exclusive territories acquired by
DIRECTV's rural affiliates include approximately 9.0 million rural households.
Pegasus was the largest of the original DIRECTV rural affiliates, acquiring a
DIRECTV exclusive territory of approximately 500,000 homes in four New England
states. Since 1996 we have increased our DIRECTV exclusive territories to more
than 3.0 million homes through the completed or pending acquisitions of 61 other
DIRECTV rural affiliates.

         Upon completion of the pending acquisitions described below in
"--Recent and Pending Transactions," we will distribute DIRECTV in the following
DIRECTV exclusive territories:

<TABLE>
<CAPTION>
                                                          Homes 
 Exclusive DIRECTV     Total Homes   Homes Not Passed     Passed         Total
     Territory        in Territory       by Cable        by Cable     Subscribers   Penetration
 -----------------    ------------   ----------------    --------     -----------   -----------
<S>                      <C>             <C>              <C>             <C>           <C> 
   Northeast             440,925         76,385           364,540         21,698        4.9%
   Central               624,933        134,745           490,188         50,441        8.1%
   Southeast             540,891        190,407           350,484         56,759       10.5%
   Midwest               612,579        183,098           429,481         65,930       10.8%
   Central Plains         73,458         15,718            57,740          6,629        9.0%
   Texas                 465,835        150,987           314,848         50,448       10.8%
   Southwest             137,254         35,018           102,236         11,307        8.2%
   Northwest             143,754         56,726            87,028         15,487       10.8%
                      -------------------------------------------------------------------------
      Total            3,039,629        843,084         2,196,545        278,699        9.2%
                      =========================================================================
</TABLE>

--------------------------------------------------------------------------------

Total homes in territory, homes not passed by cable and homes passed by cable
are based on estimates of primary residences by Claritas, Inc.

Pegasus Rural Focus and Strategy

         We believe that DBS and other digital satellite services will achieve
disproportionately greater consumer acceptance in rural areas than in
metropolitan areas. DBS services have already achieved a penetration of more
than 17% in rural areas of the United States, as compared to approximately 5% in
metropolitan areas.

         Our long-term goal is to become an integrated provider of DBS and other
digital satellite services for the 76.0 million people, 30.0 million homes and
3.0 million businesses located in rural areas of the United States. To
accomplish our goal, we are pursuing the following strategy:

        o continuing to grow our rural subscriber base by aggressively marketing
          DIRECTV,

        o continuing to acquire other DIRECTV rural affiliates,

        o continuing to utilize the developing Pegasus Communications retail
          network, and

        o generating future growth by bundling additional digital satellite
          services with DIRECTV.

                                        4


<PAGE>

The Pegasus Communications Retail Network

         As a subsidiary of Pegasus Communications Corporation, the Pegasus
Communications retail network of 2,000 independent satellite, consumer
electronics and other retailers serving rural areas is available to us. The
Pegasus Communications retail network began in 1995 in order to distribute
DIRECTV in Pegasus' original DIRECTV exclusive territories in New England. This
network has been expanded into 36 states as a result of our acquisitions and the
acquisitions of Digital Television Services, Inc., a subsidiary of Pegasus
Communications Corporation acquired in April 1998 which is also a distributor of
DIRECTV services. Today, the Pegasus Communications retail network is one of the
few sales and distribution channels available to digital satellite service
providers seeking broad and effective distribution in rural areas throughout the
continental United States.

         We believe that the national reach of the Pegasus Communications retail
network has positioned us to:

         o    Improve the penetration of DIRECTV in DIRECTV exclusive
              territories that we now own or that we may acquire from other
              DIRECTV rural affiliates.

         o    Assist DIRECTV in improving DIRECTV's DBS market share in rural
              areas outside of the DIRECTV exclusive territories held by DIRECTV
              rural affiliates.

         o    Offer providers of new digital satellite services (such as the
              soon to be launched digital audio and broadband multimedia
              satellite services) an effective and convenient means for reaching
              the approximately 30% of America's population that live and work
              in rural areas.

Recent DBS Developments

         Three important events have occurred recently in the DBS industry.

         DIRECTV/Hughes Acquisition of United States Satellite Broadcasting
Company, Inc. In December 1998, Hughes Electronics, the parent company of
DIRECTV, announced that it had reached an agreement with United States Satellite
Broadcasting Company, Inc. to acquire its business and assets for approximately
$1.3 billion in cash and stock. The transaction will enable DIRECTV to add such
premium networks as multichannel HBO, Cinemax and Showtime. We expect these
added offerings to increase DIRECTV's appeal to consumers and drive subscriber
growth. DIRECTV and United States Satellite Broadcasting have said that they
expect the transaction to close in the first half of this year. It is subject to
review and approval by the FCC and other conditions. We are still evaluating the
impact of this transaction on our business.

         DIRECTV/ Hughes Acquisition of Primestar. In January 1999, Hughes
announced that it reached agreement with Primestar to acquire Primestar's DBS
business and rights to acquire certain other DBS satellite assets in two
transactions valued at approximately $1.8 billion. DIRECTV has stated that it
intends to operate Primestar's business for approximately two years, during
which time it will attempt to transition Primestar's approximately 2.3 million
subscribers to the DIRECTV service. DIRECTV has also said it expects that its
acquisition of the other Primestar DBS assets along with its pending acquisition
of the assets of United States Satellite Broadcasting will enable DIRECTV to
offer more than 370 entertainment channels, almost twice its current channel
capacity. If the Primestar and United States Satellite Broadcasting transactions
are consummated, we expect that DIRECTV and EchoStar will be the only
distributors of DBS services. The Primestar transactions are subject to approval
of the FCC and other conditions. We are targeting Primestar's customers in our
territories with promotions that we hope will encourage them to convert to
DIRECTV. EchoStar is doing the same thing. It is not possible to predict with
certainty how well these efforts will succeed. We are continuing to evaluate the
effects of the Primestar transactions on our business.


                                        5

<PAGE>

         EchoStar-News Corporation-MCI Agreement. In November 1998, EchoStar,
News Corporation, MCI WorldCom Inc. and certain other parties reached an
agreement for the transfer to EchoStar of a license to operate a DBS business at
the 110(Degree) west longitude orbital location and certain other DBS assets in
exchange for shares of EchoStar. EchoStar already operates a DBS business at the
119(Degree) west longitude orbital location. The agreement with News Corporation
and MCI has been approved by the Department of Justice and is pending approval
of the FCC. EchoStar plans to launch satellites for operation at the 110(Degree)
west longitude orbital slot in 1999. While we believe that this transaction, if
completed, will help increase the overall competitive position of DBS relative
to cable, it could also increase EchoStar's competitive position relative to
DIRECTV.

Broadcast Television

         Our operating strategy in broadcast television is focused on:

         o   developing strong local sales forces and sales management to
             maximize the value of our stations' inventory of advertising spots,

         o   improving the stations' programming, promotion and technical 
             facilities in order to maximize their ratings in a cost-effective
             manner, and

         o   maintaining strict control over operating costs while motivating
             employees through the use of incentive plans, which reward our
             employees in proportion to annual increases in location cash flow.

         We have purchased or launched TV stations affiliated with the "emerging
networks" of Fox, the WB and UPN, because, while affiliates of these networks
generally have lower revenue shares than stations affiliated with ABC, CBS and
NBC, we believe that they will experience growing audience ratings and therefore
afford us greater opportunities for increasing their revenue share. We are
pursuing expansion in our existing markets through local marketing agreements,
or LMAs, because they provide additional opportunities for increasing revenue
share with limited additional operating expenses. However, the FCC is
considering proposals which, if adopted, could prohibit us from expanding in our
existing markets through LMAs and require us to modify or terminate our existing
agreements. We have entered into LMAs to program one station as an affiliate of
Fox, two stations as affiliates of the WB network and one station as an
affiliate of UPN. We plan to enter into an additional LMA in 2000, if permitted
by the FCC.

         The following table sets forth general information for each of Pegasus'
stations.
<TABLE>
<CAPTION>

                              Acquisition         Station                                        Number of TV
            Station               Date          Affiliation       Market Area    DMA (1)        Households (2)
            -------           -----------       -----------       -----------    -------        --------------
<S>                         <C>                 <C>             <C>              <C>           <C>
  WDBD-40                       May 1993            Fox           Jackson, MS         91            298,000

  WDSI-61                       May 1993            Fox         Chattanooga, TN       82            332,000

  WGFL-53 (3)                      (3)              WB          Gainesville, FL      167            101,000

  WOLF-56/WILF-53 (4)           May 1993            Fox         Northeastern PA       47            566,000

  WSWB-38 (4)                      (4)              WB          Northeastern PA       47            566,000

  WPXT-51                     January 1996          Fox          Portland, ME         79            353,000

  WPME-35 (5)                      (5)              UPN          Portland, ME         79            353,000

  WTLH-49/ WFXU (6)            March 1996           Fox         Tallahassee, FL      116            221,000
</TABLE>

--------------------------------------------------------------------------------

(1)  There are 211 designated market areas or DMAs in the United States with
     each county in the continental United States assigned uniquely to one DMA.
     Ranking of DMAs is based upon Nielsen estimates of the number of television
     households.

(2)  Represents total homes in a DMA for each television station as estimated by
     Broadcast Investment Analysts ("BIA").

(3)  Pegasus began programming WGFL in October 1997 pursuant to an LMA as an 
     affiliate of  the WB network.

                                        6
<PAGE>

(4)  Until November 1998, WILF and WWLF had simulcast the programming of WOLF.
     In November 1998, the station then known as WOLF (Channel 38) was sold to
     KB Prime Media LLC. That station has changed its call letters to WSWB and
     is now programmed by Pegasus pursuant to an LMA as an affiliate of the WB
     network. The station formerly known as WWLF changed its call letters to
     WOLF and simulcasts Fox programming on WILF.

(5)  Pegasus began programming WPME in August 1997 pursuant to an LMA as an 
     affiliate of UPN.

(6)  Pegasus programs WFXU pursuant to an LMA. WFXU has simulcast the
     programming of WTLH since July 1998.

Cable Television

         We own and operate a cable system serving areas of western and
southwestern Puerto Rico and are acquiring a contiguous system serving areas of
northwestern Puerto Rico. Our Puerto Rico cable system serves franchised areas
of approximately 111,000 households consisting of the port city of Mayaguez and
ten contiguous communities, eight of which are currently served by our Puerto
Rico cable system. After completion of our acquisition of the Aguadilla cable
system, our Puerto Rico cable systems will hold franchises for communities
representing almost 20% of Puerto Rico, will pass in excess of 170,000 homes and
will serve in excess of 50,000 subscribers.

         Other cable operators serving Puerto Rico include Century
Communications serving San Juan and surrounding areas, TCI International (which
recently merged with Liberty Communications, a subsidiary of TCI) serving
eastern and northern Puerto Rico, and an independent system serving Ponce.
Century has recently announced that it is considering "strategic alternatives,"
including a possible sale of its assets. We believe that it is possible that
other strategic transactions may soon occur involving other cable operators in
Puerto Rico or that consolidation may occur among some or all of Puerto Rico's
cable operators.

         We believe that significant opportunities for growth in revenues and
location cash flow exist in Puerto Rico from the delivery of traditional cable
services. Cable penetration in Puerto Rico averages 34% (versus a U.S. average
of 65% to 70%). We believe that this low penetration is due principally to the
limited amount of Spanish language programming offered on Puerto Rico's cable
systems. In contrast, Spanish language programming represents virtually all of
the programming offered by television stations in Puerto Rico. We believe that
cable penetration in our Puerto Rico cable systems will increase over the next
five years by the addition of Spanish language networks, locally originated
programming and internet access and other broadband and telecommunications
services.

Recent and Pending Transactions

Completed Transactions

         Completed DBS Acquisitions. From January 1, 1998 to February 9, 1999,
Pegasus made 31 acquisitions from independent DIRECTV providers (the "Completed
DBS Acquisitions"). These territories include in the aggregate approximately
862,000 television households (including approximately 66,000 seasonal
residences and 95,000 business locations) and approximately 88,000 subscribers.
We paid $154.7 million for all of these acquisitions. In buying these
territories, we have used a combination of cash, promissory notes, shares of
Class A Common Stock of Pegasus Communications, options and warrants to purchase
the Class A Common Stock of Pegasus Communications and/or assumed liabilities.

         New England Cable Sale. Effective July 1, 1998, we sold all of our New
England cable systems to Avalon Cable of New England, LLC for $30.1 million in
cash. We recognized a gain of approximately $24.7 million on this sale.


                                        7


<PAGE>

Pending Transactions

         Pending DBS Acquisitions. As of January 31, 1999, we have entered into
letters of intent or definitive agreements to acquire DIRECTV distribution
rights in rural areas of Colorado, Indiana, Minnesota, and Ohio. These
territories include approximately 115,000 television households, including
approximately 5,800 seasonal residences and 11,600 business locations, and
approximately 9,400 subscribers. In the aggregate, the consideration for the
pending DBS acquisitions is $14.4 million in cash and $3.1 million in promissory
notes and assumed liabilities. The closings of these acquisitions are subject to
the negotiation of definitive agreements, third party approvals and other
customary conditions. We cannot assure you that these conditions will be
satisfied.

         Pending Cable Acquisition. We have entered into an agreement to
purchase a cable system serving Aguadilla, Puerto Rico and neighboring
communities for a purchase price of approximately $42.0 million in cash. As of
December 31, 1998, the Aguadilla cable system served approximately 21,500
subscribers and passed approximately 81,300 of the 83,300 homes in the franchise
area. The Aguadilla cable system is contiguous to our existing Puerto Rico cable
system and, upon completion of the purchase, we intend to consolidate the
Aguadilla cable system with our existing cable system. The closing of this
acquisition is subject to third party approvals and other customary conditions.
One of these conditions is that the Puerto Rico franchising authority will not
impose greater burdens on us than it imposes on the present owner. We expect we
will have to negotiate terms with the Puerto Rico authority. While we believe we
will reach a satisfactory agreement, we cannot be sure. If we do, and the other
conditions are met, we expect to close the acquisition in the first quarter of
1999.

Employees

         As of December 31, 1998, we had 514 full-time and 29 part-time
employees. We are not a party to any collective bargaining agreements and we
consider our relations with our employees to be good.

ITEM 2: PROPERTIES

         Our corporate headquarters are located in Radnor, Pennsylvania. Due to
the need for greater space, we will be moving to leased space in Bala Cynwyd,
Pennsylvania in March 1999. Our new office lease will expire in 2004 and should
be adequate for our needs in the foreseeable future.

         Our DBS operations are headquartered in Marlborough, Massachusetts
where we also operate a call center. Our Marlborough lease expires in 2002. In
connection with our TV operations, we own or lease various transmitting
equipment, television stations and office space. Our cable operations include
office, headend and warehouse space in Puerto Rico. The property that we do not
own in Puerto Rico is operated under leases expiring at various dates through
2004.

ITEM 3: LEGAL PROCEEDINGS

DBS Late Fee Litigation

         In November 1998 we were sued in Indiana for allegedly charging DBS
subscribers excessive fees for late payments. The plaintiffs, who claim to
represent a class consisting of residential DIRECTV customers in Indiana, seek
unspecified damages for the purported class and modification of our late-fee
policy. We are in the process of evaluating our response and are unable to
estimate the amount involved or to determine whether this suit is material to
us. Similar suits have been brought against DIRECTV and various cable operators
in other parts of the United States.


                                        8


<PAGE>

Television Station WDBD

         In connection with the pending license renewal application of
television station WDBD, we have learned that there were a substantial number of
violations at that station of the FCC's rule establishing limits on the amount
of commercial material in programs directed to children. The FCC has options
available to address violations of its rules ranging from a letter of
admonishment to the revocation of a station license. We expect that the
violations at television station WDBD will result in a monetary fine but not in
revocation or nonrenewal of the station license. The FCC has not yet completed
its review of the matter, however, so the outcome cannot be assured.

Other Matters

         In addition to the matters discussed above, from time to time we are
involved with claims that arise in the normal course of our business. In our
opinion, the ultimate liability with respect to these claims will not have a
material adverse effect on our combined operations, cash flows or financial
position.

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

         In reliance upon General Instruction (I)(2)(c) of Form 10-K, Pegasus
has omitted the disclosure required by this item.

                                     PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         None of Pegasus' equity securities are publicly traded. All of Pegasus'
equity securities are held by Pegasus' parent, Pegasus Communications
Corporation. Pegasus did not sell any equity securities that would be required
to be reported in accordance with Regulation S-K Item 701 of the Securities Act
of 1933, as amended.

ITEM 6: SELECTED FINANCIAL DATA

         In reliance upon General Instruction (I)(2)(a) of Form 10-K, Pegasus
has omitted the disclosure required by this item.



                                        9

<PAGE>

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS

         In reliance upon General Instruction (I)(2)(a) of Form 10-K, Pegasus is
providing the limited disclosure set forth below. Such disclosure requires us
only to provide a narrative analysis of the results of operations which explains
the reasons for material changes in the amount of revenue and expense items
between our most recent fiscal year and the fiscal year immediately preceding
it.

General

         Pegasus Media & Communications, Inc. is:

         o    A wholly owned subsidiary of Pegasus Communications Corporation.

         o    An independent provider of DIRECTV with 279,000 subscribers at
              January 31, 1999. We have the exclusive right to distribute
              DIRECTV digital broadcast satellite services to over 3.0 million
              rural households in 31 states. We distribute DIRECTV through the
              Pegasus Communications retail network, a network of approximately
              2,000 independent retailers.

         o    The owner or programmer of nine TV stations affiliated with either
              Fox, UPN or the WB and the owner of a large cable system in Puerto
              Rico serving approximately 50,000 subscribers.

         DBS revenues are principally derived from monthly customer
subscriptions and pay-per-view services. Broadcast revenues are derived from the
sale of broadcast airtime to local and national advertisers. Cable revenues are
derived from monthly customer subscriptions, pay-per-view services, subscriber
equipment rentals and installation charges.

         In this section we use the terms pre-marketing cash flow and location
cash flow. Pre-marketing cash flow is calculated by taking our earnings and
adding back the following expenses:

         o    interest;

         o    income taxes;

         o    depreciation and amortization;

         o    non-cash charges, such as incentive compensation under Pegasus
              Communication's restricted stock plan and 401(k) plans;

         o    corporate overhead; and

         o    DBS subscriber acquisition costs, which are sales and marketing
              expenses incurred to acquire new DBS subscribers.

         Location cash flow is pre-marketing cash flow less DBS subscriber
acquisition costs.

         Pre-marketing cash flow and location cash flow are not, and should not
be considered, alternatives to income from operations, net income, net cash
provided by operating activities or any other measure for determining our
operating performance or liquidity, as determined under generally accepted
accounting principles. Pre-marketing cash flow and location cash flow also do
not necessarily indicate whether our cash flow will be sufficient to fund
working capital, capital expenditures, or to react to changes in Pegasus'
industry or the economy generally. We believe that pre-marketing cash flow and
location cash flow are important, however, for the following reasons:


                                       10
<PAGE>

         o    people who follow our industry  frequently  use them as measures 
              of financial  performance  and ability to pay debt service; and

         o    they are measures that we, our lenders and investors use to
              monitor our financial performance and debt leverage.

         Pegasus generally does not require new DBS customers to sign
programming contracts and, as a result, subscriber acquisition costs are
currently being charged to operations in the period incurred.

Results of Operations

Year ended December 31, 1998 compared to the year ended December 31, 1997

         Total net revenues in 1998 were $142.0 million, an increase of $75.6
million, or 114%, compared to total net revenues of $66.4 million in 1997. The
increase in total net revenues in 1998 was primarily due to an increase in DBS
revenues of $76.1 million attributable to acquisitions and to internal growth in
Pegasus' DBS subscriber base. Total operating expenses in 1998 were $169.9
million, an increase of $102.6 million, or 153%, compared to total operating
expenses of $67.3 million in 1997. The increase was primarily due to an increase
of $98.8 million in operating expenses attributable to the growth in Pegasus'
DBS business.

         Total corporate expenses, including corporate depreciation and
amortization, were $4.2 million in 1998, an increase of $2.0 million, or 87%,
compared to $2.3 million in 1997. The increase in corporate expenses is
primarily attributable to the growth in Pegasus' business.

         Interest expense was $16.0 million in 1998, an increase of $3.4
million, or 27%, compared to interest expense of $12.6 million in 1997. The
increase in interest expense is primarily due to an increase in bank borrowings
and seller notes associated with Pegasus' DBS acquisitions. Interest income was
$660,000 in 1998, an increase of $558,000, or 546%, compared to interest income
of $102,000 in 1997. The increase in interest income is due to greater average
cash balances in 1998 compared to 1997.

         Other expenses were $462,000 in 1998, an increase of $314,000, or 212%,
compared to other expenses of $148,000 in 1997. The increase is primarily due to
increased investor relation activities.

         The gain on sale of the cable systems was $24.7 million in 1998
compared to $4.5 million in 1997. In 1997, Pegasus sold its New Hampshire cable
system for $6.9 million resulting in a gain of $4.5 million. In 1998, Pegasus
sold its remaining New England cable systems for $30.1 million resulting in a
gain of $24.7 million.

         The provision for income taxes increased by approximately $4.3 million
primarily as a result of differences between the financial statement carrying
values and tax bases of assets and liabilities associated with Pegasus' DBS
acquisitions and the tax treatment of the gain on sale of the cable systems.

         Extraordinary loss from the extinguishment of debt decreased $1.7
million in 1998. In 1997, Pegasus refinanced its existing $130.0 million credit
facility with a new $180.0 million credit facility and accordingly, the deferred
financing costs associated with the $130.0 million credit facility were written
off. No such refinancing occurred in 1998.


                                       11


<PAGE>

DBS

         Pegasus' DBS business experienced significant growth in 1998. During
1998, Pegasus acquired approximately 71,000 subscribers and the exclusive
DIRECTV distribution rights to approximately 636,000 households in rural areas
of the United States. At December 31, 1998, Pegasus had exclusive DIRECTV
distribution rights to 2.8 million households and 254,000 subscribers as
compared to 2.2 million households and 132,000 subscribers at December 31, 1997.
Pegasus had 3.0 million households and 274,000 subscribers at December 31, 1998,
including pending acquisitions. At December 31, 1997, subscribers would have
been 214,000, including pending and completed acquisitions. Subscriber
penetration increased from 7.0% at December 31, 1997 to 9.0% at December 31,
1998, including pending and completed acquisitions.

         Total DBS net revenues were $94.1 million in 1998, an increase of $76.1
million, or 423%, compared to DBS net revenues of $18.0 million in 1997. The
increase is primarily due to an increase in the average number of subscribers in
1998 compared to 1997. Pegasus' 1998 DBS acquisitions represented $17.3 million,
or 23%, of the $76.1 million increase in DBS net revenues. The average monthly
revenue per subscriber was $41.91 in 1998 compared to $40.72 in 1997. Pro forma
DBS net revenues, including pending acquisitions at December 31, 1998, were
$121.7 million, an increase of $32.7 million, or 37%, compared to pro forma DBS
net revenues of $89.1 million in 1997.

         Programming, technical, and general and administrative expenses were
$65.0 million in 1998, an increase of $53.0 million, or 442%, compared to $12.0
million in 1997. The increase is attributable to significant growth in
subscribers and territory in 1998. Pegasus' 1998 DBS acquisitions represented
$11.1 million, or 21%, of the $53.0 million increase in programming, technical,
and general and administrative expenses. As a percentage of revenue,
programming, technical, and general and administrative expenses were 69.1% in
1998 compared to 66.7% in 1997.

         Subscriber acquisition costs were $27.0 million, an increase of $21.5
million compared to $5.5 million in 1997. In 1997, $701,000 in subscriber
acquisition costs were capitalized as a significant number of subscribers
entered into extended programming contracts. Pegasus generally did not require
new subscribers to sign programming contracts in 1998. The total subscriber
acquisition costs per gross subscriber addition were $341 in 1998 compared to
$236 in 1997. The increase is attributable to increases in sales commissions
paid to Pegasus' dealers, promotional programming and advertising. Pegasus
expects subscriber acquisition costs per gross subscriber addition to increase
in 1999.

         Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $985,000 in 1998, an increase of $545,000, or
124%, compared to $440,000 in 1997. The increase resulted from a larger gain in
pro forma location cash flow during 1998 as compared to 1997.

         Depreciation and amortization was $30.9 million in 1998, an increase of
$23.0 million, or 293%, compared to $7.9 million in 1997. The increase in
depreciation and amortization is primarily due to an increase in the fixed and
intangible asset base as the result of DBS acquisitions that occurred in 1997
and 1998.

Broadcast

         In 1998, Pegasus owned or programmed nine broadcast television stations
in six markets. Two new stations were launched during the second half of 1998.
Total net broadcast revenues in 1998 were $34.1 million, an increase of $2.4
million, or 8%, compared to net broadcast revenues of $31.7 million in 1997. The
increase was primarily attributable to an increase of $1.3 million in net
broadcast revenues from stations that began operations in 1997 and a $558,000
increase in barter revenue. Net broadcast revenues from the two stations
launched in 1998 were minimal.


                                       12

<PAGE>

         Programming, technical, and general and administrative expenses were
$18.1 million in 1998, an increase of $2.3 million, or 15%, compared to $15.7
million in 1997. The increase is primarily due to a full year's expenses from
the two stations launched in 1997 and higher programming costs in 1998.

         Marketing and selling expenses were $6.0 million in 1998, an increase
of $317,000, or 6%, compared to $5.7 million in 1997. The increase in marketing
and selling expenses was due to an increase in promotional costs associated with
the launch of the new stations and news programs.

         Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $177,000 in 1998, a decrease of $120,000, or 40%,
compared to $298,000 in 1997. The decrease resulted from a lower gain in pro
forma location cash flow during 1998 as compared to 1997.

         Depreciation and amortization was $4.5 million in 1998, an increase of
$799,000, or 22%, compared to $3.7 million in 1997. The increase in depreciation
and amortization is due to an increase in fixed assets associated with the
construction of the new stations in 1997 and 1998.

Cable

         Total net cable revenues were $13.8 million in 1998, a decrease of $2.9
million, or 18%, compared to net cable revenues of $16.7 million in 1997. The
decrease is primarily due to the sale of Pegasus' remaining New England cable
systems effective July 1, 1998. Net cable revenues from the New England Cable
systems were $3.3 million in 1998 compared to $6.1 million in 1997. The net
revenues derived from Pegasus' Puerto Rico cable system were $10.5 million in
1998 compared to $10.4 million in 1997. The average monthly revenue per
subscriber was $33.48 in 1998 compared to $32.46 in 1997. On September 22, 1998,
Hurricane Georges swept through Puerto Rico damaging Pegasus' cable system.
Prior to the hurricane, Pegasus had approximately 29,000 subscribers. As of
December 31, 1998 there were 28,800 subscribers, compared to 27,300 at December
31, 1997. Pegasus estimates that it lost approximately $1.4 million in net cable
revenues as a result of the hurricane.

         Programming, technical, and general and administrative expenses were
$7.6 million in 1998, a decrease of $870,000, or 10%, compared to $8.4 million
in 1997. The decrease is primarily attributable to the sale of Pegasus' New
England cable systems.

         Marketing and selling expenses were $341,000 in 1998, an increase of
$74,000, or 28%, compared to $267,000 in 1997. The increase is primarily due to
an increase in Puerto Rico's promotional expenses in connection with
post-hurricane activities partially offset by the sale of Pegasus' New England
cable systems.

         Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $115,000 in 1998, a decrease of $66,000, or 36%,
compared to $181,000 in 1997. The decrease resulted from a lower gain in pro
forma location cash flow during 1998 as compared to 1997.

         Depreciation and amortization was $5.0 million in 1998, a decrease of
$650,000, or 12%, compared to $5.6 million in 1997. The decrease in depreciation
and amortization is primarily due to the sale of Pegasus' New England cable
systems.

Liquidity and Capital Resources

         Pegasus' primary sources of liquidity have been the net cash provided
by its DBS, broadcast and cable operations, credit available under its credit
facilities and proceeds from public and private offerings. Pegasus' principal
uses of its cash has been to fund acquisitions, to meet debt service
obligations, to fund DBS subscriber acquisition costs and to fund investments in
its broadcast and cable technical facilities.

                                       13

<PAGE>

         Pre-marketing cash flow increased by approximately $20.7 million, or
85%, for the year ended December 31, 1998 as compared to the same period in
1997. Pre-marketing cash flow increased as a result of:

         o    a $23.1 million, or 385%, increase in DBS pre-marketing cash flow
              of which $928,000, or 4%, was due to an increase in same territory
              pre-marketing cash flow and $22.2 million or 96% was attributable
              to territories acquired in 1997 and 1998;

         o    a $249,000, or 2%, decrease in broadcast location cash flow as the
              result of a $121,000, or 1%, decrease in same station location
              cash flow and a $128,000 decrease attributable to the four new
              stations launched in August 1997, October 1997, July 1998 and
              November 1998; and

         o    a $2.1 million, or 27%, decrease in cable location cash flow. This
              decrease was the result of a $610,000, or 13%, decrease in Puerto
              Rico same system location cash flow, a $67,000 reduction due to
              the sale of Pegasus' New Hampshire cable system effective January
              31, 1997 and a $1.4 million reduction due to the sale of Pegasus'
              remaining New England cable systems effective July 1, 1998.

         During the year ended December 31, 1998, proceeds from the sale of
Pegasus' remaining New England cable systems amounted to $30.1 million which,
together with $17.0 million of cash on hand at the beginning of the year,
$172,000 of cash acquired from acquisitions and $103.6 million of net cash
provided by Pegasus' financing activities, was used to fund operating activities
of approximately $3.4 million and other investing activities of $124.8 million.
Investing activities, net of cash acquired from acquisitions and proceeds from
the sale of the New England cable systems, consisted of:

         o    the acquisition of DBS assets from 26 independent DIRECTV 
              providers during 1998 for approximately $109.3 million;

         o    approximately $6.8 million of broadcast expenditures for broadcast
              television transmitter, tower and facility constructions and
              upgrades. Pegasus commenced the programming of four new broadcast
              stations over the last two years, WPME in August 1997, WGFL in
              October 1997, WFXU in July 1998 and WSWB in November 1998, and
              plans to commence programming an additional station by or in the
              year 2000;

         o    DBS facility upgrades of approximately $1.2 million;

         o    the expansion and enhancements of the Puerto Rico cable system 
              amounting to approximately $2.0 million;

         o    payments of programming rights amounting to $2.6 million; and

         o    maintenance and other capital expenditures and intangibles 
              totaling approximately $2.9 million.

         Financing activities consisted of:

         o    contributions by Pegasus Communications Corporation of 
              approximately $84.5 million;

         o    net borrowings on bank credit facilities totaling $27.5 million;

         o    the repayment of approximately $7.4 million of long-term debt,
              primarily sellers' notes, borrowings from affiliates and capital
              leases; and

         o    restricted cash placed in escrow of $1.0 million in connection
              with the pending purchase of a cable system serving Aguadilla,
              Puerto Rico.

                                       14

<PAGE>

         As of December 31, 1998, cash on hand amounted to $22.7 million plus
restricted cash of $1.0 million. Pegasus had $27.5 million drawn and standby
letters of credit amounting to $36.4 million under its $180.0 million credit
facility.

         As defined in the Indenture governing Pegasus' Series B Notes, Pegasus
is required to provide Adjusted Operating Cash Flow data for Pegasus and its
Restricted Subsidiaries, on a combined basis, where Adjusted Operating Cash Flow
is defined as "for the four most recent fiscal quarters for which internal
financial statements are available, Operating Cash Flow of such Person and its
Restricted Subsidiaries, less DBS Cash Flow for the most recent four-quarter
period, plus DBS Cash Flow for the most recent quarterly period multiplied by
four." Operating Cash Flow is income from operations before income taxes,
depreciation and amortization, interest expense, extraordinary items and
non-cash charges. Although Adjusted Operating Cash Flow is not a measure of
performance under generally accepted accounting principles, we believe that
Location Cash Flow, Operating Cash Flow and Adjusted Operating Cash Flow are
accepted within our business segments as generally recognized measures of
performance and are used by analysts who report publicly on the performance of
companies operating in such segments. Restricted Subsidiaries carries the same
meaning as in the Indenture. Pro forma for the 26 completed DBS acquisitions
occurring in 1998 and the sale of our remaining New England cable systems, as if
such acquisitions/disposition occurred on January 1, 1998, Adjusted Operating
Cash Flow would have been approximately $47.5 million as follows:

<TABLE>
<CAPTION>
                                                                                 Four Quarters Ended
                                (in thousands)                                     December 31,1998
                                                                                 -------------------
<S>                                                                                    <C>     
Revenues .....................................................................         $176,786
Direct operating expenses, excluding depreciation, amortization and other
  non-cash charges ...........................................................          125,714
                                                                                       --------
Income from operations before incentive compensation, corporate  expenses,
  depreciation and amortization and other non-cash charges ...................           51,072
Corporate expenses ...........................................................            3,525
                                                                                       --------
Adjusted operating cash flow .................................................          $47,547
                                                                                       ========
</TABLE>

         Pegasus believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations for at
least the next twelve months. However, our ability in the future to repay our
existing indebtedness will depend upon the success of our business strategy,
prevailing economic conditions, regulatory matters, levels of interest rates and
financial, business and other factors that are beyond our control. We cannot
assure you that we will be able to generate the substantial increases in cash
flow from operations that we will need to meet the obligations under our
indebtedness. Furthermore, our agreements with respect to our indebtedness
contain numerous covenants that, among other things, restrict our ability to:

         o  pay dividends and make certain other payments and investments;

         o  borrow additional funds;

         o  create liens; and

         o  to sell our assets.

Failing to make debt payments or comply with our covenants could result in an
event of default which, if not cured or waived, could have a material adverse
effect on us.


                                       15

<PAGE>

         Pegasus closely monitors conditions in the capital markets to identify
opportunities for the effective use of financial leverage. In financing its
future expansion and acquisition requirements, Pegasus would expect to avail
itself of such opportunities and thereby increase its indebtedness. This could
result in increased debt service requirements. We cannot assure you that such
debt financing can be completed on terms satisfactory to Pegasus or at all.
Pegasus may also issue additional equity to fund its future expansion and
acquisition requirements.

Year 2000

         The year 2000 issue is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other equipment as the year 2000
approaches and is reached. These problems generally arise from the fact that
most computer hardware and software have historically used only two digits to
identify the year in a date, often resulting in the computer failing to
distinguish dates in the 2000s from dates in the 1900s. These problems may also
arise from additional sources, such as the use of special codes and conventions
in software utilizing the date field.

         Pegasus has reviewed all of its systems as to the year 2000 issue.
Pegasus' primary focus has been on its own internal systems. Pegasus has in the
past three years replaced or upgraded, or is in the process of replacing or
upgrading, all of its TV traffic systems, cable billing systems and corporate
accounting systems. All of these new systems are expected to be in place by May
31, 1999. However, if any necessary changes are not made or completed in a
timely fashion or unanticipated problems arise, the year 2000 issue may take
longer for Pegasus to address and may have a material adverse impact on Pegasus'
financial condition and its results of operations.

         Pegasus relies on outside vendors for the operation of its DBS
satellite control and billing systems, including DIRECTV, the National Rural
Telecommunications Cooperative and their respective vendors. Pegasus has
established a policy to ensure that these vendors are currently in compliance
with the year 2000 issue or have a plan in place to be in compliance with the
year 2000 issue by the first quarter of 1999. In addition, Pegasus has had
initial communications with certain of its other significant suppliers,
distributors, financial institutions, lessors and parties with which it conducts
business to evaluate their year 2000 compliance plans and state of readiness and
to determine the extent to which Pegasus' systems may be affected by the failure
of others to remediate their own year 2000 issues. To date, however, Pegasus has
received only preliminary feedback from such parties and has not independently
confirmed any information received from other parties with respect to the year
2000 issue. As such, we cannot assure you that these other parties will complete
their year 2000 conversion in a timely fashion or will not suffer a year 2000
business disruption that may adversely affect Pegasus' financial condition and
its results of operations.

         Because Pegasus' year 2000 conversion is expected to be completed prior
to any potential disruption to Pegasus' business, Pegasus has not yet completed
the development of a comprehensive year 2000-specific contingency plan. However,
as part of its year 2000 contingency planning effort, Pegasus examines
information received from external sources for date integrity before bringing it
into its internal systems. If Pegasus determines that its business or a segment
thereof is at material risk of disruption due to the year 2000 issue or
anticipates that its year 2000 conversion will not be completed in a timely
fashion, it will work to enhance its contingency plan. Costs to be incurred
beyond December 31, 1998 relating to the year 2000 issue are not expected to be
significant.

Seasonality

         Pegasus' revenues vary throughout the year. As is typical in the
broadcast television industry, Pegasus' first quarter generally produces the
lowest revenues for the year and the fourth quarter generally produces the
highest revenues for the year. Pegasus' operating results in any period may be
affected by the incurrence of advertising and promotion expenses that do not
necessarily produce commensurate revenues in the short-term until the impact of
such advertising and promotion is realized in future periods.


                                       16


<PAGE>

Inflation

         Pegasus believes that inflation has not been a material factor
affecting its business. In general, Pegasus' revenues and expenses are impacted
to the same extent by inflation. A majority of Pegasus' indebtedness bears
interest at a fixed rate.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not Applicable

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this item is set forth on pages F-1 through
F-24.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

         None.

                                    PART III

         The Registrant meets the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and in reliance thereof is filing this Form with
reduced disclosure. As such, the entire Part III is omitted.

                                     PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)      The following documents are filed as part of this Report:

                  (1)      Financial Statements

                           The financial statements filed as part of this Report
                           are listed on the Index to Financial Statements on
                           page F-1.

                  (2)      Financial Statement Schedules

                                                                           Page
                                                                           ----
         Report of PricewaterhouseCoopers  LLP..............................S-1
         Schedule II - Valuation and Qualifying Accounts....................S-2

         All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

                  (3)       Exhibits



                                       17

<PAGE>
Exhibit
Number   Description of Document
-------  -----------------------   
2.1      Asset Purchase Agreement dated as of July 23, 1998 among Pegasus Cable
         Television, Inc., Cable Systems USA, Partners, J&J Cable Partners, Inc.
         and PS&G Cable Partners, Inc. (which is incorporated by reference
         herein to Pegasus Communications Corporation's Form 10-Q for the
         quarter ended June 30, 1998).
2.2      Asset Purchase Agreement dated as of January 16, 1998 between Avalon
         Cable of New England, LLC and Pegasus Cable Television, Inc. and
         Pegasus Cable Television of Connecticut, Inc. (which is incorporated by
         reference herein to Pegasus Communications Corporation's Form 8-K dated
         January 16, 1998).
3.1      Amended and Restated Certificate of Incorporation of Pegasus, as
         amended (which is incorporated by reference to Exhibit 3.1 to Pegasus'
         Registration Statement on Form S-1 (File No. 33-95042)).
3.2      By-Laws of Pegasus (which is incorporated by reference to Exhibit 3.2 
         to Pegasus' Registration Statement on Form S-1 (File No. 33-95042)).
4.1      Indenture, dated as of July 7, 1995, by and among Pegasus, the
         Guarantors (as this term is defined in the Indenture), and First
         Fidelity Bank, National Association, as Trustee, relating to the
         12 1/2% Series B Senior Subordinated Notes due 2005 (including the form
         of Notes and Subsidiary Guarantee) (which is incorporated herein by
         reference to Exhibit 4.1 to Pegasus' Registration Statement on Form S-4
         (File No. 33-95042)).
4.2      Form of 12 1/2% Series B Senior Subordinated Notes due 2005 (included 
         in Exhibit 4.1 above).
4.3      Form of Subsidiary Guarantee with respect to the 12 1/2% Series B 
         Senior Subordinated Notes due 2005 (included in Exhibit 4.1 above).
10.1     Station Affiliation Agreement, dated March 30, 1992, between Fox
         Broadcasting Company and D. & K. Broadcast Properties L.P. relating to
         television station WDBD (which is incorporated herein by reference to
         Exhibit 10.5 to Pegasus' Registration Statement on Form S-4 (File No.
         33-95042)).
10.2     Agreement and Amendment to Station Affiliation Agreement, dated as of
         June 11, 1993, between Fox Broadcasting Company and Donatelli & Klein
         Broadcast relating to television station WDBD (which is incorporated
         herein by reference to Exhibit 10.6 to Pegasus' Registration Statement
         on Form S-4 (File No. 33-95042)).
10.3     Station Affiliation Agreement, dated March 30, 1992, between Fox
         Broadcast Company and Scranton TV Partners Ltd. relating to television
         station WOLF (which is incorporated herein by reference to Exhibit 10.8
         to Pegasus' Registration Statement on Form S-4 (File No. 33-95042)).
10.4     Agreement and Amendment to Station Affiliation Agreement, dated June
         11, 1993, between Fox Broadcasting Company and Scranton TV Partners,
         Ltd. relating to television station WOLF (which is incorporated herein
         by reference to Exhibit 10.9 to Pegasus' Registration Statement on Form
         S-4 (File No. 33-95042)).
10.5     Amendment to Fox Broadcasting Company Station Affiliation Agreement
         Regarding Network Nonduplication Protection, dated December 2, 1993,
         between Fox Broadcasting Company and Pegasus Broadcast Television, L.P.
         relating to television stations WOLF, WWLF, and WILF (which is
         incorporated herein by reference to Exhibit 10.10 to Pegasus'
         Registration Statement on Form S-4 (File No. 33-95042)).
10.6     Consent to Assignment, dated May 1, 1993, between Fox Broadcasting
         Company and Pegasus Broadcast Television, L.P. relating to television
         station WOLF (which is incorporated herein by reference to Exhibit
         10.11 to Pegasus' Registration Statement on Form S-4 (File No.
         33-95042)).
10.7     Station Affiliation Agreement, dated March 30, 1992, between Fox
         Broadcasting Company and WDSI Ltd. relating to television station WDSI
         (which is incorporated herein by reference to Exhibit 10.12 to Pegasus'
         Registration Statement on Form S-4 (File No. 33-95042)).
10.8     Agreement and Amendment to Station Affiliation Agreement, dated June
         11, 1993, between Fox Broadcasting Company and Pegasus Broadcast
         Television, L.P. relating to television station WDSI (which is
         incorporated herein by reference to Exhibit 10.13 to Pegasus'
         Registration Statement on Form S-4 (File No. 33-95042)).
10.9     Franchise Agreement for Mayaguez, Puerto Rico (which is incorporated
         herein by reference to Exhibit 10.14 to Pegasus' Registration Statement
         on Form S-4 (File No. 33-95042)).

                                       18
<PAGE>
10.10    NRTC/Member Agreement for Marketing and Distribution of DBS Services,
         dated June 24, 1993, between the National Rural Telecommunications
         Cooperative and Pegasus Cable Associates, Ltd. (which is incorporated
         herein by reference to Exhibit 10.28 to Pegasus' Registration Statement
         on Form S-4 (File No. 33-95042) (other similar agreements with the
         National Rural Telecommunications Cooperative are not being filed but
         will be furnished upon request, subject to restrictions on
         confidentiality)).
10.11    Amendment to NRTC/Member Agreement for Marketing and Distribution of
         DBS Services, dated June 24, 1993, between the National Rural
         Telecommunications Cooperative and Pegasus Cable Associates, Ltd.
         (which is incorporated herein by reference to Exhibit 10.29 to Pegasus'
         Registration Statement on Form S-4 (File No. 33-95042)).
10.12    DIRECTV Sign-Up  Agreement, dated May 3, 1995, between DIRECTV, Inc. 
         and Pegasus Satellite Television, Inc. (which is incorporated herein by
         reference to Exhibit 10.30 to Pegasus' Registration Statement on Form 
         S-4 (File No. 33-95042)).
10.13    Franchise Agreement granted to Dom's Tele-Cable, Inc., to build and
         operate cable television systems for the municipalities of Cabo Rojo,
         San German, Lajas, Hormigueros, Guanica, Sabana Grande and Maricao
         (which is incorporated herein by reference to Exhibit 2 to Pegasus'
         Form 8-K dated March 21, 1996)).
10.14    Franchise Agreement granted to Dom's Tele-Cable, Inc. to build and
         operate cable television systems for the municipalities of Anasco,
         Rincon and Las Marias (which is incorporated herein by reference to
         Exhibit 3 to Pegasus' Form 8-K dated March 21, 1996)).
10.15    Credit Agreement dated as of December 10, 1997 by and among Pegasus
         Media & Communications, Inc., the lenders thereto, and Bankers Trust
         Company, as agent for the lenders (which is incorporated by reference
         herein to Exhibit 10.1 to Pegasus Communications Corporation's Form 8-K
         dated December 10, 1997).
10.16+   Pegasus Restricted Stock Plan (which is incorporated by reference to 
         Exhibit 10.28 to Pegasus Communications Corporation's Registration
         Statement on Form S-1 (File No. 333-05057)).
10.17+   Option Agreement for Donald W. Weber (which is incorporated by
         reference to Exhibit 10.29 to Pegasus Communications Corporation's
         Registration Statement on Form S-1 (File No. 333-05057)).
10.18+   Pegasus Communications 1996 Stock Option Plan (as amended and restated
         effective as of December 18, 1998) (which is incorporated by reference
         to Exhibit 10.18 to Pegasus Communications Corporation's Registration
         Statement on Form S-3 (File No. 333-70949)).
10.19+   Amendment to Option Agreement for Donald W. Weber, dated December 19,
         1996 (which is incorporated by reference to Exhibit 10.31 to Pegasus
         Communications Corporation's Registration Statement on Form S-1 (File
         No. 333-18739)).
10.20    Amendment to Credit Agreement executed as of March 10, 1998 by and
         among Pegasus, the lenders thereto, and Bankers Trust Company, as agent
         for the lenders (which is incorporated by reference to Exhibit 10.21 to
         Pegasus Communications Corporation's Registration Statement on Form S-4
         (File No. 333-44929)).
10.21    Second Amendment to Credit Agreement executed as of August 3, 1998, by
         and among Pegasus Media & Communications, Inc., the lenders thereto,
         and Bankers Trust Company, as agent for the lenders (which is
         incorporated by reference to Exhibit 10.22 to Pegasus' Registration
         Statement on Form S-3 (File No. 333-70949)).
10.22    Third Amendment to Credit Agreement executed as of December 31, 1998,
         by and among Pegasus Media & Communications, Inc., the lenders thereto,
         and Bankers Trust Company, as agent for the lenders (which is
         incorporated by reference to Exhibit 10.23 to Pegasus' Registration
         Statement on Form S-3 (File No. 333-70949)).
10.23    Second Amended and Restated Credit Agreement dated as of July 30, 1997
         among Digital Television Services, LLC, and several lenders, CIBC Wood
         Gundy Securities Corp., as arranger, Morgan Guaranty Trust Company of
         New York, Fleet National Bank, and Canadian Imperial Bank of Commerce
         (which is incorporated by reference to Exhibit 10.1 of Digital
         Television Services' Registration Statement on Form S-4 (File No.
         333-36217)).
24.1*    Powers of Attorney (included in Signatures and Powers of Attorney).
27.1*    Financial Data Schedule.
---------------
*        Filed herewith.
+        Indicates a management contract or compensatory plan.

         (b)      Reports on Form 8-K.

                  There were no Current Reports on Form 8-K filed during the
                  quarter ended December 31, 1998.

                                       19
<PAGE>

                        SIGNATURES AND POWERS OF ATTORNEY


         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 MEDIA & COMMUNICATIONS, INC.


                       By: /s/ Marshall W. Pagon
                          -------------------------------------
                          Marshall W. Pagon
                          Chairman of the Board,
                          Chief Executive Officer and President

Date: March 25, 1999

         Know all men by these presents, that each person whose signature
appears below hereby constitutes and appoints Marshall W. Pagon, Robert N.
Verdecchio and Ted S. Lodge and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each of such attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary in connection with such matters and hereby
ratifying and confirming all that each of such attorneys-in-fact and agents or
his substitutes may do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                                                                    Title                            Date
                                                                    -----                            ----
<S>                                                    <C>                                      <C> 
            /s/ Marshall W. Pagon                       Chairman of the Board, Chief             March 25, 1999
-----------------------------------------------         Executive Officer and President
              Marshall W. Pagon                         
        (Principal Executive Officer)


           /s/ Robert N. Verdecchio                     Senior Vice President, Chief             March 25, 1999
-----------------------------------------------         Financial Officer, Assistant
             Robert N. Verdecchio                       Secretary, and Director     
 (Principal Financial and Accounting Officer)           

            /s/ Michael C. Brooks                       Director                                 March 25, 1999
-----------------------------------------------
              Michael C. Brooks

                                                        Director                                 March 25, 1999
-----------------------------------------------
             Harry F. Hopper III

          /s/ James J. McEntee, III                     Director                                 March 25, 1999
-----------------------------------------------
            James J. McEntee, III

</TABLE>




                                       20

<PAGE>
<TABLE>
<CAPTION>

<S>                                                    <C>                                      <C> 
             /s/ Mary C. Metzger                        Director                                 March 25, 1999
-----------------------------------------------
               Mary C. Metzger

            /s/ William P. Phoenix                      Director                                 March 25, 1999
-----------------------------------------------
              William P. Phoenix

             /s/ Riordon B. Smith                       Director                                 March 25, 1999
-----------------------------------------------
               Riordon B. Smith

             /s/ Donald W. Weber                        Director                                 March 25, 1999
-----------------------------------------------
               Donald W. Weber


</TABLE>




                                       21

<PAGE>


                      PEGASUS MEDIA & COMMUNICATIONS, INC.
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                 Page
                                                                                                 ----
<S>                                                                                             <C>
Report of PricewaterhouseCoopers LLP                                                             F-2

Combined Balance Sheets as of December 31, 1997 and 1998                                         F-3

Combined Statements of Operations for the years ended December 31, 1996, 1997 and 1998           F-4

Combined Statements of Changes in Total Equity for the years ended December 31, 1996,
  1997 and 1998                                                                                  F-5

Combined Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998           F-6

Notes to Combined Financial Statements                                                           F-7

</TABLE>





                                       F-1


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Stockholder of
Pegasus Media & Communications, Inc.:


In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Pegasus
Media & Communications, Inc. and its subsidiaries at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit 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, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.



PRICEWATERHOUSECOOPERS  LLP


Philadelphia, Pennsylvania
February 12, 1999


                                      F-2

<PAGE>

                      Pegasus Media & Communications, Inc.
                             Combined Balance Sheets
<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                        ---------------------------------
                                                                            1997                 1998
                                                                        ------------          -----------
<S>                                                                     <C>                   <C> 
                             ASSETS
Current  assets:
       
    Cash and cash equivalents                                           $ 17,010,315         $ 22,706,767
    Restricted cash                                                                -            1,000,000
    Accounts receivable, less allowance for doubtful
     accounts of $319,000 and $384,000, respectively                      13,074,636           16,736,558
    Inventory                                                                974,920            4,693,450
    Program rights                                                         2,059,346            3,156,715
    Deferred taxes                                                         2,602,453            2,602,453
    Prepaid expenses and other                                               767,482              722,420
                                                                        ------------         ------------
      Total current assets                                                36,489,152           51,618,363

Property and equipment, net                                               27,382,713           28,785,294
Intangible assets, net                                                   272,164,370          369,745,145
Program rights                                                             2,262,299            3,428,382
Deferred taxes                                                                     -            7,167,379
Deposits and other                                                           624,629              872,386
                                                                        ------------         ------------

    Total assets                                                        $338,923,163         $461,616,949
                                                                        ============         ============

                 LIABILITIES AND EQUITY

Current liabilities:
    Current portion of long-term debt                                   $  6,328,463         $ 10,332,061
    Accounts payable                                                       5,207,719            3,246,132
    Accrued interest                                                       6,025,004            6,188,829
    Accrued satellite programming and fees                                 6,089,389           11,272,599
    Accrued expenses                                                      11,134,589           12,496,547
    Current portion of program rights payable                              1,418,581            2,431,515
                                                                        ------------         ------------
      Total current liabilities                                           36,203,745           45,967,683

Long-term debt                                                            86,979,613          124,812,182
Advances from affiliates                                                   9,845,583            8,880,953
Program rights payable                                                     1,416,446            2,472,367
Deferred taxes                                                             2,652,454           14,315,249
                                                                        ------------         ------------
     Total liabilities                                                   137,097,841          196,448,434
                                                                        ------------         ------------

Commitments and contingent liabilities                                             -                    -

Minority interest                                                          3,000,000            3,000,000

Common stockholder's equity:
    Class A common stock; $0.01 par value; 230,000 shares
      authorized; 161,500 issued and outstanding                               1,615                1,615
    Class B common stock; $0.01 par value; 20,000 shares
      authorized; 8,500 issued and outstanding                                    85                   85
    Additional paid-in capital                                           227,221,423          314,010,492
    Deficit                                                              (28,397,801)         (51,843,677)
                                                                        ------------         ------------
      Total stockholder's equity                                         198,825,322          262,168,515
                                                                        ------------         ------------
    Total liabilities and stockholder's equity                          $338,923,163         $461,616,949
                                                                        ============         ============
</TABLE>

             See accompanying notes to combined financial statements

                                       F-3

<PAGE>
                      Pegasus Media & Communications, Inc.
                        Combined Statements of Operations
<TABLE>
<CAPTION>


                                                                                  Years Ended December 31,
                                                                      ---------------------------------------------
                                                                          1996            1997             1998
                                                                      -----------     ------------     ------------
<S>                                                                    <C>             <C>              <C>
Net revenues:
     DBS                                                               $4,213,059      $17,989,779     $ 94,087,627
     Broadcast                                                         28,487,622       31,725,595       34,135,453
     Cable                                                             13,496,019       16,688,496       13,767,400
                                                                      -----------     ------------    -------------
       Total net revenues                                              46,196,700       66,403,870      141,990,480

Operating expenses:
     DBS
        Programming, technical, general and administrative              3,365,183       11,991,189       65,004,534
        Marketing and selling                                             445,843        4,803,843       27,044,279
        Incentive compensation                                             95,162          440,145          985,000
        Depreciation and amortization                                     838,393        7,854,842       30,885,788
     Broadcast
        Programming, technical, general and administrative             13,951,969       15,719,022       18,061,429
        Marketing and selling                                           4,822,617        5,675,900        5,992,751
        Incentive compensation                                            691,436          297,734          177,345
        Depreciation and amortization                                   4,000,066        3,724,046        4,523,252
     Cable
        Programming, technical, general and administrative              7,102,573        8,426,755        7,556,548
        Marketing and selling                                              89,625          266,588          340,591
        Incentive compensation                                            148,172          181,300          115,430
        Depreciation and amortization                                   5,245,255        5,642,901        4,992,833

     Corporate expenses                                                 2,045,582        1,618,965        3,524,974
     Corporate depreciation and amortization                              409,135          632,469          680,164
                                                                      -----------     ------------    -------------
       Income (loss) from operations                                    2,945,689         (871,829)     (27,894,438)

Interest expense                                                      (12,438,366)     (12,595,892)     (15,980,346)
Interest income                                                           232,361          102,175          660,330
Other expenses, net                                                      (136,035)        (148,382)        (462,438)
Gain on sale of cable systems                                                   -        4,451,320       24,726,432
                                                                      -----------     ------------    -------------

     Loss before income taxes                                          (9,396,351)      (9,062,608)     (18,950,460)
Provision (benefit) for income taxes                                     (120,000)         200,000        4,495,416
                                                                      -----------     ------------    -------------
     Loss before extraordinary items                                   (9,276,351)      (9,262,608)     (23,445,876)
Extraordinary loss from
  extinguishment of debt, net                                            (250,603)      (1,656,164)               -
                                                                      -----------     ------------    -------------


     Net loss                                                         ($9,526,954)    ($10,918,772)   ($ 23,445,876)
                                                                      ===========     ============    =============
</TABLE>

             See accompanying notes to combined financial statements

                                       F-4


<PAGE>
                      Pegasus Media & Communications, Inc.
           Combined Statements of Changes in Total Equity (Deficiency)

<TABLE>
<CAPTION>

                                                                Common Stock    
                                              -----------------------------------------------
                                                     Class A                 Class B       
                                              ----------------------------------------------- 
                                                Number        Par       Number       Par      
                                               of Shares     Value     of Shares    Value     
                                              ----------    ------     ---------    -----     
<S>                                           <C>         <C>          <C>         <C>        
Balances at January 1, 1996                     161,500     $1,615       8,500       $85      
Net loss                                                                                      
Contribution by Partners                                                                      
Conversions of partnerships                                                                   
                                              ------------------------------------------------
Balances at December 31, 1996                   161,500      1,615       8,500        85      
Net loss                                                                                      
Contribution by Parent                                                                        
                                              ------------------------------------------------
Balances at December 31, 1997                   161,500      1,615       8,500        85      
Net loss                                                                                      
Contribution by Parent                                                                        
                                              ------------------------------------------------
Balances at December 31, 1998                   161,500     $1,615       8,500       $85      
                                              ================================================

</TABLE>


[RESTUB]
<TABLE>
<CAPTION>
                                            Additional         Retained          Partners'            Total
                                             Paid-In            Earnings          Capital             Equity
                                             Capital           (Deficit)         (Deficit)         (Deficiency)
                                            ----------         ---------         ---------         ------------
<S>                                       <C>                <C>              <C>                 <C>       
Balances at January 1, 1996                 $7,880,848         $1,325,548       ($9,383,036)        ($174,940)
Net loss                                                       (4,351,099)       (5,175,855)       (9,526,954)
Contribution by Partners                                                            105,413           105,413
Conversions of partnerships                                   (14,453,478)       14,453,478
                                          ---------------------------------------------------------------------
Balances at December 31, 1996                7,880,848        (17,479,029)                         (9,596,481)
Net loss                                                      (10,918,772)                        (10,918,772)
Contribution by Parent                     219,340,575                                            219,340,575
                                          ---------------------------------------------------------------------
Balances at December 31, 1997              227,221,423        (28,397,801)                        198,825,322
Net loss                                                      (23,445,876)                        (23,445,876)
Contribution by Parent                      86,789,069                                             86,789,069
                                          ---------------------------------------------------------------------
Balances at December 31, 1998             $314,010,492       ($51,843,677)                       $262,168,515
                                          =====================================================================

</TABLE>


             See accompanying notes to combined financial statements

                                       F-5
<PAGE>

                      Pegasus Media & Communications, Inc.
                        Combined Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                    --------------------------------------------------
                                                                        1996              1997               1998
                                                                    ------------      -------------      -------------
<S>                                                                 <C>               <C>                <C>
Cash flows from operating activities:
     Net loss                                                       ($9,526,954)      ($10,918,772)      ($23,445,876)
     Adjustments to reconcile net loss                                                
       to net cash provided (used) by operating activities:
       Extraordinary loss on
        extinguishment of debt, net                                     250,603          1,656,164                  -
       Depreciation and amortization                                 10,492,849         17,854,258         41,082,037
       Program rights amortization                                    1,514,122          1,715,556          2,366,429
       Accretion on discount of bonds                                   392,324            394,219            396,125
       Stock incentive compensation                                     934,770            919,179          1,277,775
       Gain on sale of cable systems                                          -         (4,451,320)       (24,726,432)
       Bad debt expense                                                 335,856            578,969          1,976,280
       Change in assets and liabilities:
          Accounts receivable                                        (1,504,597)        (4,496,937)        (5,239,953)
          Inventory                                                     402,942           (123,952)        (3,717,630)
          Prepaid expenses and other                                   (419,803)           575,233             13,945
          Accounts payable and accrued expenses                       5,355,841          4,447,602          6,706,088
          Accrued interest                                              418,338            166,353            163,825
          Capitalized subscriber acquisition costs                   (1,183,002)          (700,520)                 -
          Deposits and other                                            (74,173)          (458,131)          (247,757)
                                                                    -----------      -------------      -------------
     Net cash provided (used) by operating activities                 7,389,116          7,157,901         (3,395,144)
                                                                    -----------      -------------      -------------
Cash flows from investing activities:
        Acquisitions                                                (41,200,514)       (45,580,199)      (109,339,673)
        Cash acquired from acquisitions                                       -          4,061,082            171,900
        Capital expenditures                                         (6,242,598)        (9,375,075)        (9,776,662)
        Purchase of intangible assets                                  (575,725)        (2,338,789)        (3,131,102)
        Payments for programming rights                              (1,830,903)        (2,584,241)        (2,561,026)
        Proceeds from sale of cable systems                                   -          6,945,270         30,132,826
                                                                    -----------      -------------      -------------
     Net cash used for investing activities                         (49,849,740)       (48,871,952)       (94,503,737)
                                                                    -----------      -------------      -------------
Cash flows from financing activities:
        Repayments of long-term debt                                   (103,639)          (213,612)        (6,234,046)
        Borrowings on bank credit facilities                         41,400,000            526,250         91,500,000
        Repayments of bank credit facilities                        (11,800,000)      (124,326,250)       (64,000,000)
        Contributions by Parent                                               -        166,685,569         84,522,254
        Net proceeds (repayments) of borrowings from affiliates               -          9,845,583           (964,630)
        Restricted cash                                               9,881,198                  -         (1,000,000)
        Debt issuance costs                                            (304,237)        (1,885,630)                 -
        Capital lease repayments                                       (267,900)          (324,322)          (228,245)
        Contributions by Partners                                       105,413                  -                  -
                                                                    -----------      -------------      -------------
     Net cash provided by financing activities                       38,910,835         50,307,588        103,595,333
                                                                    -----------      -------------      -------------

Net increase (decrease) in cash and cash equivalents                 (3,549,789)         8,593,537          5,696,452
Cash and cash equivalents, beginning of year                         11,966,567          8,416,778         17,010,315
                                                                    -----------      -------------      -------------
Cash and cash equivalents, end of year                               $8,416,778        $17,010,315        $22,706,767
                                                                    ===========      =============      =============
</TABLE>

            See accompanying notes to combined financial statements

                                      F-6

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
                     NOTES TO COMBINED FINANCIAL STATEMENTS

1.   The Company:

         Pegasus Media & Communications, Inc. ("Pegasus" or together with its
subsidiaries stated below, the "Company") operates in growing segments of the
media industry and is a direct subsidiary of Pegasus Communications Corporation
("PCC" or the "Parent"). Pegasus' significant direct operating subsidiaries are
Pegasus Broadcast Television, Inc. ("PBT"), Pegasus Cable Television, Inc.
("PCT") and PST Holdings, Inc. ("PSTH").

         Pegasus' subsidiaries provide direct broadcast satellite television
("DBS") services to customers in certain rural areas of the United States; own
and/or program broadcast television ("Broadcast" or "TV") stations affiliated
with the Fox Broadcasting Company ("Fox"), United Paramount Network ("UPN") and
The WB Television Network ("WB"); and own and operate a cable television
("Cable") system that provides service to individual and commercial subscribers
in Puerto Rico.

2.   Summary of Significant Accounting Policies:

Basis of Presentation:

         The accompanying consolidated financial statements include the accounts
of Pegasus and all of its subsidiaries and the accounts of Pegasus Development
Corporation ("PDC"). All intercompany transactions and balances have been
eliminated. Certain amounts for 1996 and 1997 have been reclassified for
comparative purposes.

         PDC, a subsidiary of PCC, provided capital for various satellite
initiatives such as subscriber acquisition costs from October 1, 1997 through
March 31, 1998. The accounts of PDC have been included in the accompanying
combined financial statements since subscriber acquisition costs are an integral
part of the DBS operations and their inclusion is necessary for a fair
presentation of the financial position of the Company and the results of its
operations and its cash flows.

Use of Estimates in the Preparation of Financial Statements:

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingencies. Actual results could differ
from those estimates. Significant estimates relate to barter transactions and
the useful lives and recoverability of intangible assets.

Cash and Cash Equivalents:

         Cash and cash equivalents include highly liquid investments purchased
with an initial maturity of three months or less. The Company has cash balances
in excess of the federally insured limits at various banks.

Restricted Cash:

         The Company has restricted cash held in escrow of $1.0 million at
December 31, 1998 in connection with the pending purchase of a cable system
serving Aguadilla, Puerto Rico.

Inventories:

         Inventories consist of equipment held for resale to customers and
installation supplies. Inventories are stated at the lower of cost or market on
a first-in, first-out basis.
                                       F-7

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

2.   Summary of Significant Accounting Policies:  - (Continued)

Long-Lived Assets:

         The Company's assets are reviewed for impairment whenever events or
circumstances provide evidence which suggest the carrying amounts may not be
recoverable. The Company assesses the recoverability of its assets by
determining whether the depreciation or amortization of the respective asset
balance can be recovered through projected undiscounted future cash flows. To
date, no such impairments have occurred.

Property and Equipment:

         Property and equipment are stated at cost. The cost and related
accumulated depreciation of assets fully depreciated, sold, retired or otherwise
disposed of are removed from the respective accounts and any resulting gains or
losses are included in the statement of operations. For cable television
systems, initial subscriber installation costs including material, labor and
overhead costs of the hookup are capitalized as part of the distribution
facilities. The costs of disconnection and reconnection are charged to expense.
Satellite equipment that is leased to customers is stated at cost.

         Depreciation is computed for financial reporting purposes using the
straight-line method based upon the following lives:

          Reception and distribution facilities................    7 to 11 years
          Transmitter equipment................................    5 to 10 years
          Equipment, furniture and fixtures....................    5 to 10 years
          Building and improvements............................   12 to 39 years
          Vehicles.............................................     3 to 5 years

Intangible Assets:

         Intangible assets are stated at cost. The cost and related accumulated
amortization of assets fully amortized, sold, retired or otherwise disposed of
are removed from the respective accounts and any resulting gains or losses are
included in the statement of operations. Costs of successful franchise
applications are capitalized and amortized over the lives of the related
franchise agreements, while unsuccessful franchise applications and abandoned
franchises are charged to expense. Financing costs incurred in obtaining
long-term financing are amortized over the term of the applicable loan.

         The Company's policy is to capitalize subscriber acquisition costs,
such as commissions and equipment subsidies, directly related to new subscribers
who sign a programming contract. These costs are amortized over the life of the
contract. The Company expenses its subscriber acquisition costs when no contract
is obtained. Subsequent to September 30, 1997, the Company does not require new
DBS customers to sign programming contracts and as a result subscriber
acquisition costs are charged to operations in the period incurred.

         Amortization of intangible assets is computed for financial reporting
purposes using the straight-line method based upon the following lives:

          Broadcast licenses...................................        40 years
          Network affiliation agreements.......................        40 years
          Goodwill.............................................        40 years
          DBS rights...........................................        10 years
          Subscriber acquisition costs.........................          1 year
          Other intangibles....................................   2 to 14 years

                                       F-8

<PAGE>


                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

2.   Summary of Significant Accounting Policies:  - (Continued)

Revenue:

         The Company operates in growing segments of the media industry: DBS,
Broadcast and Cable. The Company recognizes revenue in its DBS and Cable
operations when video and audio services are provided. The Company recognizes
revenue in its Broadcast operations when advertising spots are broadcast.

         The Company obtains a portion of its TV programming through its network
affiliations with Fox, UPN and WB and also through independent producers. The
Company does not make any direct payments for this programming. Instead, the
Company retains a portion of the available advertisement spots to sell on its
own account. Barter programming revenue and the related expense are recognized
when the advertisements sold by the networks or independent producers are
broadcast. Gross barter amounts of $6.3 million, $7.5 million and $8.1 million
for 1996, 1997 and 1998, respectively, are included in Broadcast revenue and
programming expense in the accompanying combined statements of operations.

Advertising Costs:

         Advertising costs are charged to operations in the period incurred and
totaled approximately $975,000, $2.5 million and $9.5 million for the years
ended December 31, 1996, 1997 and 1998, respectively.

Program Rights:

         The Company enters into agreements to show motion pictures and
syndicated programs on television. The Company records the right and associated
liabilities for those films and programs when they are currently available for
showing. These rights are recorded at the lower of unamortized cost or estimated
net realizable value and are amortized on the straight-line method over the
license period, which approximates amortization based on the estimated number of
showings during the contract period. Amortization of $1.5 million, $1.7 million
and $2.4 million is included in Broadcast programming expense for the years
ended December 31, 1996, 1997 and 1998, respectively. The obligations arising
from the acquisition of film rights are recorded at the gross amount. Payments
for the contracts are made pursuant to the contractual terms over periods which
are generally shorter than the license periods.

Income Taxes:

         The Company accounts for income taxes utilizing the asset and liability
approach, whereby deferred tax assets and liabilities are recorded for the tax
effect of differences between the financial statement carrying values and tax
bases of assets and liabilities. A valuation allowance is recorded for deferred
taxes where it appears more likely than not that the Company will not be able to
recover the deferred tax asset. MCT Cablevision, L.P., a subsidiary of the
Company, is treated as a partnership for federal and state income tax purposes
but taxed as a corporation for Puerto Rico income tax purposes.



                                      F-9

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

2.   Summary of Significant Accounting Policies: - (Continued)

Concentration of Credit Risk:

         Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables, cash and
cash equivalents.

         Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's customer
base and their dispersion across different businesses and geographic regions. As
of December 31, 1997 and 1998, the Company had no significant concentrations of
credit risk.

Reliance on DIRECTV:

         A substantial portion of the Company's business is derived from
providing DBS services as an independent DIRECTV(R) ("DIRECTV") provider.
Because the Company is a distributor of DIRECTV services, the Company would be
adversely affected by any material adverse changes in the assets, financial
condition, programming, technological capabilities or services of DIRECTV or its
parent, Hughes Electronics Corporation.

New Accounting Pronouncements:

         In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP
98-5"), which is effective for fiscal years beginning after December 15, 1998.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective
for fiscal quarters of fiscal years beginning after June 15, 1999. Management
has reviewed the provisions of SOP 98-5 and SFAS No. 133 and the implementation
of these standards is not expected to have any significant impact on its
combined financial statements.




                                      F-10

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

3.   Property and Equipment:

         Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                           December 31,     December 31,
                                                               1997             1998
                                                           ------------     ------------
<S>                                                        <C>              <C>        
    Reception and distribution facilities..........        $27,012,297      $20,712,511
    Transmitter equipment..........................         15,113,116       17,534,865
    Equipment, furniture and fixtures..............          2,661,743        3,637,452
    Building and improvements......................          2,208,163        2,914,325
    Land...........................................            907,712        1,189,163
    Vehicles.......................................            983,256        1,111,665
    Other equipment................................          2,612,332        4,155,857
                                                           -----------      -----------
                                                            51,498,619       51,255,838
    Accumulated depreciation.......................        (24,115,906)     (22,470,544)
                                                           -----------      -----------
    Net property and equipment.....................        $27,382,713      $28,785,294
                                                           ===========      ===========
</TABLE>

         Depreciation expense amounted to $5.1 million, $5.4 million and $5.4
million for the years ended December 31, 1996, 1997 and 1998, respectively.

4.   Intangibles:

         Intangible assets consist of the following:
<TABLE>
<CAPTION>
                                                           December 31,     December 31,
                                                               1997             1998
                                                           ------------     ------------
<S>                                                        <C>              <C>         
    DBS rights.....................................        $203,379,952     $336,284,991
    Franchise costs................................          35,332,755       31,157,958
    Goodwill.......................................          28,490,035       28,033,368
    Broadcast licenses and affiliation agreements..          15,094,212       15,062,241
    Consultancy and non-compete agreements.........           6,010,838        7,022,688
    Deferred financing costs.......................           6,934,088        6,696,843
    Subscriber acquisition costs...................           5,787,156                -
    Other deferred costs...........................           8,529,281        8,674,193
                                                           ------------     ------------
                                                            309,558,317      432,932,282
    Accumulated amortization.......................         (37,393,947)     (63,187,137)
                                                           ------------     ------------
    Net intangible assets..........................        $272,164,370     $369,745,145
                                                           ============     ============
</TABLE>

         Amortization expense amounted to $5.4 million, $12.4 million and $35.7
million for the years ended December 31, 1996, 1997 and 1998, respectively.

                                      F-11

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

5.   Common Stock:

         In October 1996, the Company became a direct subsidiary of PCC as a
result of PCC's initial public offering of its Class A Common Stock. In December
1996, as a result of a registered exchange offer made to holders of Pegasus'
Class B Common stock, Pegasus became a wholly owned subsidiary of PCC.

         The Company's ability to pay dividends on its Common Stock is subject
to certain restrictions.

6.   Long-Term Debt:

             Long-term debt consists of the following : 
<TABLE>
<CAPTION>
                                                                                   December 31,         December 31,
                                                                                       1997                 1998
                                                                                   ------------         ------------
<S>                                                                               <C>                 <C>           
Series B Notes payable by Pegasus, due 2005, interest at 12.5%, payable
    semi-annually in arrears on January 1 and July 1, net of unamortized
    discount of $3,018,003 and $2,621,878 as of December 31, 1997 and 1998,
    respectively................................................................   $81,981,997          $82,378,122
Senior six-year $180.0 million revolving credit facility, payable by Pegasus, 
    interest at the Company's option at either the bank's base rate plus 
    an applicable margin or LIBOR plus an applicable margin (7.8125% at 
    December 31, 1998)..........................................................             -           27,500,000
Mortgage payable, due 2000, interest at 8.75%...................................       477,664              454,965
Note payable, due 1998, interest at 10%.........................................     3,050,000                    -
Sellers' notes, due 1999 to 2005, interest at 3% to 8%..........................     7,171,621           24,376,107
Capital leases and other........................................................       626,794              435,049
                                                                                   -----------         ------------
                                                                                    93,308,076          135,144,243
Less current maturities.........................................................     6,328,463           10,332,061
                                                                                   -----------         ------------
Long-term debt..................................................................   $86,979,613         $124,812,182
                                                                                   ===========         ============
</TABLE>

         In December 1997, the Company entered into a $180.0 million senior
revolving credit facility (the "PM&C Credit Facility") which expires in 2003 and
is collateralized by substantially all of the assets of Pegasus and its
subsidiaries. The PM&C Credit Facility is subject to certain financial covenants
as defined in the loan agreement, including a debt to adjusted cash flow
covenant. As of December 31, 1998, $36.4 million of stand-by letters of credit
were issued pursuant to the PM&C Credit Facility, including $23.5 million
collateralizing certain of the Company's outstanding sellers' notes.

         The Company's 12.5% Series B Notes due 2005 (the "12.5% Series B
Notes") may be redeemed, at the option of the Company, in whole or in part, at
various points in time after July 1, 2000 at the redemption prices specified in
the indenture governing the 12.5% Series B Notes, plus accrued and unpaid
interest thereon.

         The Company's indebtedness contain certain financial and operating
covenants, including restrictions on the Company to incur additional
indebtedness, create liens and to pay dividends.


                                      F-12

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

6.       Long-Term Debt: - (Continued)

         At December 31, 1998, maturities of long-term debt and capital leases
are as follows:

           1999...........................................    $ 10,332,061
           2000...........................................       7,109,950
           2001...........................................       4,717,767
           2002...........................................       2,302,583
           2003...........................................      27,803,760
           Thereafter.....................................      82,878,122
                                                              ------------
                                                              $135,144,243
                                                              ============
7.   Leases:

         The Company leases certain studios, towers, utility pole attachments,
and occupancy of underground conduits and headend sites under operating leases.
The Company also leases office space, vehicles and various types of equipment
through separate operating lease agreements. The operating leases expire at
various dates through 2004. Rent expense for the years ended December 31, 1996,
1997 and 1998 was $686,000, $896,000 and $935,000, respectively. The Company
leases equipment under long-term leases and has the option to purchase the
equipment for a nominal cost at the termination of the leases. The related
obligations are included in long-term debt. Property and equipment at December
31 include the following amounts for leases that have been capitalized:

                                                     1997           1998
                                                  ----------     ----------
     Equipment, furniture and fixtures......      $  676,679     $  638,148
     Vehicles...............................         516,642        371,121
                                                  ----------     ----------
                                                   1,193,321      1,009,269
     Accumulated depreciation...............        (508,305)      (493,647)
                                                  ----------     ----------
                                                  $  685,016     $  515,622
       Total................................      ==========     ==========

         Future minimum lease payments on noncancellable operating and capital
leases at December 31, 1998 are as follows:

                                           Operating          Capital
                                            Leases             Leases
                                          ----------          --------
     1999...........................        $860,202          $162,543
     2000...........................         677,777           159,098
     2001...........................         563,970           143,053
     2002...........................         203,811            54,799
     2003...........................          54,928             1,560
     Thereafter.....................           2,800                 -
                                          ----------          --------
     Total minimum payments.........      $2,363,488           521,053
                                          ==========
     Less: amount representing 
       interest.....................                            86,004
                                                              --------
     Present value of net minimum 
       lease payments including 
       current maturities of 
       $121,870.....................                          $435,049
                                                              ========

                                      F-13

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

8.   Income Taxes:

         The following is a summary of the components of income taxes from
operations:

                                               1996         1997         1998
                                            ----------    --------    ----------
    Federal - deferred....................  ($169,000)                $4,320,416
    State and local - current.............     49,000     $200,000       175,000
                                            ---------     --------    ----------
       Provision (benefit) for income 
        taxes.............................  ($120,000)    $200,000    $4,495,416
                                            =========     ========    ==========

         The deferred income tax assets and liabilities recorded in the combined
balance sheets at December 31, 1997 and 1998 are as follows:

                                                           1997         1998
                                                       ------------  -----------
    Assets:
        Receivables...................................     $73,547     $145,744
        Excess of tax basis over book basis 
            from tax gain recognized upon 
            incorporation of subsidiaries.............   1,890,025    2,112,381
        Loss carryforwards............................  18,046,889   30,824,090
        Other.........................................     870,305      972,694
                                                       -----------  -----------
             Total deferred tax assets................  20,880,766   34,054,909
                                                       -----------  -----------
    Liabilities:
        Excess of book basis over tax basis 
            of property, plant and equipment..........   1,938,899    2,355,072
        Excess of book basis over tax basis of 
            amortizable intangible assets.............   5,695,313   11,960,177
                                                       -----------  -----------
            Total deferred tax liabilities............   7,634,212   14,315,249
                                                       -----------  -----------
        Net deferred tax assets.......................  13,246,554   19,739,660
             Valuation allowance...................... (13,296,554) (24,285,077)
                                                       -----------  -----------
        Net deferred tax liabilities..................    ($50,000) ($4,545,417)
                                                       ===========  ===========

         The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized due to the expiration of
the Company's net operating loss carryforwards and portions of other deferred
tax assets related to prior acquisitions. The valuation allowance increased
primarily as the result of net operating loss carryforwards generated during
1998, which may not be utilized.

         At December 31, 1998, the Company has net operating loss carryforwards
of approximately $81.1 million which are available to offset future taxable
income and expire through 2018.

         A reconciliation of the Federal statutory rate to the effective tax
rate is as follows:

                                                  1996        1997       1998
                                                -------     -------    -------
    U.S. statutory federal income tax rate....   34.00%      34.00%     35.00%
    Foreign net operating loss................    1.73           -          -
    Valuation allowance.......................  (36.92)     (34.38)     (0.13)
    Other.....................................       -        1.43          - 
                                                ------      ------      -----
    Effective tax rate........................  (1.19%)       1.05%     34.87%
                                                ======      ======      =====

                                      F-14

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

9.   Supplemental Cash Flow Information:

         Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
                                                                                 Years ended December 31,
                                                                       ------------------------------------------  
                                                                          1996             1997           1998
                                                                       ----------       ----------     ----------
<S>                                                                    <C>              <C>            <C>       
Barter revenue and related expense................................     $6,337,220       $7,520,000     $8,078,000
Acquisition of program rights and assumption of related
  program payables................................................      1,140,072        3,452,779      4,629,881
Acquisition of plant under capital leases.........................        312,578          501,907         36,500
Capital contribution and related acquisition of intangibles.......              -       51,442,941      1,122,059
Execution of license agreement option.............................      3,050,000                -              -
Notes payable and related acquisition of intangibles..............              -        2,185,622     20,365,833
</TABLE>

         For the years ended December 31, 1996, 1997 and 1998 the Company paid
cash for interest in the amount of $12.0 million, $12.2 million and $15.8
million, respectively. The Company paid no federal income taxes for the years
ended December 31, 1996, 1997 and 1998.

10.   Acquisitions and Dispositions:

         In July 1997, the Company transferred the stock of Pegasus Satellite
Television, Inc. ("PST"), which provided DBS services to customers in the New
England area, to a newly formed subsidiary of the Company, PSTH. PSTH
transferred the PST stock to Pegasus Satellite Holdings, Inc. ("PSH"), a
subsidiary of PCC, in exchange for $27.8 million of preferred equity in PSH (the
"PST/PSH Exchange").

         Effective October 21, 1997, upon consummation of an offering of PCC's
senior notes, the Company acquired the assets of PSH (the "Subsidiaries
Combination"), which assets consisted of the stock of its subsidiaries that hold
the rights to all of the Company's DBS territories (the "Shares"). The aggregate
purchase price for the Shares was approximately $218.2 million and consisted of
$85.6 million in cash, the redemption and cancellation of the $27.8 million of
preferred equity in PSH acquired in the PST/PSH Exchange and the assumption of
approximately $104.8 million in assumed liabilities. At October 21, 1997, PSH's
subsidiaries provided DBS services to customers in certain rural areas which
encompassed portions of 26 states.

         In 1997, the Company acquired (exclusive of the Subsidiaries
Combination), from four independent DIRECTV providers, the rights to provide
DIRECTV programming in certain rural areas of Georgia, Minnesota, Nebraska, Utah
and Wyoming and the related assets in exchange for total consideration of
approximately $20.7 million, which consisted of $9.5 million in cash, 397,035
shares of PCC's Class A Common Stock (amounting to $8.5 million at the time of
issuance), $2.2 million in promissory notes and $512,000 in assumed net
liabilities.

         Effective January 31, 1997, the Company sold substantially all the
assets of its New Hampshire cable system to State Cable TV Corporation for
approximately $6.9 million in cash, net of certain selling costs. The Company
recognized a gain on the transaction of approximately $4.5 million.

         In 1998, the Company acquired, from 26 independent DIRECTV providers,
the rights to provide DIRECTV programming in certain rural areas of the United
States and the related assets in exchange for total consideration of
approximately $132.1 million, which consisted of $109.3 million in cash, 37,304
shares of PCC's Class A Common Stock (amounting to $900,000 at the time of
issuance), warrants to purchase a total of 25,000 shares of PCC's Class A Common
Stock (amounting to $222,000 at the time of issuance), $20.4 million in
promissory notes and $1.3 million in assumed net liabilities.

                                      F-15
<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

10.      Acquisitions and Dispositions: - (Continued)

         Effective July 1, 1998, the Company sold substantially all the assets
of its remaining New England cable systems to Avalon Cable of New England, LLC
for approximately $30.1 million in cash. The Company recognized a gain on the
transaction of approximately $24.7 million.

         The value assigned to PCC's Class A Common Stock was computed by
multiplying the number of shares issued by the closing price per share on the
day prior to the date of consummation of the acquisition.

         The following unaudited summary, prepared on a pro forma basis,
combines the results of operations as if the above DBS territories and cable
systems had been acquired or sold as of the beginning of the periods presented,
after including the impact of certain adjustments, such as the amortization of
intangibles, interest expense and related income tax effects. The pro forma
information does not purport to be indicative of what would have occurred had
the acquisitions/dispositions been made on those dates or of results which may
occur in the future. This pro forma information does not include any
acquisitions that occurred subsequent to December 31, 1998.

                                                      Years Ended December 31,
                                                     --------------------------
                         (in thousands)                       (unaudited)
                                                       1997              1998
                                                     --------          --------
           Net revenues...........................   $127,736          $159,081
                                                     --------          --------
           Operating loss.........................   ($31,150)         ($31,281)
                                                     --------          --------
           Net loss...............................   ($46,738)         ($49,263)
                                                     ========          ========

         On July 23, 1998, the Company entered into an agreement to purchase a
cable system serving Aguadilla, Puerto Rico and neighboring communities for a
purchase price of approximately $42.0 million in cash. The Aguadilla cable
system serves approximately 21,500 subscribers and passes approximately 81,000
of the 90,000 homes in the franchise area. The Aguadilla cable system is
contiguous to the Company's existing Puerto Rico cable system and, upon
completion of the purchase, the Company intends to consolidate the Aguadilla
cable system with its existing cable system. The closing of this acquisition is
subject to regulatory and other approvals, as well as customary conditions, and
the Company expects this transaction to close in the first half of 1999.

11.  Financial Instruments:

         The carrying values and fair values of the Company's financial 
instruments at December 31 consisted of:

<TABLE>
<CAPTION>
                                                                1997                        1998
                                                       ----------------------      ----------------------
                                                       Carrying        Fair        Carrying        Fair
                                                        Value         Value         Value         Value
                                                       --------      --------      --------      --------
                                                                         (in thousands)
<S>                                                     <C>          <C>           <C>           <C>     
          Long-term debt, including current portion     $93,308      $108,651      $135,144      $146,691
</TABLE>

         Long-term debt: The fair value of long-term debt is estimated based on
the quoted market price for the same or similar instruments.

         All other financial instruments are stated at cost which approximates
fair market value.

                                      F-16

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

12.  Commitments and Contingent Liabilities:

Legal Matters:

         In connection with the pending license renewal application of one of
the Company's television stations, it has come to the attention of the Company
that, at that station, there were violations of the FCC's rules establishing
limits on the amount of commercial material in programs directed to children.

         The Company was notified that is has been sued in Indiana for allegedly
charging DBS subscribers excessive fees for late payments. The plaintiffs, who
purport to represent a class consisting of residential DIRECTV customers in
Indiana, seek unspecified damages for the purported class and modification of
the Company's late-fee policy. The Company is advised that similar suits have
been brought against DIRECTV and various cable operators in other parts of the
United States.

         From time to time the Company is involved with claims that arise in the
normal course of business.

         In the opinion of management, the ultimate liability with respect to
the aforementioned claims and matters will not have a material adverse effect on
the combined operations, liquidity, cash flows or financial position of the
Company.

Program Rights:

         The Company has entered into agreements totaling $6.9 million as of
December 31, 1998 for film rights and programs that are not yet available for
showing at December 31, 1998, and accordingly, are not recorded by the Company.
At December 31, 1998, the Company has commitments for future program rights of
approximately $3.1 million, $3.6 million, $3.1 million, $1.3 million, $214,000
and $428,000 in 1999, 2000, 2001, 2002, 2003 and thereafter, respectively.

13.  Related Party Transactions:

         Effective October 31, 1997, the Company acquired DIRECTV distribution
rights for certain rural areas of Georgia and the related assets (the "ViewStar
DBS Acquisition") from ViewStar Entertainment Services, Inc. ("ViewStar"). Prior
to the acquisition, Donald W. Weber, a director of PCC, was the President and
Chief Executive Officer of ViewStar and together with his son owned
approximately 73% of the outstanding stock of ViewStar. The ViewStar DBS
Acquisition was effected through a merger of ViewStar into a subsidiary of
Pegasus. The purchase price of the ViewStar DBS Acquisition consisted of
approximately $6.4 million in cash and 397,035 shares of PCC's Class A Common
Stock. The acquisition involved the execution of noncompetition agreements by
Mr. Weber and his son and the execution of a shareholders agreement (which
included the granting of certain registration rights on the shares of PCC's
Class A Common Stock issued in connection with the acquisition).

         The Company reimburses various affiliates for corporate expenses
relating to certain administrative and accounting services, billing and
programming services and the reimbursement of expenses incurred therewith. For
the years ended December 31, 1996, 1997 and 1998, the fees and expenses were
approximately $2.0 million, $1.6 million and $3.5 million, respectively.

         Other related party transaction balances at December 31, 1997 and 1998
are as follows:

                                                         1997            1998
                                                      ----------      ----------
     Accounts payable and accrued expenses.........   $5,759,979               -
     Advances from affiliates......................    9,845,583      $8,880,953

                                      F-17
<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

13.  Related Party Transactions: - (Continued)

         In 1996, PCC repaid $3.0 million of outstanding loans on one of the
Company's retired credit facilities. Additionally, PCC paid $1.5 million of
accrued management fees on the Company's behalf. Both payments were made from
the proceeds of PCC's initial public offering.

         In 1997, PCC advanced the Company $9.8 million to fund various DBS
acquisitions. The advances bear interest at a rate of 4% and are short-term in
nature. Additionally, PCC made contributions to the Company in 1997 totaling
$219.3 million in connection with repayment of outstanding balances on one of
the Company's retired credit facilities, the Subsidiaries Combination, DBS
acquisitions and stock incentive compensation.

         In 1998, PCC made contributions to the Company totaling $86.8 million
in connection with partial repayment of outstanding loans on the PM&C Credit
Facility, DBS acquisitions and stock incentive compensation.

         PCC entered into an agreement in 1998 with W.W. Keen Butcher (the
stepfather of Marshall W. Pagon, the Company's President and Chief Executive
Officer, and Nicholas A. Pagon, a Vice President of the Company), certain
entities controlled by him (the "KB Companies") and the owner of a minority
interest in one of the KB Companies, under which PCC agreed to provide and
maintain collateral for up to $4.0 million in principal amount of bank loans to
Mr. Butcher and the minority owner. Mr. Butcher and the minority owner must lend
or contribute the proceeds of those bank loans to one or more of the KB
Companies for the acquisition of television broadcast stations to be operated by
the Company pursuant to local marketing agreements.

14.  Industry Segments:

         The Company operates in growing segments of the media industry: DBS,
Broadcast and Cable. DBS consists of providing direct broadcast satellite
television services to customers in certain rural areas of 31 states. Broadcast
consists of nine television stations affiliated with Fox, UPN and the WB, all
located in the eastern United States. Cable consists of providing cable
television services to individual and commercial subscribers in Puerto Rico.

         All of the Company's revenues are derived from external customers.
Capital expenditures for the Company's DBS segment were $859,000, $36,000 and
$1.2 million for 1996, 1997 and 1998, respectively. Capital expenditures for the
Company's Broadcast segment were $2.3 million, $6.4 million and $6.8 million for
1996, 1997 and 1998, respectively. Capital expenditures for the Company's Cable
segment were $3.1 million, $2.9 million and $1.9 million for 1996, 1997 and
1998, respectively. Identifiable total assets for the Company's DBS segment were
$224.9 million and $330.3 million as of December 31, 1997 and 1998,
respectively. Identifiable total assets for the Company's Broadcast segment were
$62.4 million and $67.0 million as of December 31, 1997 and 1998, respectively.
Identifiable total assets for the Company's Cable segment were $51.7 million and
$46.9 million as of December 31, 1997 and 1998, respectively.

15.  Subsequent Events:

         As of February 12, 1999, the Company acquired, from five independent
DIRECTV providers, the rights to provide DIRECTV programming in certain rural
areas of Colorado, Illinois, Indiana, Minnesota and Texas and the related assets
in exchange for total consideration of approximately $22.6 million, which
consisted of $21.5 million in cash and a $1.3 million promissory note, payable
over one year.

                                      F-18
<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

16.      Subsidiary Guarantees:

         The 12.5% Series B Notes are guaranteed on a full, unconditional,
senior subordinated basis, jointly and severally by each of the wholly owned
direct and indirect subsidiaries of Pegasus with the exception of certain
subsidiaries as described below (the "Guarantor Subsidiaries"). WTLH License
Corp., WTLH, Inc., Pegasus Anasco Holdings, Inc., Pegasus Satellite Development
Corporation ("PSDC") and Pegasus Cable Television of Connecticut, Inc.
("PCT-CT"), all of which are direct or indirect subsidiaries of Pegasus, are not
guarantors of the 12.5% Series B Notes ("Non-guarantor Subsidiaries"). As the
result of these subsidiaries not being guarantors of the 12.5% Series B Notes,
the following condensed combining financial statements have been provided. The
Company believes separate financial statements and other disclosures concerning
the Guarantor Subsidiaries are not deemed material to investors.






                                      F-19


<PAGE>
                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

16.  Subsidiary Guarantees: - (Continued)

Condensed Combined Balance Sheets
(in thousands)  
<TABLE>
<CAPTION>
                                                                                                                          
                                                          Guarantor       Non-guarantor                           
As of December 31, 1998                                 Subsidiaries       Subsidiaries        Pegasus        Eliminations
                                                        ------------      -------------        -------        ------------
<S>                                                         <C>                 <C>              <C>                      
Assets:
Cash and cash equivalents                                   $14,143             $3,092           $5,318                   
Accounts receivable, net                                     13,631                                                       
Other current assets                                         12,166                  8                                    
                                                  -----------------------------------------------------------------------
  Total current assets                                       39,940              3,100            5,318                   

Property and equipment, net                                  28,783                                                       
Intangible assets, net                                      363,345              2,643            3,591                   
Other assets                                                 11,202                                (158)                  
Investment in subsidiaries and affiliates                                                       340,753         ($340,753)
                                                  -----------------------------------------------------------------------
  Total assets                                             $443,270             $5,743         $349,504         ($340,753)
                                                  =======================================================================

Liabilities and total equity:
Current portion of long-term debt                           $10,332                                                       
Accounts payable                                              3,246                                                       
Other current liabilities                                    32,417                (29)          $5,595           ($5,595)
                                                  -----------------------------------------------------------------------
  Total current liabilities                                  45,995                (29)           5,595            (5,595)
Long-term debt                                              373,163              4,429           82,378          (335,158)
Other liabilities                                            35,140             (9,814)             342                   
                                                  -----------------------------------------------------------------------
 Total liabilities                                          454,298             (5,414)          88,315          (340,753)
Minority interest                                             3,000                                                       
Total equity (deficit)                                      (14,028)            11,157          261,189                   
                                                  -----------------------------------------------------------------------
  Total liabilities and equity                             $443,270             $5,743         $349,504         ($340,753)
                                                  ========================================================================

As of December 31, 1997
Assets:
Cash and cash equivalents                                    $9,170             $2,511           $5,329                   
Accounts receivable, net                                     13,074                  1                                    
Other current assets                                          6,340                 64                                    
                                                  -----------------------------------------------------------------------
  Total current assets                                       28,584              2,576            5,329                   

Property and equipment, net                                  25,159              2,224                                    
Intangible assets, net                                      263,039              3,416            5,709                   
Other assets                                                  2,396                                  66                   
Investment in subsidiaries and affiliates                                                       270,212         ($270,212)
                                                  -----------------------------------------------------------------------
  Total assets                                             $319,178             $8,216         $281,316         ($270,212)
                                                  =======================================================================

Liabilities and total equity:
Current portion of long-term debt                            $3,244             $3,084                                    
Accounts payable                                              9,983              1,314                                    
Other current liabilities                                    17,748                831         ($14,102)          $14,102 
                                                  -----------------------------------------------------------------------
  Total current liabilities                                  30,975              5,229          (14,102)           14,102 
Long-term debt                                              284,883              4,429           81,982          (284,314)
Other liabilities                                            13,062                307              546                   
                                                  -----------------------------------------------------------------------
 Total liabilities                                          328,920              9,965           68,426          (270,212)
Minority interest                                             3,000                                                       
Total equity (deficit)                                      (12,742)            (1,749)         212,890                   
                                                  -----------------------------------------------------------------------
  Total liabilities and equity                             $319,178             $8,216         $281,316         ($270,212)
                                                  =======================================================================
</TABLE>

<PAGE>

[RESTUB]
<TABLE>
<CAPTION>
                                                                       Pegasus
                                                    Pegasus          Development
As of December 31, 1998                             Subtotal         Corporation       Eliminations         Totals
                                                    --------         -----------       ------------         ------
<S>                                                   <C>                  <C>                               <C> 
Assets:
Cash and cash equivalents                             $22,553              $154                              $22,707
Accounts receivable, net                               13,631             3,106                               16,737
Other current assets                                   12,174                                                 12,174
                                                  ------------------------------------------------------------------
  Total current assets                                 48,358             3,260                               51,618

Property and equipment, net                            28,783                 2                               28,785
Intangible assets, net                                369,579               166                              369,745
Other assets                                           11,044               425                               11,469
Investment in subsidiaries and affiliates         
                                                  ------------------------------------------------------------------
  Total assets                                       $457,764            $3,853                             $461,617
                                                  ==================================================================

Liabilities and total equity:
Current portion of long-term debt                     $10,332                                                $10,332
Accounts payable                                        3,246                                                  3,246
Other current liabilities                              32,388                $2                               32,390
                                                  ------------------------------------------------------------------
  Total current liabilities                            45,966                 2                               45,968
Long-term debt                                        124,812                                                124,812
Other liabilities                                      25,668                                                 25,668
                                                  ------------------------------------------------------------------
 Total liabilities                                    196,446                 2                              196,448
Minority interest                                       3,000                                                  3,000
Total equity (deficit)                                258,318             3,851                              262,169
                                                  ------------------------------------------------------------------
  Total liabilities and equity                       $457,764            $3,853                             $461,617
                                                  ==================================================================

As of December 31, 1997
Assets:
Cash and cash equivalents                             $17,010                                                $17,010
Accounts receivable, net                               13,075                                                 13,075
Other current assets                                    6,404                                                  6,404
                                                  ------------------------------------------------------------------
  Total current assets                                 36,489                                                 36,489

Property and equipment, net                            27,383                                                 27,383
Intangible assets, net                                272,164                                                272,164
Other assets                                            2,462              $425                                2,887
Investment in subsidiaries and affiliates         
                                                  ------------------------------------------------------------------
  Total assets                                       $338,498              $425                             $338,923
                                                  ==================================================================

Liabilities and total equity:
Current portion of long-term debt                      $6,328                                                 $6,328
Accounts payable                                       11,297                                                 11,297
Other current liabilities                              18,579                                                 18,579
                                                  ------------------------------------------------------------------
  Total current liabilities                            36,204                                                 36,204
Long-term debt                                         86,980                                                 86,980
Other liabilities                                      13,915               ($1)                              13,914
                                                  ------------------------------------------------------------------
 Total liabilities                                    137,099                (1)                             137,098
Minority interest                                       3,000                                                  3,000
Total equity (deficit)                                198,399               426                              198,825
                                                  ------------------------------------------------------------------
  Total liabilities and equity                       $338,498              $425                             $338,923
                                                  ==================================================================
</TABLE>

                                      F-20


<PAGE>


                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)


16.  Subsidiary Guarantees: - (Continued)

Condensed Combined Statements of Operations
For the Year ended December 31, 1998
(in thousands)

<TABLE>
<CAPTION>
                                                                                                                                   
                                                  Guarantor       Non-guarantor                                           Pegasus  
                                                Subsidiaries      Subsidiaries         Pegasus        Eliminations       Subtotal  
                                                ------------      -------------        -------        ------------       --------  
<S>                                                <C>                 <C>                               <C>              <C>      
Total revenue                                      $140,392            $2,993                            ($1,395)         $141,990 
Total operating expenses                            142,318            24,410              $680           (1,395)          166,013 
                                          -----------------------------------------------------------------------------------------

Income (loss) from operations                        (1,926)          (21,417)             (680)                           (24,023)

Interest expense                                     11,799              (373)           14,827          (10,273)           15,980 
Other                                               (12,863)          (12,359)              194                            (25,028)
                                          -----------------------------------------------------------------------------------------
Income (loss) before income
  taxes                                                (862)           (8,685)          (15,701)          10,273           (14,975)
Provision for income taxes                            4,496                                                                  4,496 
                                          -----------------------------------------------------------------------------------------
Net income (loss)                                   ($5,358)          ($8,685)         ($15,701)         $10,273          ($19,471)
                                          =========================================================================================

</TABLE>



[RESTUB]
<TABLE>
<CAPTION>
                                            Pegasus
                                          Development
                                          Corporation      Eliminations         Totals
                                          -----------      ------------         ------
<S>                                             <C>              <C>            <C>     
Total revenue                                   $328             ($328)         $141,990
Total operating expenses                       4,199              (328)          169,884
                                          ----------------------------------------------

Income (loss) from operations                 (3,871)                            (27,894)

Interest expense                                                                  15,980
Other                                            104                             (24,924)
                                          ----------------------------------------------
Income (loss) before income
  taxes                                       (3,975)                            (18,950)
Provision for income taxes                                                         4,496
                                          ----------------------------------------------
Net income (loss)                            ($3,975)                           ($23,446)
                                          ==============================================

</TABLE>


<PAGE>


Condensed Combined Statements of Operations
For the Year ended December 31, 1997
(in thousands) 
<TABLE>
<CAPTION>

                                                                                                                                   
                                                  Guarantor       Non-guarantor                                           Pegasus  
                                                Subsidiaries      Subsidiaries         Pegasus        Eliminations       Subtotal  
                                                ------------      -------------        -------        ------------       --------  
<S>                                                 <C>                <C>                                 <C>             <C>     
Total revenue                                       $63,333            $3,171                              ($100)          $66,404 
Total operating expenses                             61,158             2,015              $429             (100)           63,502 
                                          ----------------------------------------------------------------------------------------

Income (loss) from operations                         2,175             1,156              (429)                             2,902 

Interest expense                                     16,031               310             6,478          (10,223)           12,596 
Other                                                (4,417)                                 12                             (4,405)
                                          ----------------------------------------------------------------------------------------
Income (loss) before income
  taxes                                              (9,439)              846            (6,919)          10,223            (5,289)
Provision for income taxes                              200                                                                    200 
                                          ----------------------------------------------------------------------------------------
Income (loss) before
  extraordinary item                                 (9,639)              846            (6,919)          10,223            (5,489)
Extraordinary loss on
  extinguishment of debt                                                                 (1,656)                            (1,656)
                                          ----------------------------------------------------------------------------------------
Net income (loss)                                   ($9,639)             $846           ($8,575)         $10,223           ($7,145)
                                          ========================================================================================

</TABLE>


[RESTUB]
<TABLE>
<CAPTION>

                                            Pegasus
                                          Development
                                          Corporation      Eliminations         Totals
                                          -----------      ------------         ------
<S>                                             <C>              <C>             <C>    
Total revenue                                   $120             ($120)          $66,404
Total operating expenses                       3,894              (120)           67,276
                                          ----------------------------------------------

Income (loss) from operations                 (3,774)                               (872)

Interest expense                                                                  12,596
Other                                                                             (4,405)
                                          ----------------------------------------------
Income (loss) before income
  taxes                                       (3,774)                             (9,063)
Provision for income taxes                                                           200
                                          ----------------------------------------------
Income (loss) before
  extraordinary item                          (3,774)                             (9,263)
Extraordinary loss on
  extinguishment of debt                                                          (1,656)
                                          ----------------------------------------------
Net income (loss)                            ($3,774)                           ($10,919)
                                          ==============================================

</TABLE>


                                      F-21
<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)



16.  Subsidiary Guarantees: - (Continued)



Condensed Combined Statements of Cash Flows
For the Year ended December 31, 1998
(in thousands)

<TABLE>
<CAPTION>

                                                                                                                                 
                                                                      Guarantor     Non-guarantor                                
                                                                     Subsidiaries    Subsidiaries      Pegasus      Eliminations 
                                                                     ------------   -------------      -------      ------------ 
<S>                                                                    <C>              <C>           <C>             <C>        
Cash flows from operating activities:
 Net income (loss)                                                     ($5,358)         ($8,685)      ($15,701)         $10,273    
Adjustments to reconcile net income (loss) to                                                                                  
  net cash provided by operating activities:
  Depreciation and amortization                                         39,800              602            680                   
  Program rights amortization                                            2,366                                                   
  Change in assets and liabilities:
     Accounts receivable                                                (2,135)               1                                  
     Accounts payable and accrued expenses                              19,317           (2,174)                        (10,273)   
     Prepaids and other                                                   (290)              56                                  
  Other                                                                (31,619)         (12,386)        19,209                   
                                                                ---------------------------------------------------------------
Net cash provided (used) by operating activities                        22,081          (22,586)         4,188                   

Cash flows from investing activities:
   Acquisitions                                                       (109,340)                                                  
   Capital expenditures                                                 (9,509)            (266)                                 
   Purchase of intangible assets                                        (2,871)             (94)                                 
   Other                                                                80,761           15,182        (68,199)                  
                                                                ---------------------------------------------------------------
Net cash provided (used) by investing activities                       (40,959)          14,822        (68,199)                  

Cash flows from financing activities:
   Proceeds from debt                                                   91,500                                                   
   Repayment of debt                                                   (67,378)          (3,084)                                 
   Other                                                                  (271)          11,429         64,000                   
                                                                ---------------------------------------------------------------
Net cash provided (used) by financing activities                        23,851            8,345         64,000                   

Net increase (decrease) in cash and cash equivalents                     4,973              581            (11)                  
Cash and cash equivalents, beginning of year                             9,170            2,511          5,329                   

                                                                ===============================================================
Cash and cash equivalents, end of year                                 $14,143           $3,092         $5,318                   
                                                                ===============================================================


</TABLE>
<PAGE>

[RESTUB}

<TABLE>
<CAPTION>

                                                                               Pegasus
                                                                Pegasus      Development
                                                                Subtotal     Corporation    Eliminations      Totals
                                                                --------     -----------    ------------      ------
<S>                                                            <C>             <C>          <C>               <C> 
Cash flows from operating activities:
 Net income (loss)                                             ($19,471)       ($3,975)                      ($23,446)
Adjustments to reconcile net income (loss) to                  
  net cash provided by operating activities:
  Depreciation and amortization                                  41,082                                        41,082
  Program rights amortization                                     2,366                                         2,366
  Change in assets and liabilities:
     Accounts receivable                                         (2,134)        (3,106)                        (5,240)
     Accounts payable and accrued expenses                        6,870                                         6,870
     Prepaids and other                                            (234)                                         (234)
  Other                                                         (24,796)             3                        (24,793)
                                                               ------------------------------------------------------
Net cash provided (used) by operating activities                  3,683         (7,078)                        (3,395)

Cash flows from investing activities:
   Acquisitions                                                (109,340)                                     (109,340)
   Capital expenditures                                          (9,775)            (2)                        (9,777)
   Purchase of intangible assets                                 (2,965)          (166)                        (3,131)
   Other                                                         27,744                                        27,744
                                                               ------------------------------------------------------
Net cash provided (used) by investing activities                (94,336)          (168)                       (94,504)

Cash flows from financing activities:
   Proceeds from debt                                            91,500                                        91,500
   Repayment of debt                                            (70,462)                                      (70,462)
   Other                                                         75,158          7,400                         82,558
                                                               ------------------------------------------------------
Net cash provided (used) by financing activities                 96,196          7,400                        103,596

Net increase (decrease) in cash and cash equivalents              5,543            154                          5,697
Cash and cash equivalents, beginning of year                     17,010                                        17,010

                                                               ======================================================
Cash and cash equivalents, end of year                          $22,553           $154                        $22,707
                                                               ======================================================


</TABLE>



                                      F-22

<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)



16.  Subsidiary Guarantees: - (Continued)



Condensed Combined Statements of Cash Flows
For the Year ended December 31, 1997
(in thousands)  
 
<TABLE>
<CAPTION>

                                                                                                                                  
                                                                      Guarantor     Non-guarantor                                 
                                                                     Subsidiaries    Subsidiaries      Pegasus      Eliminations  
                                                                     ------------   -------------      -------      ------------  
<S>                                                                    <C>                 <C>         <C>            <C>         
Cash flows from operating activities:
Net income (loss)                                                      ($9,639)            $846        ($8,575)       $10,223     
Adjustments to reconcile net income (loss) to                                                                                  
  net cash provided by operating activities:
  Extraordinary gain on
   extinguishment of debt                                                                                1,656                    
  Depreciation and amortization                                         16,438              987            429                    
  Program rights amortization                                            1,716                                                    
  Change in assets and liabilities:
     Accounts receivable                                                (4,497)                                                   
     Accounts payable and accrued expenses                              14,410            1,178           (149)        (9,906)    
     Prepaids and other                                                     39              569            (66)                   
  Other                                                                (10,936)            (720)         7,672           (317)    
                                                                -------------------------------------------------------------
Net cash provided (used) by operating activities                         7,531            2,860            967                    

Cash flows from investing activities:
   Acquisitions                                                        (45,580)                                                   
   Capital expenditures                                                 (8,997)            (378)                                  
   Purchase of intangible assets                                           481             (543)        (2,277)                   
   Other                                                                93,422                         (85,000)                   
                                                                -------------------------------------------------------------
Net cash provided (used) by investing activities                        39,326             (921)       (87,277)                   

Cash flows from financing activities:
   Proceeds from debt                                                                                      526                    
   Repayment of debt                                                   (94,503)            (235)       (30,126)                   
   Other                                                                50,645                         119,800                    
                                                                -------------------------------------------------------------
Net cash provided (used) by financing activities                       (43,858)            (235)        90,200                    

Net increase (decrease) in cash and cash equivalents                     2,999            1,704          3,890                    
Cash and cash equivalents, beginning of year                             6,171              807          1,439                    

                                                                =============================================================
Cash and cash equivalents, end of year                                  $9,170           $2,511         $5,329                    
                                                                =============================================================
</TABLE>

<PAGE>

[RESTUB]

<TABLE>
<CAPTION>

                                                                               Pegasus
                                                                Pegasus      Development
                                                                Subtotal     Corporation    Eliminations      Totals
                                                                --------     -----------    ------------      ------
<S>                                                             <C>            <C>           <C>              <C>
Cash flows from operating activities:
Net income (loss)                                               ($7,145)       ($3,774)                      ($10,919)
Adjustments to reconcile net income (loss) to                  
  net cash provided by operating activities:
  Extraordinary gain on
   extinguishment of debt                                         1,656                                         1,656
  Depreciation and amortization                                  17,854                                        17,854
  Program rights amortization                                     1,716                                         1,716
  Change in assets and liabilities:
     Accounts receivable                                         (4,497)                                       (4,497)
     Accounts payable and accrued expenses                        5,533                                         5,533
     Prepaids and other                                             542           (425)                           117
  Other                                                          (4,301)            (1)                        (4,302)
                                                               ------------------------------------------------------
Net cash provided (used) by operating activities                 11,358         (4,200)                         7,158

Cash flows from investing activities:
   Acquisitions                                                 (45,580)                                      (45,580)
   Capital expenditures                                          (9,375)                                       (9,375)
   Purchase of intangible assets                                 (2,339)                                       (2,339)
   Other                                                          8,422                                         8,422
                                                               ------------------------------------------------------
Net cash provided (used) by investing activities                (48,872)                                      (48,872)

Cash flows from financing activities:
   Proceeds from debt                                               526                                           526
   Repayment of debt                                           (124,864)                                     (124,864)
   Other                                                        170,445          4,200                        174,645
                                                               ------------------------------------------------------
Net cash provided (used) by financing activities                 46,107          4,200                         50,307

Net increase (decrease) in cash and cash equivalents              8,593                                         8,593
Cash and cash equivalents, beginning of year                      8,417                                         8,417

                                                               ======================================================
Cash and cash equivalents, end of year                          $17,010                                       $17,010
                                                               ======================================================
</TABLE>



                                      F-23
<PAGE>

                      PEGASUS MEDIA & COMMUNICATIONS, INC.
              NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

17.  Quarterly Information (unaudited):

<TABLE>
<CAPTION>
                                                                    Quarter Ended
                                            ---------------------------------------------------------------
(in thousands)                               March 31,       June 30,         September 30,     December 31,
                                               1998            1998               1998              1998
                                            ----------       --------         -------------     -----------
<S>                                           <C>            <C>              <C>                <C> 
1998
----
  Net revenues                                $28,737        $34,462              $35,998          $42,793
  Operating loss                               (6,058)        (3,352)              (7,442)         (11,042)
  Income (loss) before
    extraordinary items                        (9,550)        (6,890)              13,033          (20,039)
  Net income (loss)                           ($9,550)       ($6,890)             $13,033         ($20,039)

</TABLE>

         The Company had no extraordinary gains or losses for the year ended
December 31, 1998.

<TABLE>
<CAPTION>
                                                                     Quarter Ended
                                            ------------------------------------------------------------------
(in thousands)                               March 31,       June 30,         September 30,       December 31,
                                              1997             1997               1997                1997
                                            ----------       --------         -------------       ------------
<S>                                           <C>            <C>              <C>                <C>
1997
----
  Net revenues                                $12,274        $13,593              $11,293           $29,244
  Operating income (loss)                         363          1,468                1,098            (3,801)
  Income (loss)  before
    extraordinary items                         1,811         (1,581)              (1,916)           (7,577)
  Net income (loss)                            $1,811        ($1,581)             ($1,916)          ($9,233)
</TABLE>


         For the fourth quarter of 1997, the Company had an extraordinary loss
of approximately $1.7 million in connection with the refinancing of certain
credit facilities.

                                      F-24

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS




Our report on the combined financial statements of Pegasus Media &
Communications, Inc. and its subsidiaries is included on page F-2 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule on page S-2 of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.




PRICEWATERHOUSECOOPERS  LLP

Philadelphia, Pennsylvania
February 12, 1999




                                       S-1

<PAGE>


PEGASUS MEDIA & COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1997 and 1998
(Dollars in thousands)

<TABLE>
<CAPTION>
                               Balance at         Additions           Additions                            Balance at
                              Beginning of        Charged To          Charged To                             End of 
Description                     Period             Expenses         Other Accounts        Deductions         Period
-----------                   ------------        ----------        --------------        ----------       ----------
<S>                            <C>                <C>                  <C>                   <C>             <C>  
Allowance for
Uncollectible
Accounts Receivable
     Year 1996                  $   238            $   336              $      -              $  331 (a)      $   243
     Year 1997                  $   243            $   371              $      -              $  295 (a)      $   319
     Year 1998                  $   319            $   797              $      -              $  732 (a)      $   384


Valuation Allowance for
Deferred Tax Assets
     Year 1996                  $ 6,954            $ 7,032              $      -              $3,302          $10,684
     Year 1997                  $10,684            $ 7,584              $      -              $4,971          $13,297
     Year 1998                  $13,297            $17,527              $      -              $6,539          $24,285

</TABLE>

(a) Amounts written off, net of recoveries.





                                       S-2