<PAGE>   1

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

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 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 0-22935

                              PEGASUS SYSTEMS, INC.
             (Exact Name of Registrant as specified in its charter)


   DELAWARE                                               75-2605174
   (State or other jurisdiction of                        (I.R.S. Employer
   incorporation or organization)                         Identification No.)

         3811 TURTLE CREEK BOULEVARD, SUITE 1100, DALLAS, TEXAS 75219
         (Address of principal executive office)              (Zip Code)

       Registrant's telephone number, including area code: (214) 528-5656


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 [ ]


The number of shares of the registrant's common stock outstanding as of May 10,
1998 was 10,490,289.


                                       1
<PAGE>   2


                              PEGASUS SYSTEMS, INC.

                                    FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 1998

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>     <C>       <C>                                                                                         <C>
PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  a)   Consolidated Balance Sheets
                           as of March 31, 1998, and December 31, 1997  .........................................3

                  b)   Consolidated Statements of Operations
                           for the Three Months Ended March 31, 1998 and 1997....................................4

                  c)   Consolidated Statements of Cash Flows
                           for the Three Months Ended March 31, 1998 and 1997....................................5

                  d)   Notes to Consolidated Financial Statements  ..............................................6

         Item 2.  Management's Discussion and Analysis of Financial
                       Condition and Results of Operations ..........................................................10


         Item 3.  Quantitative and Qualitative Disclosures about Market Risk....................................12



PART II.  OTHER INFORMATION


         Item 1.  Legal Proceedings ............................................................................13

         Item 2.  Changes in Securities and Use of Proceeds.....................................................13

         Item 3.  Defaults Upon Senior Securities...............................................................13

         Item 4.  Submission of Matters to a Vote of Security Holders...........................................13

         Item 5.  Other Information.............................................................................13

         Item 6.  Exhibits and Reports on Form 8-K..............................................................13


SIGNATURES......................................................................................................14
</TABLE>




                                       2
<PAGE>   3


PART I - FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

                             PEGASUS SYSTEMS, INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                               March 31, 1998           December 31, 1997
                                                                               --------------           -----------------
<S>                                                                           <C>                       <C>
ASSETS

Cash and cash equivalents                                                       $ 29,578,339               $ 30,166,793
Restricted cash                                                                    1,584,249                  1,286,032
Short-term investments                                                            14,778,643                  9,380,050
Accounts receivable, net of allowance for doubtful
      accounts of $77,860 and $77,860, respectively                                1,791,209                  1,200,162
Accounts receivable from affiliates                                                1,690,621                    771,973
Other current assets                                                               1,035,298                  1,232,874
                                                                                ------------               ------------

      Total current assets                                                        50,458,359                 44,037,884

Capitalized software, net                                                            800,115                  1,183,453
Property and equipment, net                                                        2,604,302                  2,712,091
Goodwill, net of accumulated amortization of
      $335,033 and $303,815, respectively                                          1,529,682                  1,560,900
Other noncurrent assets                                                              418,993                    428,981
                                                                                ------------               ------------
          Total assets                                                          $ 55,811,451               $ 49,923,309
                                                                                ============               ============


LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                                         $ 4,085,129                $ 4,072,919
Accounts payable to affiliates                                                        42,316                     42,118
Unearned income                                                                    1,237,351                    477,688
Current portion of capital lease obligations                                       1,017,848                  1,048,179
                                                                                ------------               ------------
      Total current liabilities                                                    6,382,644                  5,640,904

Capital lease obligations, net of current portion                                    376,049                    661,049
Other noncurrent liabilities                                                         149,585                    143,612
Stockholders' equity:
      Preferred stock, $.01 par value; 2,000,000 shares authorized;
         zero shares issued and outstanding,                                              --                         --
      Common stock, $.01 par value; 100,000,000 shares authorized;
         10,603,387 and 10,297,529 shares issued, respectively                       106,034                    102,975
      Additional paid-in capital                                                  62,474,336                 58,120,337
      Unearned compensation                                                         (609,954)                  (738,533)
      Accumulated deficit                                                        (13,040,905)               (13,980,697)
      Less treasury stock (116,484 shares, at cost)                                  (26,338)                   (26,338)
                                                                                ------------               ------------
          Total stockholders' equity                                              48,903,173                 43,477,744
                                                                                ------------               ------------
          Total liabilities and stockholders' equity                            $ 55,811,451               $ 49,923,309
                                                                                ============               ============
</TABLE>



           See accompanying notes to consolidated financial statements




                                       3
<PAGE>   4
                              PEGASUS SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                          March 31,
                                                                             ------------------------------------
                                                                                 1998                     1997
                                                                             -----------              -----------

<S>                                                                          <C>                      <C>        
Net revenues                                                                 $ 6,167,267              $ 4,376,563

Cost of services                                                               2,166,382                1,557,656
Research and development                                                         600,482                  622,727
General and administrative expenses                                            1,054,704                  855,531
Marketing and promotion expenses                                               1,242,124                  865,307
Depreciation and amortization                                                    753,276                  707,458
                                                                             -----------              -----------
Operating income (loss)                                                          350,299                 (232,116)
Other income (expense):
       Interest income                                                           643,875                   55,901
       Interest expense                                                          (47,482)                (212,150)
                                                                             -----------              -----------
Income (loss) before income taxes                                                946,692                 (388,365)
Income taxes                                                                       6,900                       --
                                                                             -----------              -----------
Net income (loss)                                                            $   939,792              $  (388,365)
                                                                             ===========              ===========

Net income (loss) per share:
       Basic                                                                 $      0.09              $     (0.07)
                                                                             ===========              ===========

       Diluted                                                               $      0.09              $     (0.07)
                                                                             ===========              ===========

Weighted average shares outstanding:
       Basic                                                                  10,324,526                5,191,249
                                                                             ===========              ===========

       Diluted                                                                11,038,325                5,191,249
                                                                             ===========              ===========
</TABLE>



           See accompanying notes to consolidated financial statements



                                       4
<PAGE>   5

                              PEGASUS SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                               Three Months Ended
                                                                                                   March 31,
                                                                                         ------------------------------
                                                                                             1998             1997
                                                                                         ------------      ------------
<S>                                                                                      <C>               <C>          
Cash flows from operating activities:
   Net income (loss)                                                                     $    939,792      $   (388,365)
   Adjustments to reconcile net income (loss) to net cash from operating activities:
      Accrued interest reclassified to notes payable                                             --              22,671
      Windfall tax benefit from employee exercise of non-qualified stock options              118,154              --
      Depreciation and amortization                                                           753,276           707,458
      Recognition of stock option compensation                                                 66,179            34,449
      Amortization of premiums on short-term investments                                        3,605              --
      Changes in assets and liabilities:
         Restricted cash                                                                     (298,217)         (155,459)
         Accounts receivable                                                                 (591,047)         (264,937)
         Accounts receivable from affiliates                                                 (918,648)         (506,836)
         Other current and noncurrent assets                                                  207,565           (79,028)
         Accounts payable and accrued liabilities                                              12,210           (75,121)
         Accounts payable to affiliates                                                           198            25,680
         Unearned income                                                                      759,663           440,872
         Other noncurrent liabilities                                                           5,975             5,976
                                                                                         ------------      ------------ 
             Net cash provided by (used in) operating activities                            1,058,705          (232,640)
                                                                                         ------------      ------------ 

Cash flows from investing activities:
   Purchase of software, property and equipment                                              (230,930)         (407,291)
   Purchase of marketable securities                                                       (9,902,199)         (983,605)
   Proceeds from maturity of marketable securities                                          4,500,000         2,705,076
                                                                                         ------------      ------------ 
         Net cash provided by (used in) investing activities                               (5,633,129)        1,314,180
                                                                                         ------------      ------------ 

Cash flows from financing activities:
   Net proceeds from issuance of stock                                                      4,301,304              --
   Repayment of notes payable to affiliates                                                      --            (188,928)
   Repayment of capital leases                                                               (315,334)         (251,362)
   Proceeds from capital leases                                                                  --               3,913
                                                                                         ------------      ------------ 
      Net cash provided by (used in) financing activities                                   3,985,970          (436,377)
                                                                                         ------------      ------------ 
Net increase (decrease) in cash and cash equivalents                                         (588,454)          645,163
Cash and cash equivalents, beginning of period                                             30,166,793         1,796,311
                                                                                         ------------      ------------ 

Cash and cash equivalents, end of period                                                 $ 29,578,339      $  2,441,474
                                                                                         ============      ============

Supplemental disclosure of cash flow information:

   Interest paid                                                                         $     56,348      $    183,279
                                                                                         ============      ============

   Income taxes paid                                                                     $     65,000      $       --
                                                                                         ============      ============

Supplemental schedule of noncash investing and financing activities:

   Acquisition of equipment under capital leases                                         $       --        $     79,144
                                                                                         ============      ============
</TABLE>



           See accompanying notes to consolidated financial statements



                                       5
<PAGE>   6

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.     BASIS OF PRESENTATION

       In July 1995, Pegasus Systems, Inc. (Pegasus or the Company) was formed
       as a Delaware holding company to combine the operations of two existing
       companies operating in the same industry, The Hotel Industry Switch
       Company, Inc. (THISCO) and The Hotel Clearing Corporation (HCC). For
       accounting purposes, the combination was recorded as a purchase of HCC.

       The accompanying financial statements include the consolidated accounts
       of Pegasus and its wholly owned subsidiaries, THISCO, HCC and Pegasus IQ.
       THISCO is consolidated with its wholly owned subsidiary, TravelWeb, Inc.
       (TravelWeb), and HCC is consolidated with its wholly owned subsidiary,
       Pegasus Systems Inc. (UK) Limited (Pegasus UK, formerly The Hotel
       Clearing Corporation (UK) Limited) (collectively, the Company). All
       significant intercompany balances have been eliminated in consolidation.

       THISCO was formed in September 1988 as a Delaware corporation. The
       Company's THISCO service provides an electronic interface from hotel
       central reservation systems to travel agencies through Global
       Distribution Systems ("GDSs"), which are electronic travel information
       and reservation systems such as SABRE.

       HCC, acquired by the Company in July 1995, was formed in July 1991 as a
       Delaware corporation. The Company's HCC service consolidates commissions
       paid by participating hotels to a participating travel agency into a
       single monthly payment and provides participants with comprehensive
       transaction reports. Hotel properties and travel agencies worldwide
       utilize the HCC service to increase the efficiency and reduce costs
       associated with preparing, paying and reconciling the hotel room
       reservation commissions.

       Pegasus UK, a wholly-owned subsidiary of HCC, was formed in September
       1993 in England to market and provide services for travel agents and
       hotel chains operating in Europe, Africa and Asia.

       TravelWeb was formed in October 1995 as a Delaware corporation. The
       Company's TravelWeb service provides individual travelers direct access
       to online hotel information and the ability to make reservations
       electronically at hotel properties. In addition, through its recently
       introduced NetBooker service, the Company offers TravelWeb's
       comprehensive hotel database and Internet hotel reservation capabilities
       to third-party Web sites.



                                       6
<PAGE>   7


       Pegasus IQ was formed in November 1997 as a Delaware corporation. When
       operational, Pegasus IQ is expected to provide a wide array of hotel
       industry data, research and reporting services for benchmark analysis and
       strategic planning purposes. The Company completed an initial public
       offering (IPO) in August 1997. The Company's Registration Statement on
       Form S-1 (File No. 333-28595) with respect to the IPO was declared
       effective on August 6, 1997, and the Company's stock began trading on the
       Nasdaq National Market under the symbol PEGS on August 7, 1997. The
       Company sold 3,450,000 shares of common stock at a price of $13.00 per 
       share. Net proceeds to the Company, after deduction of the underwriting 
       discount and IPO expenses, were approximately $40.5 million. Selling
       stockholders also sold 659,000 shares at a price of $13.00 per share. The
       Company did not receive any proceeds from the sale of shares by the
       selling stockholders. Concurrent with the completion of the Company's
       IPO, a 4-for-3 split of the Company's outstanding common and Series A
       preferred stock was effected and all outstanding shares of Series A
       preferred stock were converted into shares of common stock.

       The financial information presented herein should be read in conjunction
       with the Company's annual consolidated financial statements for the year
       ended December 31, 1997 and the notes thereto, which have been filed with
       the Securities and Exchange Commission on Form 10-K as of and for the
       year ended December 31, 1997. The foregoing unaudited consolidated
       financial statements as of and for the three months ended March 31, 1998
       and 1997 reflect all adjustments (all of which are of a normal recurring
       nature) which are, in the opinion of management, necessary for a fair
       presentation of the results of the interim periods. The results for
       interim periods are not necessarily indicative of results to be expected
       for the year.

2.     SECONDARY PUBLIC OFFERING

       The Company completed a secondary offering ("Secondary") in February
       1998. The Company's Registration Statement on Form S-1 with respect to
       the Secondary was declared effective on February 11, 1998. The Company
       sold 280,321 share of common stock at a price of $17.50 per share. Net
       proceeds to the Company, after deduction of the underwriting discount and
       estimated IPO expenses, were approximately $4.2 million. Selling
       stockholders also sold 2,134,679 shares at a price of $17.50 per share.
       The Company did not receive any proceeds from the sale of shares by the
       selling stockholders.



                                       7
<PAGE>   8

3.     STOCK SPLITS

       In May 1997, the board of directors approved the declaration of a
       four-for-three stock split of the outstanding common and preferred stock
       effected in the form of a dividend to stockholders of record on the
       effective date of the Registration Statement on Form S-1 with respect to
       the IPO. Concurrent with the IPO, the number of authorized shares of
       common stock of the Company increased from 20 million to 100 million
       while the number of authorized shares of preferred stock remained two
       million. All references in the consolidated financial statements to
       shares, share prices, per share amounts and stock plans have been
       adjusted retroactively for the four-for-three stock split.

4.     EARNINGS PER SHARE

       The following table sets forth the basic and diluted net income (loss)
       per share computation for the quarters ended March 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                            March 31,
                                                                   ---------------------------
                                                                       1998            1997
                                                                   -----------     -----------

<S>                                                                <C>             <C>         
Net income (loss)                                                  $   939,792     $  (338,364)
                                                                   -----------     -----------
Basic:
   Weighted average number of shares outstanding                    10,324,526       5,191,249
                                                                   -----------     -----------

   Net income (loss) per share                                     $      0.09     $     (0.07)
                                                                   -----------     -----------
Diluted:

   Weighted average number of shares outstanding                    10,324,526       5,191,249

   Additional weighted average shares from assumed exercise of
      dilutive stock options and warrants, net of shares to be
      repurchased with exercise proceeds                               713,799            --
                                                                   -----------     -----------
   Weighted average number of shares outstanding used in the
      diluted net income (loss) per share calculation               11,038,325       5,191,249
                                                                   -----------     -----------

   Net income (loss) per share                                     $      0.09     $     (0.07)
                                                                   -----------     -----------
</TABLE>


All outstanding options and warrants were included in the diluted EPS
calculation for the three months ended March 31, 1998, as the average fair
market value of the Company's common stock for the period was higher than the
strike price of the underlying options and warrants. There were 1,538,462 shares
of Series A preferred stock outstanding at March 31, 1997 which were not
included in the calculation of diluted EPS.



                                       8
<PAGE>   9

Options and warrants granted during 1996 and the first three months of 1997,
which were not included in the calculation of diluted EPS for the three months
ended March 31, 1997, were as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                       Exercise Price 
Number of Options                      Per Share           Date of Grant                Expiration Date
---------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                 <C>                          <C> 
450,000                                $ 2.01              June 1996                    December 2005
53,333                                 $ 2.01              December 1996                December 2005
266,406                                $ 3.11              December 1996                December 2005


---------------------------------------------------------------------------------------------------------------------
</TABLE>

5.     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

       The Company has adopted Statement of Financial Accounting Standards No.
       128, "Earning per Share" (FAS 128). FAS 128 simplifies the standards for
       computing EPS previously found in Accounting Principles Board No. 15,
       "Earnings per Share" (APB 15), and makes them comparable to international
       EPS standards by replacing the presentation of primary EPS with a
       presentation of basic EPS. The provisions and disclosure requirements for
       FAS 128 were required to be adopted for interim and annual periods ending
       after December 15, 1997, with restatement of EPS for prior periods.
       Accordingly, EPS data for all periods presented has been restated to
       reflect the computation of EPS in accordance with the provisions of FAS
       128.

       The Company has adopted Statement of Financial Accounting Standards No.
       130, "Reporting Comprehensive Income" (FAS 130) which was issued in June
       1997. FAS 130 establishes standards for reporting and display of
       comprehensive income and its components (revenues, expenses, gains, and
       losses) in a full set of general-purpose financial statements. It
       requires all items that are required to be recognized under accounting
       standards as components of comprehensive income be reported in a
       financial statement that is displayed with the same prominence as other
       financial statements. FAS 130 is effective for fiscal years beginning
       after December 15, 1997. Reclassification of financial statements for
       earlier periods provided for comparative purposes is required upon
       adoption. There were no items which qualified for treatment as 
       components of comprehensive income for the periods presented.

       In June 1997, Statement of Financial Accounting Standards No. 131, 
       "Disclosure About Segments of an Enterprise and Related Information" 
       (FAS 131) was issued. FAS 131 establishes standards for the way that 
       public business enterprises report information about operating segments 
       in annual financial statements and requires that those enterprises
       report selected information about operating segments in interim 
       financial reports issued to stockholders. FAS 131 is effective for 
       periods beginning after December 15, 1997. The Company will adopt FAS 
       131 in its' financial statements for the year ending December 31, 1998.



                                       9

<PAGE>   10

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

OVERVIEW

The Company is a leading provider of transaction processing services to the
hotel industry worldwide. The Company's THISCO and TravelWeb hotel reservation
services improve the effectiveness of the hotel reservation process by enabling
travel agents and individual travelers to electronically access hotel room
inventory information and conduct reservation transactions. The Company's HCC
service, the global leader in hotel commission payment processing, improves the
efficiency and effectiveness of the commission payment process for participating
hotels and travel agencies by consolidating payments and providing comprehensive
transaction reports. The Company's NetBooker reservation service provides
third-party Web sites direct access to the extensive TravelWeb hotel database
and UltraSwitch's hotel reservation and confirmation capabilities. The NetBooker
service enables the users of the third-party Web sites to shop and query room
availability and to electronically book a reservation in seconds. The Company
has developed or is in the process of developing several new services, including
UltraRes, UltraDirect and Pegasus Information Services, to capitalize on its
existing technology and customer base to provide additional electronic hotel
reservation capabilities and information services to existing Pegasus customers
and to other participants in the hotel room distribution process. Historically,
the Company has derived a majority of its revenues from its THISCO and HCC
services.

RESULTS OF OPERATIONS

Three months ended March 31, 1998 and 1997

         Net revenues. The Company's revenues for the three months ended March
31, 1998 increased to $6.2 million from $4.4 million for the three months ended
March 31, 1997, an increase of 40.9%. This increase in revenues was primarily
driven by higher transactions levels for the Company's Electronic Reservations
service (consisting of THISCO, TravelWeb, and NetBooker) and Payment/Data
Systems service (consisting of HCC).

Revenues contributed by the Electronic Reservations service increased by 20.9%
in the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997. This increase resulted primarily from an increase in the number
of hotel reservations made through the Company's Web site on the Internet
(located at www.travelweb.com), an increased number of hotel reservations made
by other Web sites that use the Company's NetBooker service, higher fees paid by
hotel companies to participate in the Company's hotel database and, to a lesser
degree, an increase in the number of hotel reservations made through the
Company's THISCO service.

Payment/Data Systems service revenues increased by 63.4% during the three months
ended March 31, 1998 compared to the three months ended March 31, 1997. This
increase primarily was as a 



                                       10
<PAGE>   11

result of a 60.0% increase in hotel commission transactions processed during the
three months ended March 31, 1998 as compared to the three months ended March
31, 1997, which was due in part, to the addition of hotel properties, including
those of Marriott Corporation and an increase in the number of travel agencies
participating in the HCC service. The value of commissions paid by the Company
on member hotels' behalf increased by 89.4% in the three months ended March 31,
1998 as compared to the three months ended March 31, 1997 due to an increase in
the number of hotel commission transactions processed by the Company combined
with an increase in the average value of the commission processed due to rising
overall hotel average daily rates and a higher proportion of the Company's
transactions generated by full-service and luxury hotel chains. The increase in
commissions paid was somewhat offset by a reduction in the average fee received
by the Company from participating travel agencies for consolidating and
remitting hotel commission payments.

         Cost of Services. Cost of services increased by $609,000, or 39.1%, to
$2.2 million in the three months ended March 31, 1998 from $1.6 million in the
three months ended March 31, 1997. Cost of services increased due to additional
staffing, the increased number of transactions processed through the HCC service
and the introduction of enhanced content to the TravelWeb site.

         Research and Development. Research and development expenses decreased
$22,000, or 3.6%, to $601,000 in the three months ended March 31, 1998 from
$623,000 in the three months ended March 31, 1997. This decrease was primarily
due to the fact that significant research and development expenses were incurred
in the three months ended March 31, 1997 in conjunction with the design and
implementation of the new TravelWeb database.

         General and administrative expenses. General and administrative
expenses increased $199,000, or 23.3%, to $1.1 million in the three months ended
March 31, 1998 from $856,000 in the three months ended March 31, 1997. This
increase was primarily driven by higher legal, accounting, insurance, printing
and reporting costs associated with operating as a public company.

         Marketing and promotion expenses. Marketing and promotion expenses
increased $377,000, or 43.5%, to $1.2 million in the three months ended March
31, 1998 from $865,000 in the three months ended March 31, 1997. Marketing and
promotion expenses grew primarily due to the addition of Sales and Marketing
staff, the promotion of the TravelWeb service and amortization of new customer
contract incentives. The Company also took a charge of approximately $130,000 in
the three months ended March 31, 1998 for severance payments and other costs in
the Company's Sales and Marketing Department.

         Depreciation and amortization. Depreciation and amortization expenses
increased $46,000, or 6.5%, to $753,000 in the three months ended March 31, 1998
from $707,000 in the three months ended March 31, 1997. This increase was
primarily due to the amortization of software purchased from a third party in
December 1997.



                                       11
<PAGE>   12

         Interest income. Interest income increased $588,000 to $644,000 in the
three months ended March 31, 1998 from $56,000 in the three months ended March
31, 1997 as a result of the investment of the proceeds from the Company's IPO.

         Interest expense. Interest expense decreased $165,000, or 77.6%, to
$47,000 in the three months ended March 31, 1998. The expense reflects payments
made under capital equipment leases. The Company repaid all of its promissory
notes payable to certain stockholders of the Company on August 15, 1997 using a
portion of the proceeds from its IPO on August 6, 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its cash requirements for operations and investments in
equipment primarily through the sale of capital stock, borrowings from
stockholders and capital lease financing.

Cash provided by operating activities was $1.1 million for the three months
ended March 31, 1998 compared to net cash utilized of $233,000 in the three
months ended March 31, 1997.

The Company completed a secondary offering ("Secondary") in February 1998,
raising proceeds, net of offering expenses, of $4.2 million. The proceeds have
been invested in short-term marketable securities.

Net cash used in investing activities for the purchase of software, furniture
and equipment amounted to $231,000 in the three months ended March 31, 1998
compared to $407,000 in the three months ended March 31, 1997. In addition, the
Company acquired equipment under capital leases with a principal value of
$79,000 during the three months ended March 31, 1997.

The Company's principal sources of liquidity at March 31,1998 included cash and
cash equivalents of $29.6 million, short-term investments of $14.8 million and
restricted cash of $1.6 million which represents funds for travel agency
commission checks that have not cleared HCC's processing bank and are returned
to HCC. Any of such amounts which are not remitted to travel agents will be
escheated to the appropriate state, as required.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - 
          Not Applicable


                                       12
<PAGE>   13


PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS - Not applicable

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS - The Securities and 
Exchange Commission, on August 6, 1997, declared effective the Registration 
Statement on Form S-1 (File No. 333-28595) relating to the initial public 
offering of the Company's Common Stock.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES - Not applicable

ITEM 4.   SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - Not applicable

ITEM 5.   OTHER INFORMATION  - Not applicable

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

         (a)  EXHIBITS

              EXHIBIT 27 - FINANCIAL DATA SCHEDULE

         (b)  REPORTS ON FORM 8-K - Not applicable



                                       13


<PAGE>   14
                                   SIGNATURES



Pursuant to the requirements 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 SYSTEMS, INC.




           May 14, 1998                                  /s/ John F. Davis, III
                                                         ----------------------

                                                            John F. Davis, III,
                                                            President and Chief
                                                              Executive Officer





           May 14, 1998                                    /s/ Jerome L. Galant
                                                           --------------------

                                                               Jerome L. Galant
                                                        Chief Financial Officer
                                                  (principal financial officer)



                                       14


<PAGE>   15

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                    DESCRIPTION
-------                   -----------

<S>                <C>
  27 -             FINANCIAL DATA SCHEDULE
</TABLE>