<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 0-21389

                       PEGASUS COMMUNICATIONS CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)



         Delaware                                              51-0374669
         --------                                              ----------
(State or other jurisdiction of                               (IRS Employer
 incorporation or 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
                                                    --------------

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___




Number of shares of each class of the registrant's common stock outstanding as
of May 8, 1998:

         Class A, Common Stock, $0.01 par value       11,295,003
         Class B, Common Stock, $0.01 par value        4,581,900
<PAGE>

                       PEGASUS COMMUNICATIONS CORPORATION

                                    Form 10-Q
                                Table of Contents
                  For the Quarterly Period Ended March 31, 1998


<TABLE>
<CAPTION>
<S>                                                                                            <C>
                                                                                               Page
Part I.  Financial Information                                                                 ----


         Item 1            Consolidated Financial Statements

                           Consolidated Balance Sheets
                             December 31, 1997 and March 31, 1998                                3

                           Consolidated Statements of Operations
                             Three months ended  March 31, 1997 and 1998                         4

                           Consolidated Statements of Cash Flows
                             Three months ended  March 31, 1997 and 1998                         5

                           Notes to Consolidated Financial Statements                            6


         Item 2            Management's Discussion and Analysis of
                             Financial Condition and Results of Operations                       11


         Item 3            Quantitative and Qualitative Disclosures About
                             Market Risk                                                         16


Part II.  Other Information



         Item 5            Other Information                                                     17


         Item 6            Exhibits and Reports on Form 8-K                                      17


         Signature                                                                               18

</TABLE>

                                       2
<PAGE>

                       Pegasus Communications Corporation
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                              December 31,                    March 31,
                                                                                  1997                          1998
                                                                           ------------------            ------------------
                             ASSETS                                                                         (unaudited)
<S>                                                                               <C>                            <C>
Current  assets:
    Cash and cash equivalents                                                 $ 44,049,097                 $ 23,012,116    
    Restricted cash                                                              1,220,056                    2,091,333
    Accounts receivable, less allowance for doubtful
     accounts of $319,000 and $218,000, respectively                            13,819,571                   11,953,860
    Program rights                                                               2,059,346                    1,782,617
    Inventory                                                                      974,920                    1,134,410
    Deferred taxes                                                               2,602,453                    2,602,453
    Prepaid expenses and other                                                     788,669                      928,751
                                                                              ------------                 ------------   
      Total current assets                                                      65,514,112                   43,505,540
                                                                                                             
Property and equipment, net                                                     27,686,646                   27,545,516
Intangible assets, net                                                         284,774,027                  295,001,551
Program rights                                                                   2,262,299                    1,937,299
Deposits and other                                                                 624,629                    2,624,629
                                                                              ------------                 ------------

    Total assets                                                              $380,861,713                 $370,614,535
                                                                              ============                 ============


                 LIABILITIES AND TOTAL EQUITY

Current liabilities:
    Current portion of long-term debt                                         $  6,357,320                 $  1,948,549
    Accounts payable                                                            10,240,615                    7,620,193
    Accrued interest                                                             8,177,261                    7,727,972
    Accrued expenses                                                             6,973,297                    5,510,865
    Amounts due seller                                                                  --                    2,261,790
    Current portion of program rights payable                                    1,418,581                    1,106,673
                                                                              ------------                 ------------
      Total current liabilities                                                 33,167,074                   26,176,042

Long-term debt, net                                                            201,997,811                  210,634,091
Program rights payable                                                           1,416,446                    1,101,446
Deferred taxes                                                                   2,652,454                    2,727,454
                                                                              ------------                 ------------
     Total liabilities                                                         239,233,785                  240,639,033

Commitments and contingent liabilities                                                  --                           --

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

Series A preferred stock                                                       111,264,424                  114,841,277

Common stockholders' equity:
    Class A common stock                                                            57,399                       57,734
    Class B common stock                                                            45,819                       45,819
    Additional paid-in capital                                                  64,034,687                   61,164,680
    Deficit                                                                    (36,774,401)                 (49,134,008)
                                                                              ------------                 ------------
     Total common stockholders' equity                                          27,363,504                   12,134,225
                                                                              ------------                 ------------

    Total liabilities and stockholders' equity                                $380,861,713                 $370,614,535
                                                                              ============                 ============

</TABLE>


           See accompanying notes to consolidated financial statements

                                        3

<PAGE>
                       Pegasus Communications Corporation
                      Consolidated Statements of Operations



<TABLE>
<CAPTION>


                                                                             Three Months Ended March 31,
                                                                          ----------------------------------
                                                                             1997                    1998
                                                                          ----------             -----------
                                                                                     (unaudited)
<S>                                                                           <C>                   <C>
Revenues:
     Basic and satellite service                                          $7,791,653             $18,026,471        
     Premium services                                                        923,365               2,808,766
     Broadcasting revenue,                                                                       
       net of agency commissions                                           5,277,104               5,342,118
     Barter programming revenue                                            1,450,800               1,459,500
     Other                                                                   359,839               1,146,837
                                                                          -----------            -----------
       Total revenues                                                     15,802,761              28,783,692
                                                                                                 
Operating expenses:                                                                              
     Programming                                                           3,928,419              10,211,256
     Barter programming expense                                            1,450,800               1,459,500
     Technical and operations                                                955,141               1,063,121
     Marketing and selling                                                 1,947,647               6,386,799
     General and administrative                                            2,302,044               4,940,123
     Incentive compensation                                                  279,851                 409,205
     Corporate expenses                                                      406,461                 685,266
     Depreciation and amortization                                         4,898,331               9,930,584
                                                                          ----------             -----------
       Loss from operations                                                 (365,933)             (6,302,162)
                                                                                                 
Interest expense                                                          (3,154,466)             (5,975,738)
Interest income                                                              447,435                 345,747
Other expenses, net                                                          (28,557)               (352,454)
Gain on sale of cable system                                               4,534,300                      --
                                                                          ----------             -----------
                                                                                                 
     Income (loss) before income taxes                                     1,432,779             (12,284,607)
Provision for income taxes                                                        --                  75,000
                                                                          ----------             -----------
                                                                                                 
     Net income (loss)                                                     1,432,779             (12,359,607)
     Preferred stock dividends                                             2,125,000               3,576,853
                                                                          ----------            -----------
                                                                                                 
     Net loss applicable to common shares                                  ($692,221)           ($15,936,460)
                                                                          ==========             ===========
                                                                                                 
                                                                                              


Basic and diluted earnings per common share:
     Net loss                                                                 ($0.07)                 ($1.54)
                                                                          ==========             ===========

     Weighted average shares outstanding                                   9,554,897              10,332,436
                                                                          ==========             ===========
</TABLE>





           See accompanying notes to consolidated financial statements
                                        4


<PAGE>
                       Pegasus Communications Corporation
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>


                                                                             Three Months Ended March 31,
                                                                          ----------------------------------
                                                                             1997                    1998
                                                                          ----------             -----------
                                                                                     (unaudited)
<S>                                                                           <C>                   <C>
Cash flows from operating activities:
   Net income (loss)                                                     $ 1,432,779            ($12,359,607)
   Adjustments to reconcile net income (loss)
     to net cash used by operating activities:
     Depreciation and amortization                                         4,898,331               9,930,584
     Program rights amortization                                             376,883                 601,129
     Accretion on discount of bonds                                           98,376                  98,853
     Gain on sale of cable system                                         (4,534,300)                     --
     Bad debt expense                                                        216,492                 272,379
     Change in assets and liabilities:
        Accounts receivable                                                1,460,467               1,697,397
        Inventory                                                            312,601                (159,490)
        Prepaid expenses and other                                          (671,393)               (140,082)
        Accounts payable and accrued expenses                               (789,672)             (3,541,844)
        Accrued interest                                                  (2,960,407)               (449,289)
        Capitalized subscriber acquisition costs                          (1,240,309)                     --
        Amounts due seller                                                        --               2,261,790
        Deposits and other                                                  (292,976)             (2,000,000)
                                                                          ----------             -----------
   Net cash used by operating activities                                  (1,693,128)             (3,788,180)
                                                                          ----------             -----------

Cash flows from investing activities:
      Acquisitions, net of cash acquired                                 (34,103,080)             (7,777,494)
      Cash acquired from acquisitions                                        146,703                      --
      Capital expenditures                                                (3,357,453)             (1,502,066)
      Purchase of intangible assets                                       (1,479,302)             (1,063,812)
      Payments of programming rights                                        (736,738)               (626,308)
      Proceeds from sale of cable system                                   7,028,250                      --
                                                                          ----------             -----------
   Net cash used for investing activities                                (32,501,620)            (10,969,680)
                                                                          ----------             -----------

Cash flows from financing activities:
      Repayments of long-term debt                                           (44,081)             (5,353,852)
      Borrowings on revolving credit facilities                              526,250                      --
      Repayments of revolving credit facilities                          (30,126,250)                     --
      Restricted cash                                                             --                (871,277)
      Capital lease repayments                                              (107,643)                (53,992)
      Proceeds from issuance of Series A preferred stock                 100,000,000                      --
      Underwriting and preferred offering costs                           (4,187,920)                     --
                                                                          ----------             -----------
   Net cash provided (used) by financing activities                       66,060,356              (6,279,121)
                                                                          ----------             -----------

Net increase (decrease) in cash and cash equivalents                      31,865,608             (21,036,981)
Cash and cash equivalents, beginning of year                               8,582,369              44,049,097
                                                                          ----------             -----------
Cash and cash equivalents, end of period                                 $40,447,977             $23,012,116
                                                                         ===========             ===========

</TABLE>



           See accompanying notes to consolidated financial statements
                                        5







<PAGE>

                       PEGASUS COMMUNICATIONS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. The Company:

         Pegasus Communications Corporation ("Pegasus" or together with its
subsidiaries stated below, the "Company"), is a diversified media and
communications company, incorporated under the laws of the State of Delaware in
May 1996, and is a direct subsidiary of Pegasus Communications Holdings, Inc.
("PCH" or the "Parent"). Pegasus' direct subsidiaries are Pegasus Media &
Communications, Inc. ("PM&C"), Pegasus Development Corporation ("PDC"), Pegasus
Towers, Inc. ("Towers") and Pegasus Communications Management Company ("PCMC").

         PM&C is a diversified media and communications company whose
subsidiaries provide direct broadcast satellite television ("DBS") services to
customers in certain rural areas which encompass portions of twenty-seven
states, own and operate cable television ("Cable") systems that provide service
to individual and commercial subscribers in New England and Puerto Rico, own and
operate broadcast television ("TV") stations affiliated with the Fox
Broadcasting Company ("Fox") and operate, pursuant to local marketing
agreements, stations affiliated with United Paramount Network ("UPN") and The WB
Television Network ("WB").

         PDC provides capital for various satellite initiatives such as
subscriber acquisitions costs. Towers owns and operates transmitting towers
located in Pennsylvania and Tennessee. PCMC provides certain management and
accounting services for the Company.

         In January 1997, Pegasus completed a unit offering (the "Unit
Offering") in which it sold 100,000 shares of 12.75% Series A Cumulative
Exchangeable Preferred Stock (the "Series A Preferred Stock") and warrants to
purchase 193,600 shares of Class A Common Stock at an exercise price of $15 per
share to the public at a price of $1,000 per unit, resulting in net proceeds to
the Company of $95.8 million.

2. Basis of Presentation:

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements include
the accounts of Pegasus and all of its subsidiaries or affiliates. All
intercompany transactions and balances have been eliminated.

         The unaudited consolidated financial statements reflect all adjustments
consisting of normal recurring items which are, in the opinion of management,
necessary for a fair presentation, in all material respects, of the financial
position of the Company and the results of its operations and its cash flows for
the interim period.


                                        6



<PAGE>

                       PEGASUS COMMUNICATIONS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. Common Stock:

<TABLE>
<CAPTION>

<S>                                                                                        <C>
      At December 31, 1997 common stock consists of the following:

        Pegasus Class A common stock,  $0.01 par value;  30.0 million  shares
            authorized; 5,739,842 issued and outstanding ....................        $ 57,399
        Pegasus Class B common stock,  $0.01 par value;  15.0 million  shares
            authorized; 4,581,900 issued and outstanding ....................          45,819
                                                                                     --------
            Total  common  stock.............................................        $103,218
                                                                                     ========
      At March 31, 1998 common stock consists of the following:

        Pegasus Class A common stock,  $0.01 par value;  30.0 million  shares
            authorized; 5,773,333 issued and outstanding  ...................        $ 57,734
        Pegasus Class B common stock,  $0.01 par value;  15.0 million  shares
            authorized; 4,581,900 issued and outstanding ....................          45,819
                                                                                     --------
            Total common  stock .............................................        $103,553
                                                                                     ========
</TABLE>

         The Company's ability to pay dividends on its Common Stock is subject
to certain restrictions (see footnote 4 - Redeemable Preferred Stock and
footnote 5 - Long-Term Debt).


4. Redeemable Preferred Stock:

         As a result of the Unit Offering and dividends subsequently declared on
the Series A Preferred Stock, the Company has outstanding approximately 112,215
shares of Series A Preferred Stock with a liquidation preference of $1,000 per
share (the "Liquidation Preference"). Cumulative dividends, at a rate of 12.75%
are payable semi-annually on January 1 and July 1. Dividends may be paid,
occurring on or prior to January 1, 2002, at the option of the Company, either
in cash or by the issuance of additional shares of Series A Preferred Stock.
Subject to certain conditions, the Series A Preferred Stock is exchangeable in
whole, but not in part, at the option of the Company, for Pegasus' 12.75% Senior
Subordinated Exchange Notes due 2007 (the "Exchange Notes"). The Exchange Notes
would contain substantially the same redemption provisions, restrictions and
other terms as the Series A Preferred Stock. Pegasus is required to redeem all
of the Series A Preferred Stock outstanding on January 1, 2007 at a redemption
price equal to the Liquidation Preference thereof, plus accrued dividends.

         The carrying amount of the Series A Preferred Stock is periodically
increased by amounts representing dividends not currently declared or paid but
which will be payable under the mandatory redemption features. The increase in
carrying amount is effected by charges against retained earnings, or in the
absence of retained earnings, by charges against paid-in capital.

         Under the terms of the Series A Preferred Stock, Pegasus' ability to
pay dividends on its Common Stock is subject to certain restrictions.

         At December 31, 1997 and March 31, 1998, 5.0 million shares of Series A
Preferred Stock are authorized and 105,490 and 112,215 shares are issued and
outstanding, respectively.

         Basic earnings per share amounts are based on net income after
deducting preferred stock dividend requirements divided by the weighted average
number of Class A and Class B Common shares outstanding during the period.

                                        7

<PAGE>

                       PEGASUS COMMUNICATIONS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. Redeemable Preferred Stock (continued):

         For the three months ended March 31, 1997 and 1998, net loss per common
share was determined by dividing net income (loss), as adjusted by the aggregate
amount of dividends on the Company's Series A Preferred Stock, approximately
$2.1 million and $3.6 million, respectively, by applicable shares outstanding.

5. Long-Term Debt:

<TABLE>
<CAPTION>

     Long-term debt consists of the following :                            December 31,             March 31,
                                                                               1997                   1998
                                                                         ----------------       ----------------
<S>                                                                            <C>                     <C>
Series B Notes payable by PM&C, 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 $2,919,150 as of December 31, 1997
    and March 31, 1998, respectively................................      $ 81,981,997            $ 82,080,850
Series A Senior Notes payable by Pegasus, due 2005,
    interest at 9.625%, payable semi-annually in arrears on
    April 15 and October 15, commencing on April 15, 1998...........       115,000,000             115,000,000
Senior six-year $180.0 million revolving credit facility,
    payable by PM&C, interest at the Company's option at
    either the bank's base rate plus an applicable margin or
    LIBOR plus an applicable margin.................................                --                      --
Mortgage payable, due 2000, interest at 8.75%.......................           477,664                 472,174
Note payable, due 1998, interest at 10%.............................         3,050,000                      --
Sellers' notes, various maturities and interest rates...............         7,171,621              14,397,259
Capital leases and other............................................           673,849                 632,357
                                                                          ------------            ------------
                                                                           208,355,131             212,582,640
Less current maturities.............................................         6,357,320               1,948,549
                                                                          ------------            ------------
Long-term debt......................................................      $201,997,811            $210,634,091
                                                                          ============            ============
</TABLE>


         In December 1997, PM&C entered into a $180.0 million six-year senior
revolving credit facility (the "New Credit Facility"), which is collateralized
by substantially all of the assets of PM&C and its subsidiaries. Interest on the
New Credit Facility is, at the Company's option, at either the bank's base rate
plus an applicable margin or LIBOR plus an applicable margin. The New Credit
Facility is subject to certain financial covenants as defined in the loan
agreement, including a debt to adjusted cash flow covenant. The New Credit
Facility will be used to finance future acquisitions and for working capital,
capital expenditures and general corporate purposes. There were no borrowings
outstanding at December 31, 1997 and March 31, 1998.

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





                                        8

<PAGE>

                       PEGASUS COMMUNICATIONS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

6. Net Loss Per Common Share:

Calculation of Basic and Diluted Earnings Per Common Share:

         The following table sets forth the computation of the number of shares
used in the computation of basic and diluted earnings per common share:

<TABLE>
<CAPTION>
                                                                March 31,           March 31,
                                                                  1997                1998
                                                             -------------        -------------
<S>                                                               <C>                  <C>
        Net loss applicable to common shares                  ($692,221)         ($15,936,460)
                                                             =============        =============
        Weighted average common shares outstanding             9,554,897            10,332,436
                                                             =============        =============
</TABLE>

         For the three months ended March 31, 1997 and 1998, net loss per common
share was determined by dividing net loss, as adjusted by the aggregate amount
of dividends on the Company's Series A Preferred Stock, approximately $2.1
million and $3.6 million, respectively, by applicable shares outstanding. The
total shares used for the calculation of diluted net loss per common share were
not adjusted for securities that have not been issued as they are antidulitive.

7. Acquisitions:

         As of January 7, 1998, the Company acquired, from an independent
DIRECTV(R) ("DIRECTV") provider, the rights to provide DIRECTV programming in
certain rural areas of Minnesota and the related assets in exchange for total
consideration of approximately $1.9 million, which consisted of $1.8 million in
cash and $32,000 in assumed liabilities.

         As of March 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
Nebraska and Texas and the related assets in exchange for total consideration of
approximately $15.6 million, which consisted of $5.9 million in cash, $105,000
in assumed liabilities, a $9.4 million note, payable over four years; and
$75,000 in cash and a $150,000 obligation, payable over two years, for
consultancy and non-compete agreements.

         The following unaudited summary, prepared on a pro forma basis,
combines the results of operations as if the above DBS territories had been
acquired as of the beginning of the periods presented, after including the
impact of certain adjustments, such as the Company's payments to related
parties, amortization of intangibles, interest expense, preferred stock
dividends and related income tax effects. The pro forma information does not
purport to be indicative of what would have occurred had the acquisitions 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 March
31, 1998.





                                        9
<PAGE>


                       PEGASUS COMMUNICATIONS CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. Acquisitions (continued):

<TABLE>
<CAPTION>

                                                                      Three Months Ended March 31,
                   (in thousands, except earnings per share)                   (unaudited)
                                                                       1997                  1998
                                                                       ----                  ----
              <S>                                                      <C>                    <C>
            Net  revenues .......................................    $24,886               $29,928
                                                                     -------               -------
            Operating  loss .....................................    ($5,375)              ($6,453)
                                                                     -------               -------
            Net  loss ...........................................   ($10,793)             ($12,511)

            Less: Preferred stock dividends .....................     (3,577)               (3,577)
                                                                     -------               -------
            Net loss  applicable  to common  shares  ............   ($14,370)             ($16,088)
                                                                     =======               =======  
            Net loss per  common  share  ........................     ($1.40)               ($1.55)
                                                                     =======               =======
</TABLE>

8. Commitments and Contingent Liabilities:

Legal Matters:

         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 these claims will not have a material adverse effect on the
consolidated operations, liquidity, cash flows or financial position of the
Company.


9. Other Events:

         In January 1998, the Company entered into an agreement to sell its
remaining New England cable systems for a purchase price of at least $28 million
and not more than $31 million, based on the systems' location cash flow for the
trailing 12 months prior to closing, multiplied by nine. The Company anticipates
this transaction to close in the third quarter of 1998. The Company expects to
report a nonrecurring gain relating to this transaction.

         As of April 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
New Mexico and Texas and the related assets in exchange for total consideration
of approximately $14.2 million, which consisted of $13.3 million in cash and
37,304 shares of the Company's Class A Common Stock (amounting to $900,000 at
the time of issuance).

         On April 27, 1998, the Company acquired, from Digital Television
Services, Inc. ("DTS"), the rights to provide DIRECTV programming in certain
rural areas of California, Colorado, Georgia, Indiana, Kansas, Kentucky, New
Hampshire, New Mexico, New York, South Carolina and Vermont and the related
assets and liabilities in exchange for total consideration of approximately
$320.8 million, which consisted of approximately 5.5 million shares of the
Company's Class A Common Stock (amounting to $118.8 million at a price of 
$21.71 per share) and approximately $202.0 million of assumed net liabilities 
(as of March 31, 1998).







                                       10


<PAGE>

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

         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 the Company that are based on the beliefs of the
management of the Company, as well as assumptions made by and information
currently available to the Company's 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 the current views of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see the information contained in the
section captioned "Risk Factors" (pages 12-21) of Pegasus' Proxy
Statement/Prospectus dated April 14, 1998, filed as part of Pegasus'
Registration Statement in Form S-4, File No. 333-44929 (the "Proxy
Statement/Prospectus"), which section is incorporated by reference herein.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as the date hereof. The Company does not undertake
any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Unless otherwise defined, all
defined terms used herein have the same meaning as in the footnotes to the
Consolidated Financial Statements included herein.

General

         The Company is a diversified company operating in growing segments of
the media and communications industries: multichannel television and broadcast
television. Pegasus Multichannel Television includes DBS and cable businesses.
As of March 31, 1998, the Company's DBS operations consisted of providing
DIRECTV services to approximately 154,000 subscribers in certain rural areas of
27 states in which the Company holds the exclusive right to provide such
services. Its cable operations consist of systems in New England (Connecticut
and Massachusetts) and Puerto Rico. The Company sold its New Hampshire cable
system effective January 31, 1997. On January 16, 1998, the Company entered into
an agreement to sell its remaining New England cable systems. Pegasus Broadcast
Television owns and operates five TV stations affiliated with Fox and operates
one affiliated with UPN and another affiliated with WB. It has entered into an
agreement to operate two additional TV stations, which will be affiliated with
WB and will commence operations in 1998.

         On April 27, 1998, the Company acquired (the "DTS Acquisition") Digital
Television Services, Inc. (DTS). Upon completion of the DTS Acquisition, DTS
became a wholly owned subsidiary of Pegasus. As of March 31, 1998, DTS'
operations consisted of providing DIRECTV services to approximately 144,000
subscribers in certain rural areas of 11 states in which DTS holds the exclusive
right to provide such services.

         Multichannel revenues are derived from monthly customer subscriptions,
pay-per-view services, subscriber equipment rentals, home shopping commissions,
advertising time sales and installation charges. Broadcast revenues are derived
from the sale of broadcast airtime to local and national advertisers.

         The Company's location operating expenses consist of (i) programming
expenses, (ii) marketing and selling costs, including advertising and promotion
expenses, local sales commissions, and ratings and research expenditures, (iii)
technical and operations costs, (iv) general and administrative expenses, and
(v) expensed subscriber acquisition costs. Multichannel programming expenses
consist of amounts paid to program suppliers, digital satellite system or DSS(R)
("DSS") authorization charges and satellite control fees, each of which is paid
on a per subscriber basis, and DIRECTV royalties which are equal to 5% of DBS
program service revenues. Broadcast programming expenses include the
amortization of long-term program rights purchases, music license costs and
"barter" programming expenses which represent the value of broadcast air time
provided to television program suppliers in lieu of cash.



                                       11

<PAGE>

         The Company no longer requires new DBS customers to sign a one-year
programming contract and, as a result, subscriber acquisition costs ("SAC"),
which were being capitalized and amortized over a twelve-month period, are
currently being charged to operations in the period incurred. This change became
effective October 1, 1997. Subscriber acquisition costs charged to operations
are excluded from pre-SAC location operating expenses.


Results of Operations

Three months ended March 31, 1998 compared to three months ended March 31, 1997

         The Company's net revenues increased by approximately $13.0 million or
82% for the three months ended March 31, 1998 as compared to the same period in
1997. Multichannel Television net revenues increased $12.9 million or 144% and
Broadcast Television net revenues increased $94,000 or 1%. The net revenues
increased as a result of (i) a $12.5 million or 253% increase in DBS revenues of
which $2.0 million or 16% was due to the increased number of DBS subscribers in
territories owned at the beginning of 1997 and $10.6 million or 84% resulted
from acquisitions made in 1997 and 1998, (ii) a $366,000 or 9% increase in Cable
revenues which was the net result of a $499,000 or 13% increase in same system
revenues due primarily to rate increases and a $133,000 reduction due to the
sale of the Company's New Hampshire cable system effective January 31, 1997,
(iii) a $86,000 or 1% increase in TV revenues which was the net result of a
$230,000 or 3% decrease in same station revenues, primarily as a result of
revenues generated by the Super Bowl in the first quarter of 1997, and a
$316,000 increase due to the two new stations launched on August 1, 1997 and
October 17, 1997, and (iv) a $8,000 increase in Tower rental income.

         The Company's total location operating expenses, as described above,
before DBS subscriber acquisition costs increased by approximately $9.7 million
or 95% for the three months ended March 31, 1998 as compared to the same period
in 1997. Multichannel Television pre-SAC location operating expenses increased
$9.0 million or 162% and Broadcast Television location operating expenses
increased $646,000 or 14%. The pre-SAC location operating expenses increased as
a result of (i) a $8.8 million or 255% increase in operating expenses generated
by the Company's DBS operations due to a same territory increase in programming
and other operating costs totaling $1.3 million (resulting from the increased
number of DBS subscribers in territories owned at the beginning of 1997) and a
$7.4 million increase attributable to territories acquired in 1997 and 1998,
(ii) a $268,000 or 13% increase in Cable operating expenses as the net result of
a $334,000 or 16% increase in same system operating expenses due primarily to
increases in programming costs and a $66,000 reduction due to the sale of the
Company's New Hampshire cable system effective January 31, 1997, (iii) a
$649,000 or 14% increase in TV operating expenses as the result of a $106,000 or
2% increase in same station operating expenses and a $543,000 increase
attributable to the two new stations launched on August 1, 1997 and October 17,
1997, and (iv) a $3,000 reduction in Tower administrative expenses.

         DBS subscriber acquisition costs, which consist of regional sales
costs, advertising and promotion, and commissions and subsidies, totaled $4.2
million or $283 per gross subscriber addition for the three months ended March
31, 1998.

         Incentive compensation, which is calculated from increases in pro forma
Location Cash Flow, increased by approximately $129,000 or 46% for the three
months ended March 31, 1998 as compared to the same period in 1997.

         Corporate expenses increased by $279,000 or 69% for the three months
ended March 31, 1998 as compared to the same period in 1997 primarily due to
increased staffing as a result of internal and acquisition related growth,
enhanced public relations activities and additional public reporting
requirements for the Company.




                                       12


<PAGE>

         Depreciation and amortization expense increased by approximately $5.0
million or 103% for the three months ended March 31, 1998 as compared to the
same period in 1997 as the Company increased its fixed and intangible asset base
as a result of twenty-five completed acquisitions during 1997 and three
completed acquisitions in the first quarter of 1998.

         As a result of these factors, the Company's loss from operations
increased by $5.9 million for the three months ended March 31, 1998 as compared
to the same period in 1997.

         Interest expense increased by approximately $2.8 million or 89% for the
three months ended March 31, 1998 as compared to the same period in 1997 as a
result of an increase in debt associated with the Company's acquisitions.

         The Company reported a net loss of $12.4 million for the three months
ended March 31, 1998 as compared to net income of approximately $1.4 million for
the same period in 1997. The $13.8 million change was the net result of an
increase in the loss from operations of $5.9 million, an increase in interest
expense of $2.8 million, an increase in the provision for income taxes of
$75,000, an increase in other expenses of approximately $425,000 and a
nonrecurring gain on the sale of the New Hampshire cable system of approximately
$4.5 million during the first quarter of 1997.

         The Company's preferred stock dividends, payable by issuing shares of
Series A Preferred Stock, increased $1.5 million for the three months ended
March 31, 1998 as compared to the same period in 1997.

Liquidity and Capital Resources

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

         Pre-SAC Location Cash Flow increased by $3.3 million or 59% for the
three months ended March 31, 1998 as compared to the same period in 1997.
Multichannel Television Pre-SAC Location Cash Flow increased $3.9 million or
114% and Broadcast Television Location Cash Flow decreased $552,000 or 25%.
Pre-SAC Location Cash Flow increased as a result of (i) a $3.8 million or 250%
increase in DBS Pre-SAC Location Cash Flow of which $657,000 or 17% was due to
an increase in same territory Pre-SAC Location Cash Flow and $3.1 million or 83%
was attributable to territories acquired in 1997 and 1998, (ii) a $98,000 or 5%
increase in Cable Location Cash Flow which was the net result of a $165,000 or
9% increase in same system Location Cash Flow and a $67,000 reduction due to the
sale of the Company's New Hampshire cable system effective January 31, 1997,
(iii) a $563,000 or 26% decrease in TV Location Cash Flow as a result of a
$336,000 or 15% decrease in same station Location Cash Flow, primarily as a
result of the cash flow generated by the Super Bowl in the first quarter of
1997, and a $227,000 decrease attributable to the two new stations launched on
August 1, 1997 and October 17, 1997, and (iv) a $11,000 increase in Tower
Location Cash Flow.

         During the three months ended March 31, 1998, $44.0 million of cash on
hand was used to fund operating activities of $3.8 million, investing activities
of $11.0 million and financing activities of $6.3 million. Investing activities
consisted of (i) the acquisition of DBS assets from three independent DIRECTV
providers during the first quarter of 1998 for approximately $7.8 million, (ii)
broadcast television transmitter, tower and facility upgrades totaling
approximately $981,000, (iii) payments of programming rights amounting to
$626,000, and (iv) maintenance and other capital expenditures and intangibles
totaling approximately $1.6 million. Financing activities consisted of the
repayment of approximately $5.4 million of long-term debt and placing $871,000
in restricted cash to collateralize letters of credit. As of March 31, 1998, the
Company's cash on hand approximated $23.0 million.


                                       13
<PAGE>

         As defined in the Certificate of Designation, Preferences and Relative,
Participating, Optional and Other Special Rights thereof (the "Certificate of
Designation") governing the Series A Preferred Stock and the indenture governing
the Senior Notes (the "Senior Indenture"), the Company is required to provide
Adjusted Operating Cash Flow data for Pegasus and its Restricted Subsidiaries on
a consolidated 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 (Satellite Segment Operating 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, the Company believes
that Location Cash Flow, Operating Cash Flow and Adjusted Operating Cash Flow
are accepted within the Company's 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 Certificate of Designation. Pro forma for the
three completed DBS acquisitions occurring in the first quarter of 1998, as if
such acquisitions occurred on January 1, 1998, Adjusted Operating Cash Flow
would have been approximately $36.7 million, as follows:

<TABLE>
<CAPTION>
                                                                                       Four Quarters
                                                                                           Ended
                          (in thousands)                                              March 31, 1998
                                                                                      --------------
<S>                                                                                         <C>
         Revenues                                                                        $123,456

         Direct operating expenses, excluding depreciation,
               Amortization and other non-cash charges                                     84,188
                                                                                         --------

         Income from operations before incentive compensation,
             corporate expenses, depreciation, amortization and
             other non-cash charges                                                        39,268

         Corporate expenses                                                                 2,535
                                                                                         --------

         Adjusted operating cash flow                                                    $ 36,733
                                                                                         ========
</TABLE>



         The Company is restricted by the Senior Notes Indenture from paying
dividends on the Series A Preferred Stock in cash prior to July 1, 2002.
Additionally, the indenture governing the PM&C Notes (the "PM&C Notes
Indenture") and the New Credit Facility contain certain financial and operating
covenants, including restrictions on PM&C's ability to incur additional
indebtedness, create liens and pay dividends.

         Pre-SAC Location Cash Flow is defined as net revenues less location
operating expenses before subscriber acquisition costs. Location Cash Flow is
defined as net revenues less location operating expenses. Although Pre-SAC
Location Cash Flow and Location Cash Flow are not measures of performance under
generally accepted accounting principles, the Company believes that Pre-SAC
Location Cash Flow and Location Cash Flow are accepted within the Company's
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. Nevertheless, these measures should not be considered in
isolation or as a substitute for income from operations, net income, net cash
provided by operating activities or any other measures for determining the
Company's operating performance or liquidity which is calculated in accordance
with generally accepted accounting principles.


                                       14


<PAGE>

         The Company believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations. The
Company engages in discussions with respect to acquisition opportunities in
media and communications businesses on a regular basis. The Company believes
that cash on hand, together with available borrowings under the New Credit
Facility and future indebtedness which may be incurred by the Company and its
subsidiaries will give the Company the ability to fund acquisitions and other
capital requirements in the future. However, there can be no assurance that the
future cash flows of the Company will be sufficient to meet all of the Company's
obligations and commitments.

         The Company closely monitors conditions in the capital markets to
identify opportunities for the effective and prudent use of financial leverage.
In financing its future expansion and acquisition requirements, the Company
would expect to avail itself of such opportunities and thereby increase its
indebtedness, which could result in increased debt service requirements. There
can be no assurance that such debt financing can be completed on terms
satisfactory to the Company or at all. The Company may also issue additional
equity to fund its future expansion and acquisition requirements.

Capital Expenditures

         The Company's capital expenditures aggregated $9.9 million in 1997. The
Company expects recurring renewal and refurbishment capital expenditures to
total approximately $2.0 million per year. In addition to these maintenance
capital expenditures, the Company's 1998 capital projects include (i) DBS
facility upgrades of approximately $500,000 and (ii) approximately $2.6 million
of TV expenditures for broadcast television transmitter, tower and facility
constructions and upgrades. The Company commenced the programming of two new TV
stations, WPME on August 1, 1997 and WGFL on October 17, 1997 and its plans are
to commence programming of two additional stations in 1998. There can be no
assurance that the Company's capital expenditure plans will not change in the
future.

         Effective October 1, 1997, the Company no longer requires new DBS
customers to sign a one-year programming contract and, as a result, subscriber
acquisition costs, which were being capitalized through September 30, 1997 and
amortized over a twelve-month period, will be charged to operations in the
period incurred. The Company's policy is to capitalize subscriber acquisition
costs directly related to new subscribers, such as commissions and equipment
subsidies, who sign a programming contract. These costs are amortized over the
life of the contract. The Company expenses its subscriber acquisition costs when
no new contract is obtained. The Company currently 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.

Other

         The Company has reviewed all of its system as to the Year 2000 issue.
The Company 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 will be in
place by the third quarter of 1998. The Company relies on outside vendors for
the operation of its DBS satellite control and billing systems, including
DIRECTV, the NRTC and their respective vendors. The Company has established a
policy to ensure that its 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. Costs to be incurred beyond March 31, 1998 relating
to the Year 2000 issue are not expected to be significant.

         On January 16, 1998, the Company entered into an agreement to sell its
remaining New England cable systems to Avalon Cable of New England, LLC for a
purchase price of at least $28 million and not more than $31 million.





                                       15
<PAGE>

         On April 27, 1998, the Company acquired DTS for total consideration of
approximately $320.8 million, which consisted of approximately 5.5 million
shares of the Company's Class A Common Stock (amounting to $118.8 million at a
price of $21.71 per share) and approximately $202.0 million of assumed net
liabilities (as of March 31, 1998). Upon completion of the DTS Aquisition, DTS
became a wholly owned subsidiary of Pegasus. As of March 31, 1998, DTS'
operations consisted of providing DIRECTV services to approximately 144,000
subscribers in certain rural areas of 11 states in which DTS holds the exclusive
right to provide such services.

         As a holding company, Pegasus' ability to pay dividends is dependent
upon the receipt of dividends from its direct and indirect subsidiaries. Under
the terms of the PM&C Notes Indenture, PM&C is prohibited from paying dividends
prior to July 1, 1998. Under the terms of the New Credit Facility, PM&C is
restricted from paying dividends. In addition, Pegasus' ability to pay dividends
and Pegasus' and its subsidiaries' ability to incur indebtedness are subject to
certain restrictions contained in the Senior Notes Indenture and the Certificate
of Designation governing the Series A Preferred Stock.

         PM&C's ability to incur additional indebtedness is limited under the
terms of the PM&C Notes Indenture and the New Credit Facility. These limitations
take the form of certain leverage ratios and are dependent upon certain measures
of operating profitability. Under the terms of the New Credit Facility, capital
expenditures and business acquisitions in excess of certain agreed upon levels
will require lender consent.

         The Company's revenues vary throughout the year. As is typical in the
broadcast television industry, the Company's first quarter generally produces
the lowest revenues for the year and the fourth quarter generally produces the
highest revenues for the year. The Company's 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.

         The Company believes that inflation has not been a material factor
affecting the Company's business. In general, the Company's revenues and
expenses are impacted to the same extent by inflation. Substantially all of the
Company's indebtedness bears interest at a fixed rate.

         The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". The Company has
reviewed the provisions of SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", and the implementation of the above standards is not expected to
have any significant impact on its consolidated financial statements.



Item 3: Quantitative and Qualitative Disclosures About Market Risk

        Not Applicable









                                       16


<PAGE>


Part II. Other Information


Item 5: Other Information

         On April 27, 1998, a special meeting of Pegasus' stockholders was held.
At this meeting, votes were cast to approve: (i) the merger agreement relating
to the DTS Acquisition and the transactions contemplated thereby, (ii) the
proposal to amend the Pegasus Restricted Stock Plan to increase the number of
shares of Class A Common Stock that may be issued thereunder from 270,000 to
350,000, (iii) the proposal to amend the Pegasus Communication 1996 Stock Option
Plan to increase the number shares of Class A Common Stock that may be issued
thereunder from 450,000 to 970,000 and to increase the maximum number of shares
of Class A Common Stock that may be issued under options granted to any
executive officer from 275,000 to 550,000, (iv) the proposal to amend the
provision of the Certificate of Designation relating to the Series A Preferred
Stock relating to the incurrence of indebtedness, and (v) the proposal to amend
the definition of a change of control under the Certificate of Designation
relating to the Series A Preferred Stock. All of the proposals were approved by
46,002,740 votes cast in favor of them with the exception of items (ii) and
(iii) above for which 45,999,840 votes were cast in favor and 2,900 votes were
cast against.


Item 6: Exhibits and Reports on Form 8-K


(a) Exhibits

         Exhibit 3.1       By-laws of Pegasus Communications Corporation
                           (As amended and restated effective as of January 1,
                           1998).
         Exhibit 27.1      Financial Data Schedule.


(b) Reports on Form 8-K

         On January 12, 1998, Pegasus filed a Current Report on Form 8-K dated
December 10, 1997 reporting under Item 5 the following events: (i) the
completion of DBS acquisitions made during 1997, (ii) information relating to
certain pending DBS Acquisitions, including the DTS Acquisition, (iii) the
entering into the $180.0 million New Credit Facility by PM&C, and (iv) the
entering into a letter of intent to sell Pegasus' New England cable systems. The
Form 8-K includes under Item 7 certain financial statements relating to the
completed and pending DBS acquisitions and pro forma consolidated financial
information giving effect to, among other things, the completed and pending DBS
acquisitions and the sale of the New England cable systems.

         On March 3, 1998, Pegasus filed a Current Report on Form 8-K dated
January 16, 1998 reporting under Item 5 that the Company had entered into a
definitive agreement to sell its New England cable systems to Avalon Cable of
New England, LLC. No financial statements were filed with the Form 8-K.











                                       17
<PAGE>

                                    SIGNATURE



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 Communications Corporation



         Date May 14, 1998                    By /s/ Robert N. Verdecchio
              ------------                      --------------------------------
                                              Robert N. Verdecchio
                                              Senior Vice President,
                                              Chief Financial Officer, Assistant
                                              Secretary and Director
                                              (Principal Financial and
                                              Accounting Officer)







                                       18


<PAGE>


                                  EXHIBIT INDEX




Exhibit 3.1      By-laws of Pegasus Communications Corporation (As amended and
                 restated effective as of January 1, 1998).

Exhibit 27.1     Financial Data Schedule.