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S-4/A
AVALON CABLE OF MICHIGAN INC/ filed this Form S-4/A on 05/28/1999
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  THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC. AND
         THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.

              NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)


8. Income Taxes:

   The deferred income tax assets and liabilities recorded in the balance sheet
are as follows:


<TABLE>
<CAPTION>
                                          December     December
                                             31,          31,       June 30,
                                            1996         1997         1998
                                         -----------  -----------  -----------
<S>                                      <C>          <C>          <C>
Assets:
  Excess of tax basis over book basis
   from tax gain recognized upon
   incorporation of PCT And PCT-CT...... $   707,546  $   707,546  $   707,546
  Loss carryforwards....................   1,324,236    1,039,849      957,318
  Other.................................       6,997       11,856       11,856
                                         -----------  -----------  -----------
    Total deferred tax assets...........   2,038,779    1,759,251    1,676,720
                                         -----------  -----------  -----------
Liabilities:
  Excess of book basis over tax basis of
   property, plant and equipment and
   intangible asset.....................    (258,311)    (294,934)    (335,014)
  Other.................................    (118,086)    (134,859)    (135,267)
                                         -----------  -----------  -----------
  Total deferred tax liabilities........    (376,397)    (429,793)    (470,281)
                                         -----------  -----------  -----------
  Net deferred tax assets...............   1,662,382    1,329,458    1,206,439
    Valuation allowance.................  (1,662,382)  (1,329,458)  (1,206,439)
                                         -----------  -----------  -----------
  Net deferred tax liabilities.......... $       --   $       --   $       --
                                         ===========  ===========  ===========
</TABLE>


   The Combined Operations have recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized due to the
expiration of deferred tax assets related to the incorporation of PCT and PCT-
CT and the expiration of net operating loss carryforwards.

9. Employee Benefit Plans:

   The Company employees participate in PCC's stock option plan that awards
restricted stock (the "Restricted Stock Plan") to eligible employees of the
Company.

 Restricted Stock Plan

   The Restricted Stock Plan provides for the granting of restricted stock
awards representing a maximum of 270,000 shares (subject to adjustment to
reflect stock dividends, stock splits, recapitalizations and similar changes in
the capitalization of PCC) of Class A Common Stock of the Company to eligible
employees who have completed at least one year of service. Restricted stock
received under the Restricted Stock Plan vests over four years. The Plan
terminates in September 2006. The expense for this plan amounted to $82,425,
$80,154 and $63,533 in 1996 and 1997 and for the six months ended June 30,
1998, respectively.

 401(k) Plans

   Effective January 1, 1996, PM&C adopted the Pegasus Communications Savings
Plan (the "US 401(k) Plan") for eligible employees of PM&C and its domestic
subsidiaries. Substantially all Company employees who, as of the enrollment
date under the 401(k) Plans, have completed at least one year of service with
the Company are eligible to participate in one of the 401(k) Plans.
Participants may make salary deferral contributions of 2% to 6% of their salary
to the 401(k) Plans. The expense for this plan amounted to $19,520, $14,446 and
$7,367 in 1996 and 1997 and for the six months ended June 30, 1998,
respectively.

                                      F-99