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

                                    FORM 10-K

                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
           SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
           |X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

           |_|  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: 0-28670
                                 TV FILME, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                      98-0160214
(STATE OR OTHER JURISDICTION                (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

               C/O ITSA - INTERCONTINENTAL TELECOMUNICACOES LTDA.
                               SCS, QUADRA 07-BL.A
                          ED. EXECUTIVE TOWER, SALA 601
                            70.300-911 BRASILIA - DF
                                     BRAZIL
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

     Registrant's telephone number, including area code: 011-55-61-314-9908

                    SECURITIES REGISTERED PURSUANT TO SECTION
                               12(B) OF THE ACT:
                                      None
           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     Common Stock, par value $0.01 per share

     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. [X] Yes [ ] No

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

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed  by  Section12,  13 or  15(d)  of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.   [ ] Yes [X] No*

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant as of March 24, 2000 was approximately $1,162,770.

     As of March 24, 2000,  10,824,594 shares of the registrant's  Common Stock,
$0.01 par value, were outstanding.

     DOCUMENTS INCORPORATED BY REFERENCE.  None.

*Although a bankruptcy plan has been confirmed by the U.S.  Bankruptcy Court for
the District of Delaware,  no securities  have yet been  distributed  under such
plan.

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<PAGE>
                                TABLE OF CONTENTS


PART I   ......................................................................1


Item 1.  Business..............................................................1

         Background............................................................1

         Company Overview......................................................1

         Brazilian Pay Television Industry.....................................2

         Operating Systems and the Company's Markets...........................3

         Programming...........................................................4

         High Speed Internet Access Service....................................6

         Operations............................................................6

         Employees.............................................................7

         Facilities and Equipment..............................................7

         Competition...........................................................8

         Regulatory Environment................................................8

Item 2.  Properties...........................................................10

Item 3.  Legal Proceedings....................................................10

Item 4.  Submission of Matters to a Vote of Security Holders..................11


PART II  .....................................................................11


Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters..............................................................11

Item 6.  Selected Financial Data..............................................12

Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations..................................14

Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........24

Item 8.  Financial Statements and Supplementary Data..........................25

Item 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure..................................37


PART III .....................................................................38


Item 10.  Directors and Executive Officers of the Registrant..................38

Item 11.  Executive Compensation..............................................39

Item 12.  Security Ownership of Certain Beneficial Owners and Management......42

Item 13.  Certain Relationships and Related Transactions......................44


PART IV  .....................................................................45


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....45

<PAGE>
                    CAUTIONARY STATEMENT REGARDING FORWARD -
                               LOOKING STATEMENTS


     STATEMENTS  IN  THIS  ANNUAL  REPORT  ON FORM  10-K  THAT  ARE  NOT  PURELY
HISTORICAL ARE  FORWARD-LOOKING  STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE  SECURITIES  ACT OF 1933 AND SECTION 21E OF THE  SECURITIES  EXCHANGE ACT OF
1934,  INCLUDING  STATEMENTS  REGARDING  THE  COMPANY'S   EXPECTATIONS,   HOPES,
INTENTIONS  OR  STRATEGIES  REGARDING  THE  FUTURE.  FORWARD-LOOKING  STATEMENTS
INCLUDE:  STATEMENTS  REGARDING  IMPLEMENTATION  OF THE COMPANY'S  RESTRUCTURING
PLAN,  STATEMENTS  REGARDING  THE  COMPANY'S  EXPANSION  PLANS,  THE  IMPACT  OF
COMPETITION,  THE START-UP OF CERTAIN OPERATIONS, THE BRAZILIAN WIRELESS AUCTION
PROCESS AND TRENDS  AFFECTING THE COMPANY'S  FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS,  INCLUDING THE COMPANY'S  ABILITY TO MEET FUTURE CASH  REQUIREMENTS.
ALL FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE
TO THE COMPANY (AS HEREINAFTER DEFINED) AS OF THE DATE THIS REPORT IS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, AND THE COMPANY ASSUMES NO OBLIGATION TO
UPDATE ANY SUCH  FORWARD-LOOKING  STATEMENTS.  FACTORS  THAT COULD CAUSE  ACTUAL
RESULTS  TO  DIFFER   MATERIALLY   FROM  THOSE  EXPRESSED  OR  IMPLIED  BY  SUCH
FORWARD-LOOKING  STATEMENTS  INCLUDE,  BUT ARE NOT  LIMITED  TO, THE FACTORS SET
FORTH IN "ITEM 7.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
AND RESULTS OF  OPERATIONS  -- CERTAIN  FACTORS  WHICH MAY AFFECT THE  COMPANY'S
FUTURE RESULTS."


                                     PART I

ITEM 1.  BUSINESS.

     Unless the context otherwise requires, reference to (i) "TV Filme" means TV
Filme,  Inc., a Delaware  corporation,  (ii) "ITSA" means  ITSA-Intercontinental
Telecomunicacoes Ltda., and (iii) the "Company" means TV Filme, its consolidated
subsidiaries,  which include ITSA, TV Filme Goiania Servicos de Telecomunicacoes
Ltda. ("TV Filme Goiania"),  TV Filme Belem Servicos de  Telecomunicacoes  Ltda.
("TV Filme Belem"),  TV Filme Brasilia Servicos de  Telecomunicacoes  Ltda. ("TV
Filme Brasilia"),  TV FILME  Programadora  Ltda. ("TV FILME  Programadora"),  TV
Filme  Operacoes,  TV Filme  Sistemas  and their  predecessors  and  successors.
References to the "Company" also include TV Filme Servicos de  Telecomunicacoes,
Ltda.  ("TV Filme  Servicos"),  a company in which the  Company has a 49% voting
interest and an 83% equity interest.

     Except as otherwise noted, financial information has been presented in U.S.
dollars. The Consolidated  Financial Statements have been prepared in accordance
with generally accepted accounting principles in the United States ("U.S. GAAP")
in U.S. dollars.

BACKGROUND


     The  predecessor of TV Filme was founded in 1989 by certain  members of the
Company's  current senior  management  team. In September  1989, the Company was
granted a license to operate a wireless cable television system in Brasilia, the
capital of Brazil, and commenced operations in 1990 with a one channel offering.
Licenses to operate the Goiania and Belem Systems were acquired in 1994 from TVA
Sistema de  Televisao  S.A.  ("TVA  Sistema"),  a  subsidiary  of  Tevecap  S.A.
("Tevecap").

     TV Filme was organized in 1996 under the laws of the State of Delaware. Its
largest  stockholders  include  Warburg,   Pincus  Investors,   L.P.  ("Warburg,
Pincus");  Tevecap,  one of the leading pay television  operators in Brazil; and
certain members of management and their family.

     During 1998 and the first quarter of 1999,  the Company  faced  significant
challenges that ultimately affected the Company's ability to pay interest on its
outstanding 12 7/8% senior notes due 2004 (the "Senior  Notes") issued  pursuant
to an indenture dated as of December 20, 1996 (the  "Indenture").  The Brazilian
government's  delay  in  granting  wireless  cable  television   licenses,   the
instability in emerging markets, the devaluation of the Brazilian currency,  the
REAL,  and  the  resulting  decline  in  consumer  spending  on  wireless  cable
television  in the markets in which ITSA and the  Company's  other  subsidiaries
provide  services,  significantly  impacted the Company's  business plan and its
ability to service its indebtedness  under the Indenture and continue as a going
concern.  While the Company decided to commence  discussions with holders of the

<PAGE>

Senior Notes to pursue a comprehensive  financial and operational  restructuring
plan,  the Company  failed to make the required  interest  payment on the Senior
Notes on June 15, 1999.

     The Indenture provides that failure to pay interest on the Senior Notes, if
not cured within 30 days of such failure,  constitutes an Event of Default under
Section 6.1(b) of the Indenture. Section 6.2 of the Indenture provides that upon
the  occurrence  of an Event of  Default,  holders of at least 25% in  principal
amount of the outstanding  Senior Notes may declare the unpaid principal of, and
any accrued interest on, all the Senior Notes to be due and payable immediately.

RESTRUCTURING AND PLAN OF REORGANIZATION


     Shortly after June 15, 1999,  the Company  requested a meeting with certain
holders of the Senior Notes. The Company also requested that pending discussions
on the possible  restructuring  of the  Company's  obligations  under the Senior
Notes,  such holders  forbear from enforcing any right to accelerate the amounts
due on the Senior Notes and from  enforcing any other rights and remedies  under
the  Indenture.   Such  agreements  to  forbear  were  originally  evidenced  by
forbearance  agreements  among the Company and three holders of the Senior Notes
who collectively  held  approximately  54% of the principal amount of the Senior
Notes and who together  with certain other holders of the Senior Notes formed an
unofficial  committee of Noteholders  (the "Ad Hoc  Noteholders'  Committee") to
represent the interests of the holders of the Senior Notes.

     After negotiations between the Company, the Ad Hoc Noteholders'  Committee,
and  other  interested   parties   regarding   restructuring  of  the  Company's
obligations, the Company and holders of more than 65% of the aggregate principal
amount  of  the  Senior  Notes  (the   "Specified   Holders")   entered  into  a
Restructuring  Agreement on January 24, 2000. In addition, the Specified Holders
who are signatories to the  Restructuring  Agreement have agreed that so long as
the Company is in compliance with the terms of the Restructuring Agreement, they
will forbear (and cause the Indenture  Trustee to forbear) from exercising their
rights under the Senior Notes, the Indenture,  applicable law or otherwise, with
respect to any default in  existence  or arising  under the Senior  Notes or the
Indenture during the term of the Restructuring Agreement.

     On January 26, 2000,  the Company filed a voluntary  petition under chapter
11 of the United States Bankruptcy Code,  together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan,  and the Plan was  confirmed  at a hearing  by the court on
April 10,  2000.  Overwhelming  majorities  of holders  of the Senior  Notes and
holders of the Company's  common stock voted in favor of the  restructuring  set
forth  in the  Plan.  Effectuation  of the  Plan is  contingent  upon  obtaining
approval of the restructuring  contemplated by the Plan from Agencia Nacional de
Telecomunicacoes,    the   Brazilian    government    agency   that    regulates
telecommunications  services  in Brazil,  and the  Central  Bank of Brazil.  The
Company continues to operate and manage its affairs as debtor in possession.  No
trustee has been appointed.

     The Company's  restructuring  principally provides that, upon effectutation
of the Plan, the senior  noteholders will receive a $25 million cash payment and
their  existing notes will be converted into (i) New Senior Secured Notes in the
aggregate principal amount of at least $35 million, subject to adjustment,  with
a five year maturity and interest of 12% per annum (interest  payable-in-kind at
the option of the reorganized company through the first 24 months), and (ii) 80%
of the new common equity of the  reorganized  company.  Current  management will
receive 15% of the new common equity,  and existing  common  stockholders  of TV
Filme, Inc. will receive 5% of the new common equity of the reorganized  company
in exchange for their current  stake.  The Plan  provides  that the  reorganized
company will be a newly-formed Cayman Islands holding company,  and that the New
Senior Secured Notes will be issued by ITSA.

COMPANY OVERVIEW

     The Company develops,  owns and operates pay television and internet access
systems in markets in Brazil.  The Company is the sole  provider and operator of


                                       2
<PAGE>

multi-point,  multi-channel  distribution  systems  ("MMDS")  in the  cities  of
Brasilia, Goiania, Belem and Campina Grande ("Operating Markets") and holds MMDS
licenses in the cities of Bauru, Belo Horizonte,  Caruaru,  Franca, Porto Velho,
Presidente  Prudente,  and Uberaba.  The Company also has been  announced as the
winner  of the MMDS  license  in the city of  Vitoria;  however,  it has not yet
officially received the license. Combined (including Vitoria), these cities have
a total population of approximately 13 million and encompass  approximately  3.1
million  households,  an  estimated  2.6  million  of which can be served by the
Company's line-of-sight ("LOS") transmission.

     In addition to satellite  competitors  that operate on a national  basis in
Brazil,  hardwire  cable  providers  operate  or hold  licenses  to  operate  in
virtually all of the Company's  licensed markets.  The Company believes that, in
its Operating Markets, approximately 25% of households are currently unpassed by
hardwire  cable.  In the first quarter of 2000, the Company was awarded the MMDS
license for Belo  Horizonte  and was  announced as the winner of the license for
Vitoria, for which,  combined, it expects to pay approximately $2.3 million. The
Company has no outstanding applications pending for any additional markets. Also
see "Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operation - Overview."

     The  Company  primarily  targets  markets  with  demographics,  competitive
environments and topographies that it believes offer the Company the opportunity
to build and aggregate value through the provision of pay  television,  internet
and other telecommunications services.

     The Company believes that MMDS technology is well suited to its current and
potential   target  markets  and  is  an  attractive   alternative  to  existing
television,  internet  and  telecommunications  services.  MMDS  services can be
deployed more rapidly than most alternative  technologies and provides immediate
coverage of entire markets,  enabling  services to be delivered to all potential
subscribers that are in the unobstructed  path of the transmission  tower.  MMDS
services often can be deployed at a significantly  lower system capital cost per
installed  subscriber  than  hardwire  cable and other  wire-based  technologies
because  incremental  investment  is generally  only  undertaken  in response to
customer demand with the addition of each new subscriber.  The Company  believes
that  subscribers  to  television,  internet and  telecommunication  services in
Brazil are generally indifferent to the method of delivery of these services.

BRAZILIAN PAY TELEVISION INDUSTRY

     The pay television  industry in Brazil began in 1989 with the  commencement
of UHF service in Sao Paulo.  In contrast to the U.S.,  the  Brazilian  hardwire
cable industry and wireless cable industry  began  developing  concurrently.  By
December 31, 1999,  approximately  276 hardwire  cable  licenses and 76 wireless
cable licenses had been issued by the Brazilian government. The Company believes
that as of December 31, 1999,  fewer than 35% of Brazilian  homes were passed by
hardwire  cable  as  compared  to over  90% in the U.S.  Brazil  is the  largest
television  market in Latin  America  with an  estimated  33 million  television
households.  As of December  31,  1999,  the Company  estimates  that there were
approximately 2.8 million pay television subscribers, representing approximately
8.5% of Brazilian television households.

     As of December 31, 1995, Brazilian television  households viewed an average
of more than 6.5 hours of  television  per day, as compared to an average of 6.8
hours  per  day  in  the  United  States.  Viewers  prefer  Portuguese  language
programming,  including movies,  sports and "novelas" (soap operas).  The second
language of many Brazilians is English. U.S. culture generally,  and U.S. films,
shows and sports in particular,  are popular with  Brazilians.  The  programming
market  for  pay   television   is  dominated  by  Brazil's  two  largest  media
conglomerates,  Abril S.A.  ("Abril")  and the Globo  Organization.  Both groups
offer programming  packages  including movie,  sports and news channels and U.S.
prime  time  network  shows and  cartoons.  In  general,  much of the  Brazilian
programming  transmitted by pay  television  systems,  such as HBO Brazil,  ESPN
International and MTV Latino, is based on formats found in the U.S. In addition,
there are channels which include programs directly from the U.S., such as Warner
and Sony, as well as channels from Europe and other countries in Latin America.


                                       3
<PAGE>

OPERATING SYSTEMS AND THE COMPANY'S MARKETS

     The table below provides information  regarding the Company's markets as of
December 31, 1999:
<TABLE>
<CAPTION>


                                       ESTIMATED            ESTIMATED            ESTIMATED         NUMBER           FULL
                                         TOTAL                TOTAL                 LOS              OF            LAUNCH
                                     POPULATION(1)        HOUSEHOLDS(1)      HOUSEHOLDS(1)(2)    CHANNELS(3)        DATE
                                   ------------------  --------------------- ------------------  ------------ -----------------
<S>                                    <C>                  <C>                  <C>                 <C>        <C>
OPERATING MARKETS:

Brasilia.........................      2,100,000              500,000              440,000           37         Feb. 1994(4)
Belem............................      2,000,000              430,000              360,000           36         Feb. 1995
Goiania..........................      1,900,000              460,000              345,000           36         Jan. 1995
Campina Grande...................        500,000              100,000               80,000           31         May 1999
                                       ---------            ---------           ----------
Total in Operating Markets.......      6,500,000            1,490,000            1,225,000
                                       =========            =========           ==========
New Markets (5)..................      6,450,000            1,610,000            1,375,000
                                      ==========            =========           ==========

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

(1)  Represents the Company's estimate of the population and the total number of
     total  households  within  the  greater  metropolitan  areas of each of its
     markets. The Company's estimates for Brasilia,  Goiania,  Belem and Campina
     Grande are based on data from the 1991 Census  conducted  by the  Brazilian
     Institute  of Geography  and  Statistics  as adjusted to reflect  estimated
     total household growth.  The Company's  estimates for the other markets are
     based on data provided by Brazil's Telecommunications National Agency.

(2)  Represents the Company's  estimate of the number of LOS  households  within
     the licensed radius in each market (ranging from 15-35 kilometers) that can
     receive an adequate signal from the Company  (eliminating  those homes that
     the Company estimates are unable to receive service due to certain physical
     characteristics of the particular signal coverage area, such as terrain and
     foliage,  although some of these  households  can be served with the aid of
     signal repeaters).

(3)  Includes  six local  off-air  VHF/UHF  channels in Brasilia  and five local
     off-air VHF/UHF channels in each of Goiania, Belem and Campina Grande which
     are offered to the  Company's  subscribers  in  addition  to the  Company's
     authorized channels.

(4)  Date when the Brasilia  System  increased  its channel  offering  from four
     channels to eight  channels.  The Brasilia  System  began  service with one
     channel in 1990.

(5)  Represents  the  eight  markets  for  which the  Company  has been  awarded
     licenses to operate new MMDS systems.

     BRASILIA SYSTEM.  Brasilia, the capital of Brazil, had an estimated greater
metropolitan  population of  approximately  2.1 million as of December 31, 1999.
Brasilia,  which is located in the interior of Brazil,  was  established  in the
early  1960's as a planned city when the capital of Brazil was moved from Rio de
Janeiro.  Brasilia's  generally  flat  topography is  advantageous  for MMDS. In
addition,  Brasilia's zoning provisions favor MMDS by requiring that residential
buildings be of a similar height and located together.  The Company's current 35
kilometer coverage territory encompasses  approximately 440,000 households which
the Company believes can be served by LOS transmission.

     The Brasilia System currently offers a 30 channel package, consisting of 24
wireless cable  channels and six local off-air  VHF/UHF  channels.  The Brasilia
System,  launched in 1990 with one channel,  increased to three channels in July
1992, to four channels in September 1992, to eight channels in February 1994, to
16 wireless cable channels in November 1994 and to 24 wireless cable channels by
the end of 1997.  The Company  also has  approval to transmit  programming  over
seven  additional  wireless  cable  channels,  one of which it currently uses to
transmit  data to its internet  access  customers.  The Brasilia  System  became
EBITDA  positive  in  the  third  quarter  of  1994  with  approximately   6,000
subscribers. The Brasilia System transmits at 50 watts of power per channel from
a transmission tower which is 300 feet above average terrain.  The principal pay


                                       4
<PAGE>

television  competitor in the city of Brasilia is NET Brasilia, a hardwire cable
operator and affiliate of the Globo Organization.  The Company believes that, at
December 31, 1999, it was the largest pay television  provider in Brasilia based
on the total  number  of  subscribers.  In  December  1997,  the  Company  began
providing high speed Internet access,  under the brand name of Link Express,  to
its pay-TV customers in Brasilia. This service, which uses wireless cable modems
for delivery of access at much higher speeds than conventional phone line access
to  subscribers,  is  believed  to be the  first  marketed  use of  cable  modem
technology in Brazil. See "- High Speed Internet Access Service."

     BELEM SYSTEM.  Belem, with an estimated greater metropolitan  population of
approximately  2.0 million as of  December  31,  1999,  lies at the mouth of the
Amazon River and is a major  trading port for the rich natural  resources of the
Amazon rain  forest.  The Company  launched  service in Belem in February  1995.
Although the city is relatively flat, trees block wireless cable transmission in
Belem more often than they do in Brasilia and Goiania and thus, the Belem System
requires increased utilization of signal repeaters. The Belem System reaches the
greater Belem area, including the cities of Mosqueiro,  Ananindeua, Icoaraci and
Marituba  and the islands of Outeiro and  Barcarena.  The  Company's  current 30
kilometer coverage territory encompasses  approximately 360,000 households which
the Company believes can be served by LOS transmission.

     The Belem System currently  offers a 30 channel  package,  consisting of 25
wireless cable  channels and five local off-air  VHF/UHF  channels.  The Company
also has approval to transmit  programming over an additional six wireless cable
channels  which have not yet been placed in  service.  The Belem  System  became
EBITDA  positive  in  the  fourth  quarter  of  1995  with  approximately  5,000
subscribers.  The Belem System transmits at 50 watts of power per channel from a
transmission  tower which is 300 feet above average  terrain.  The principal pay
television  competitor  in Belem is ORM  Cabo,  an  independent  hardwire  cable
operator.

     GOIANIA  SYSTEM.  Goiania,  with an estimated  metropolitan  population  of
approximately 1.9 million as of December 31, 1999, is located  approximately 100
miles  southwest  of Brasilia.  Goiania is the capital of the state Goias,  and,
like Brasilia,  its topography is favorable to LOS transmission because the city
is relatively flat. The Company launched service in Goiania in January 1995. The
Company's  current 30 kilometer  coverage  territory  encompasses  approximately
345,000 households which the Company believes can be served by LOS transmission.

     The Goiania System currently offers a 29 channel package,  consisting of 24
wireless cable  channels and five local off-air  VHF/UHF  channels.  The Company
also has approval to transmit  programming over seven additional  wireless cable
channels.  The Goiania System  transmits at 50 watts of power per channel from a
transmission  tower which is 350 feet above average  terrain.  The principal pay
television  competitor in the city of Goiania is NET Goiania,  a hardwire  cable
operator and affiliate of the Globo Organization.  The Company believes that, at
December 31, 1999, it was the second largest pay television  provider in Goiania
based on total number of subscribers.

     In September  1999, the Goiania  system  converted to the Company's new pay
television operating model, called "Mais TV" (see below).

     CAMPINA  GRANDE  SYSTEM.  Campina  Grande,  with an estimated  metropolitan
population  of  approximately  500,000  as of  December  31,  1999,  is  located
approximately 80 miles west of Joao Pessoa, the capital of the state of Paraiba.
Similar to Brasilia and Goiania,  the  topography of Campina Grande is favorable
to LOS transmission. The Company launched service in Campina Grande in May 1999,
exclusively using the MAIS TV operating model (see below). The Company's current
licensed coverage radius  encompasses  approximately  80,000 households that the
Company believes can be served by LOS transmission.

     The Campina Grande system currently offers a 27-channel package, consisting
of 22 wireless  cable  channels and five local  off-air  VHF/UHF  channels.  The
Company also has approval to transmit  programming over nine additional wireless
cable  channels.  The Campina  Grande system  transmits at 20 watts of power per
channel from a  transmission  tower that is  approximately  2,500 feet above sea
level. There is currently no hardwire cable operation in Campina Grande.


                                       5
<PAGE>

NEW MARKETS

     The  Company  has been  awarded  licenses  to operate  MMDS  systems in the
following seven markets:  Bauru, Belo Horizonte,  Caruaru,  Franca, Porto Velho,
Presidente Prudente,  and Uberaba. In addition, the Company was announced as the
winner of the license for the city of Vitoria. The Company believes that, in the
aggregate,  these eight  markets  collectively  encompass a total  population of
approximately 6.5 million, total households of approximately 1.6 million and LOS
households  of  approximately  1.4  million.  Bauru,  Belo  Horizonte,   Franca,
Presidente Prudente and Vitoria have operating hardwire cable competitors. Under
the terms of the licenses awarded to the Company for its new markets, the entity
holding the licenses,  TV Filme Sistemas,  is prohibited from  transferring  the
licenses to another  party for a period of three years after the date service is
commenced.

MAIS TV OPERATING MODEL

     In May 1999,  with the launch of the  Campina  Grande  system,  the Company
created and  implemented a new pay television  operating  model,  "Mais TV." The
major differences between the MAIS TV model and the previous model are:

     o    Customers choose from three to five different programming packages and
          may vary their choice each and every month.

     o    All services are offered  exclusively on a prepaid basis. The customer
          receives a booklet  which is to be filled out monthly,  including  the
          programming package selected. With this information, the Company, upon
          receipt of payment notification from the bank, is able to activate the
          selected programming package for the customer.

     o    To initiate service, the customer purchases, from either a local store
          or the Company's local showroom, an installation kit. Prices for these
          kits are  approximately  $25, on average.  Installation  services,  if
          desired by the customer, may be contracted for separately, either with
          the Company or with approved third-party installation companies.

     Based on the success of the Campina Grande launch,  the Company  decided to
implement  this  new  operating  model  in each  of its  existing  (and  future)
operations.   The   Goiania   system   switched   over  to  the  new   model  in
September/October  1999 and the Brasilia and Belem  operations  are scheduled to
switch in the first half of 2000.

PROGRAMMING

     The Company  currently  purchases a large portion of its  programming  from
Tevecap and its subsidiaries  (certain programs are purchased  directly from the
programmer)  pursuant to a license to transmit exclusive  programming  available
from  Tevecap  and its  subsidiaries  via  wireless  and  hardwire  cable in the
Company's current markets (the "Programming Agreement").  Under the terms of the
Programming  Agreement,  so long as the Company is  transmitting  exclusive  TVA
programming,  the Company has agreed that it shall use 50% of its total  channel
capacity in its current  operating  markets where it has a  programming  license
from Tevecap or its  subsidiaries  to broadcast  TVA Sistema  programming,  with
certain  exceptions,  and the Company has a right of first  refusal to carry any
new programming channel that is offered by Tevecap or its subsidiaries.  Tevecap
may not charge the Company an amount  greater than the minimum  rates charged by
Tevecap  to  other  pay  television  operators,  nor  may  such  charges  exceed
comparable  rates for other  programming of a similar  nature.  The terms of the
Programming  Agreement  terminate on July 2004, with certain limited  exceptions
with respect to the Company's application markets.

     In addition, pursuant to the Programming Agreement, Tevecap has granted the
Company a non-exclusive  license to transmit  programming in certain  additional
markets if the Company is able to obtain an MMDS license for such markets,  with
exclusivity to be negotiated on a case-by-case basis.

     The  Programming  Agreement also provides that if Tevecap obtains a license
to operate  hardwire  cable  systems in any of the Company's  current  operating
markets,  Tevecap may only develop such hardwire  cable systems in a partnership
or joint venture with the Company on mutually agreeable terms.


                                       6
<PAGE>

     The Company  also offers  selected  local  programming  to  supplement  its
channel line-up.  For example,  the Company owns the rights to televise annually
certain of the games of the Para State Soccer Championship. Further, in 1997 the
Company  established  TV FILME  Programadora  to  develop  and  sell  additional
programming  to the Company's  three  systems and to other pay-TV  operations in
Brazil.  The first  channel  developed  by TV FILME  Programadora,  Canal Adulto
(which  provides adult content  programming),  has been available in each of the
Company's  markets as a premium channel since May 1997. As of December 1999, the
programming  distribution rights, as well as the trademarks  associated with the
Canal Adulto channel were sold to a third party. The Company retained the rights
for at least five years to transmit Canal Adulto to its subscribers.

     Beginning  in  October  1997,  the  Company  also began  producing  its own
programming  guide,  which it distributes at no charge to its  subscribers.  The
Company,  through  TV  FILME  Programadora,  is also  exploring  offering  other
channels,  which may contain local news, cultural events, religious programming,
home shopping and additional sporting events, although there can be no assurance
that such channels will be offered.

     The Company's channel offerings as of December 31, 1999 are as follows:

CHANNEL                                         DESCRIPTION
-------                                         -----------
HBO Brazil........................ Brazilian version of HBO
HBO Brazil 2...................... HBO Brazil with a six hour time delay
ESPN Brazil....................... Brazilian version of ESPN
Eurochannel....................... Package of programming from free TV in Europe
Mundo............................. Variety channel
CMT Brazil........................ Brazilian version of Country Music Television
MTV Brazil........................ Brazilian version of MTV
MTV Latino *...................... Spanish language version of MTV
RTPi **........................... Radio and Television Portugal, a free
                                   broadcast channel from Portugal
CNN International................. International version of CNN
TNT............................... Brazilian version of TNT
Cartoon Network................... Cartoon Network produced in the U.S.
Fox............................... General entertainment
Discovery Channel................. Brazilian version of Discovery Channel
ESPN International................ International version of ESPN
Warner............................ Warner channel produced in the U.S.
Film & Arts/Bravo................. Brazilian version of Bravo
Sony.............................. Sony channel produced in the U.S.
CBS Telenoticias.................. Brazilian version of CBS for Latin American
                                   (in Spanish and Portuguese)
Discovery Kids.................... Children's version of Discovery
People and Art/Travel Channel***   Tourism, biography and art channel
Redevida.......................... Catholic programming
Cinemax........................... Films and special programming
Hallmark.......................... Films and special programming
Fox Kids.......................... Children's version of Fox
Canal Adulto ****................. Adult programming
Globo............................. Local off-air channel (where available)
SBT............................... Local off-air channel (where available)
Bandeirantes...................... Local off-air channel (where available)
Record............................ Local off-air channel (where available)
Nacional.......................... Local off-air channel (where available)
Manchete.......................... Local off-air channel (where available)
Cultura........................... Local off-air channel (where available)
Apoio............................. Local off-air channel (where available)
----------------------------------
*      Offered only in Brasilia.
**     Offered only in Campina Grande and Goiania.
***    Offered only in Belem.
****   Offered as a premium channel.


                                       7
<PAGE>

HIGH SPEED INTERNET ACCESS SERVICE

     In December  1997, the Company began  providing  Internet  access  service,
under the brand name Link  Express,  to its pay-TV  customers in Brasilia.  This
service,  which uses  wireless  cable  modems for  delivery of access at greatly
increased  speeds to  subscribers,  is believed to be the first  marketed use of
cable modem technology in Brazil. In the future, the Company may also offer this
service in Goiania and Belem, and in other markets, depending on market demand.

OPERATIONS

     MARKETING.  Prior to applying for a license in a potential new market,  the
Company  has  historically  conducted  pre-marketing  surveys  to  evaluate  the
demographics and terrain of such market. Upon receipt of a license,  the Company
then  develops a plan  designed to manage  subscriber  growth by  maintaining  a
manageable backlog of installations.  Such backlog is maintained at a manageable
level by adjusting  installation  capacity to correspond with sales levels.  The
amount of time a subscriber  waits for the commencement of service is determined
based upon several  factors,  including  whether the  subscriber  is in a single
family home or multiple  dwelling unit and the effect of any  competition in the
market.  This  development  plan ensures that the quality of  installations  and
customer service remains high. In each market, the Company's marketing staff has
historically applied the following types of programs to attract subscribers: (i)
door-to-door  sales,  (ii)  telemarketing,  (iii)  extensive  marketing  tied to
regional events such as soccer matches,  (iv)  neighborhood  promotional  events
featuring large screen broadcasts of its channel offerings, (v) direct mailings,
(vi) television and newspaper advertisements,  (vii) prewiring arrangements with
residential housing developers and (viii) other marketing activities,  including
referral programs and promotional gifts.

     In February 1999, the Company changed its marketing strategy to one focused
on customer  loyalty.  The  Company  has  limited  its sales  efforts to passive
telemarketing  and is directing  its  marketing  expenditures  towards  customer
loyalty programs such as promotional  discounts at retail stores, gifts, parties
and other items given exclusively to customers.  This approach has enabled it to
significantly reduce expenditures,  reduce churn,  increase customer loyalty and
target its sales to prospects  who truly want the service and have the financial
wherewithal to pay for the service. In addition,  upon the launch of the MAIS TV
model in each city,  the Company  redirects its  marketing  efforts in such city
toward brand  recognition and awareness in order to generate the majority of its
new  installations  through sales of  installation  kits at local  stores.  This
involves  partnering  with the local  stores on  advertising  and  paying  sales
commissions to stores rather than having a direct sales force.

     INSTALLATION.  The  Company's  installation  package  features  a  standard
rooftop  mount  linked to a small  antenna  and related  equipment,  including a
decoder,  located at the subscriber's  location.  Installations at single-family
homes require an entire  installation  package,  while  installation at multiple
dwelling units in which drop lines already have been installed require less time
and,  accordingly,  are less costly.  During 1998,  the Company  charged its new
subscribers an installation  fee typically  ranging from $5-$75.  However,  upon
launching the MAIS TV model in any given city, the Company  creates a network of
authorized  installers  in order to  reduce  direct  costs of  installation  and
expects the customer to pay for this service, or self-install the system.  While
the  Company  still  offers  installation  service,  it does not  attempt  to be
competitive  in this market and reserves this service  primarily for  apartments
and other large buildings where the  third-party  installation  teams are not as
qualified.  Because of this strategy, and because installation kits are sold for
approximately  $25,  the  Company  expects to receive  only a nominal  amount of
revenue on future installations.

     CUSTOMER  SERVICE.  The Company  believes  that  delivering  high levels of
customer service in installation and maintenance enables it to maintain customer
satisfaction.  To this end, the Company (i)  schedules  installations  promptly,
(ii) provides a customer service  hotline,  (iii) provides quick response repair
service  and  (iv)  makes  follow-up  calls  to new  subscribers  shortly  after
installation  to ensure  customer  satisfaction.  The Company seeks to instill a
customer service focus in all its employees  through ongoing training  programs.
Under the MAIS TV  model,  the  Company  still  offer  high  levels of  customer
service,  but has begun to charge the customer  for anything  other than routine
service calls.

     In the fourth  quarter of 1998, the Company  decided to centralize  various
activities  in a single  service  center in  Brasilia.  Along with  centralizing


                                       8
<PAGE>

billing,   accounts  payable,  human  resources   administration  and  corporate
marketing,  the Company centralized its customer service hotline and all routing
and scheduling  functions.  This  centralization  project was completed in April
1999 and has proven to further  enhance and improve the quality of its  customer
service function.

     SUBSCRIBER  MANAGEMENT SYSTEM. The Company has developed its own subscriber
management systems. The Company believes that its subscriber  management systems
enable  it to  deliver  superior  customer  service,  monitor  customer  payment
patterns  and  facilitate  the  efficient  management  of each of its  operating
systems.   The  Company  has  nine  employees   dedicated  to  the  development,
enhancement,  integration and maintenance of the Company's subscriber management
systems.

EMPLOYEES

     As of  December  31,  1999,  the  Company  had a  total  of 554  employees,
substantially  all of whom are employed by TV Filme's  subsidiaries.  All of the
Company's employees,  except for Messrs. Hermano Lins and Carlos Andre Lins, are
subject  to  collective   bargaining   agreements.   The  collective  bargaining
agreements  covering  the  employees of TV Filme  Brasilia and TV Filme  Goiania
expire in June 2000. The collective bargaining agreements are with the Union for
the  Employees  of Radio and TV  Broadcasting  Companies.  Employees of TV Filme
Belem and TV Filme Campina Grande are not covered under a collective  bargaining
agreement;  however,  the Company has  historically  honored the terms of the TV
Filme Brasilia and TV Filme Goiania  agreements  with its other  employees.  The
Company has experienced no work stoppages in its history.  The Company  provides
its employees with health insurance (which is not required by law in Brazil) and
certain  other  benefits  which it  believes  enable it to  attract  and  retain
qualified and motivated employees.

     In connection with the change in marketing strategy implemented in February
1999, the Company  significantly reduced its headcount in the areas of sales and
installations, and reduced headcount in virtually all areas of the Company. As a
result,  the Company laid off  approximately  250  employees.  While the Company
believes that its relationships  with its employees have been, and will continue
to be,  good,  the  impact  of  this  lay off on such  relationships  cannot  be
determined.

FACILITIES AND EQUIPMENT

     ADMINISTRATIVE  FACILITIES. A centralized corporate administrative facility
is  located  in  Brasilia  to handle  training,  engineering,  computer  systems
development,  financial and  controller  functions and  strategic  planning.  In
addition,  the  Company  has  established  regional  operating  offices  in  its
Operating  Markets to coordinate sales,  billing,  general  marketing,  customer
service and certain other  administrative  functions on a regional  level.  Each
facility is connected to the Company's computer network. Beginning in the fourth
quarter of 1998, the Company began  centralizing its customer service,  billing,
accounts  payable  and certain  other  administrative  functions  for all of its
operations in Brasilia.  The centralization project was completed in April 1999.
Functions  remaining in the regional  offices  include sales,  local  marketing,
installation   and   technical   support   services,   maintenance   and   local
administrative  functions.  As new markets are launched,  the Company expects to
use the same centralized model.

     TRANSMISSION  FACILITIES.  The Company's headend and transmitter facilities
are located in leased buildings at the Company's  transmission  tower sites. The
transmitting  antennas  generally are able to serve the maximum regulatory range
for its license  coverage areas.  In certain areas within the Company's  markets
that are otherwise  terrain-blocked,  the Company  utilizes signal  repeaters to
enhance signal coverage. For new markets, the Company expects to lease space for
transmission  and headend  facilities and expects to use  transmitting  antennas
which will serve the entire license coverage areas in each market.

     DIGITAL  TECHNOLOGY.  The Company  currently  transmits  in analog  format.
Should competitive conditions require or if the Company deems such technology to
be cost effective and practical to provide, it may implement digital technology,
provided the Company has adequate resources for such implementation.

COMPETITION

     Through  its  subsidiaries,  the  Company is the only  entity  licensed  to
operate wireless cable systems in each of its licensed markets.  The Company has
the authority to provide  service using up to 31 wireless  analog cable channels


                                       9
<PAGE>

in each such market.  The Company believes that, as of December 31, 1999, it was
the  largest  pay  television  provider  in  Brasilia  based on total  number of
subscribers.  The Company's principal  competitor in the city of Brasilia is NET
Brasilia, a hardwire cable operator and affiliate of the Globo Organization. The
Company  believes  that, as of December 31, 1999, it was the second  largest pay
television  provider  in  Goiania  based on total  number  of  subscribers.  The
Company's principal competitor in the city of Goiania is NET Goiania, a hardwire
cable  operator and affiliate of the Globo  Organization.  The Company  believes
that,  as of December 31, 1999,  it was the largest pay  television  provider in
Belem based on total number of subscribers.  The Company's principal  competitor
in the city of Belem is ORM Cabo, an independent hardwire cable operator.  There
currently is no hardwire cable provider in the city of Campina Grande.

     In addition to other terrestrial pay television  operators,  pay television
operators in Brazil face or may face  competition  from several  other  sources,
such as direct  broadcasting  satellite  systems ("DBS"),  local off-air VHF/UHF
channels,  home  videocassette  recorders and out-of-home  theaters.  Currently,
there  are three DBS  providers  in  Brazil,  "Sky," an  affiliate  of the Globo
Organization,  Direct  TV,  and  Tecsat,  a  privately  held  company in Brazil.
Competition  in the pay  television  industry is based upon  program  offerings,
customer service, reliability and pricing. Many actual and potential competitors
have greater  financial,  marketing  and other  resources  than the Company.  No
assurance  can be given that the Company  will be able to compete  successfully.
See  "--Brazilian  Pay Television  Industry," and  "--Operating  Systems and the
Company's Markets."

REGULATORY ENVIRONMENT

     GENERAL.  In July 1997, the Brazilian  government  adopted  Federal Law No.
9472/97,  the "General  Telecommunications  Law." Such law revoked the Brazilian
Telecommunications  Code of 1962 pursuant to which the pay  television  industry
was  subject to  regulation  by the  Ministry  of  Communications.  The  General
Telecommunications  Law  provides  that  the  newly-created   Telecommunications
National   Agency   ("ANATEL")   has   jurisdiction   over  the   regulation  of
telecommunications  services.  ANATEL has been vested  with the power to,  among
other things, revoke, modify and renew licenses within the spectrum available to
MMDS,  approve the assignment and transfer of control of such licenses,  approve
the  location  of  channels  that  comprise  MMDS  systems,  regulate  the type,
configuration  and  operation  of  equipment  used by MMDS  systems,  and impose
certain other reporting requirements on MMDS license holders and MMDS operators.

     Currently,  MMDS  license  holders  remain  subject  to the  provisions  of
Presidential Decree Number 2196 ("Decree No. 2196"), issued April 8, 1997, which
regulates "Special Services"  including MMDS systems and operations.  Decree No.
2196 specifies the  competitive  procedures for the granting of concessions  and
licenses  for  the  rendering  of  Special  Services  in  Brazil.  Based  on the
provisions  of Decree No.  2196,  the  Ministry of  Communications  revised Rule
002/94,  which specifically  regulated MMDS service,  by means of Administrative
Rule 254,  dated April 16, 1997,  hereinafter  referred to as the "Revised  MMDS
Rule".

     Under the terms of the  Revised  MMDS  Rule,  each  license  holder and its
affiliates may be granted  permission to operate MMDS systems in different areas
of Brazil,  provided  that,  if the  license  holder or its  affiliates  face no
competition from other pay television services,  excluding services that utilize
a  satellite  to  transmit  their  signal,  such  license  holder may be granted
licenses for (i) no more than seven municipalities with a population equal to or
exceeding  700,000  inhabitants  or (ii) no more than 12  municipalities  with a
population between 300,000 and 700,000 inhabitants. Under the Revised MMDS Rule,
ANATEL has  discretion  to alter or  eliminate  such  restrictions,  taking into
account the level of  competition  and the ownership of MMDS  providers.  As the
Company  expects to face local  competition  in most of the markets for which it
has or  expects  to  file  an  application,  it  does  not  believe  that  these
restrictions should present a substantial limitation on its ability to implement
its expansion plan.

     OWNERSHIP OF LICENSES. Decree No. 2196 eliminated the requirement that only
companies in which  Brazilian  nationals own at least 51% of the voting  capital
were  eligible to be granted a license to operate an MMDS system.  Consequently,
under current regulations any company constituted in accordance with the laws of
Brazil and with a head office and management located in Brazil is eligible to be
granted such a license. Until November 1997, TV Filme Servicos held the licenses
to operate the MMDS systems in Brasilia,  Goiania and Belem.  As a result of the
lifting of the 51% ownership  requirement,  in November  1997, TV Filme Servicos
transferred the respective  license for Brasilia,  Goiania and Belem to TV Filme
Brasilia, TV Filme Goiania and TV Filme Belem,  respectively.  This transfer was
approved by  Brazilian  regulators.  Licenses for the new markets are held by TV


                                       10
<PAGE>

Filme Sistemas.  Although  Decree No. 2196 eliminated the requirement  discussed
above, the General  Telecommunications Law permits the Executive Branch, through
Presidential  Decree, to impose  restrictions on foreign capital  investments in
telecommunications  companies.  However,  such  restrictions  may not be imposed
retroactively  with  respect  to  outstanding  licenses.  Decree  No.  2196 also
provides that licenses shall be granted for renewable  periods of ten or fifteen
years;  all the  current  invitations  for bids for MMDS  services  provide  for
15-year terms.

     PRICES.  Prices for pay television  services  currently in operation may be
freely established by the system operator,  although ANATEL may intervene in the
event of abusive pricing practices. ANATEL may impose penalties including fines,
suspension or  revocation of a license in the event the license  holder fails to
comply  with  applicable   regulations  or  becomes   legally,   technically  or
financially  unable to provide  MMDS  service.  ANATEL and CADE,  the  Brazilian
antitrust authority, also may intervene to the extent operators engage in unfair
practices intended to eliminate  competition.  Under a Brazilian law designed to
reduce  inflation,  the prices  which the  Company  may  charge to a  particular
subscriber may not be increased until the next  anniversary of the  subscriber's
initial  subscription  date and may only be increased by a percentage no greater
than the percentage of the increase in the general inflation rate which occurred
during the subscriber's contract year.

     CHANNELS AVAILABLE FOR WIRELESS CABLE. ANATEL grants licenses and regulates
the  use  of  channels  by  MMDS  operators  to  transmit   video   programming,
entertainment  services,  advertising and other  information.  Under the Revised
MMDS Rule,  MMDS  licensees  are  permitted  to  transmit  up to 31 analog  MMDS
channels  (constituting  a spectrum  bandwidth of 186 Mhz),  the exact number of
channels  depending  on the number of  inhabitants  in a particular  market.  16
analog channels are permitted in markets with less than 300,000 inhabitants; 15,
16 or 31 analog  channels are  permitted  in markets  with a population  between
300,000 and 700,000 inhabitants; and 31 analog channels are permitted in markets
with 700,000 inhabitants or more. However,  such limits may be changed by ANATEL
in its discretion.

     LICENSE PROCEDURES. In accordance with Decree No. 2196 and the Revised MMDS
Rule, a party  interested  in providing  MMDS  services must file with ANATEL an
"Application for  Telecommunications  Services," which specifies the modality of
the services intended to be provided, the geographic area where the services are
to be provided, the technical  specifications for the proposed system (including
the radio  frequencies  to be used) and the intended  operation and the usage of
such  services.  ANATEL may, in its  discretion  or whenever it receives such an
application, publish public notices requesting comments by interested parties to
determine,  among other things, the geographic area where the services are to be
provided and the number of concessions to be granted. In both cases,  interested
parties  are  required  to  present  to or file  with  ANATEL  its  comments  or
application,  as the case may be, containing,  among other things, the technical
feasibility  of the  proposed  MMDS  system  and a  demonstration  of the market
potential for the targeted  area.  ANATEL will  thereafter  ascertain the public
interest  in  granting  the  concession  and may  decide to open the  public bid
process for the granting of such licenses. The 1997 bid process for the granting
of MMDS licenses was begun as a result of the existence of numerous requests for
licenses filed by competing parties.

     In connection with the 1997-98 auction process, ANATEL established specific
criteria for evaluating the Applications for  Telecommunication  Services filed.
The criteria adopted include a combination of technical and financial  criteria.
The following  technical  factors are being utilized by ANATEL in evaluating the
technical aspects of a license application:  (i) the proposed length of time for
the  installation of the transmission  system,  counted from the issuance of the
authorization for installation  until the beginning of the service's  commercial
operation;  (ii) the number of cultural or  educational  channels to be offered;
(iii) the percentage of time dedicated to local  programming,  calculated on the
total  time used for all  channels,  and  excluding  the time  dedicated  to the
channels  referred in item (ii) above;  and, (iv) the number of local  community
establishments  that would receive cultural and educational  programming free of
charge.  The Company  believes  that  channels  such as Discovery and Bravo will
qualify as cultural and educational programming.

     The technical specifications,  and the offer price for a license, are rated
according to certain criteria established in the Revised MMDS Rule and set forth
in the 1997 MMDS tender invitations,  as follows:  (a) in markets with less than
300,000  inhabitants,  the  technical  aspects weigh more heavily than the offer
price; (b) in markets with a population between 300,000 and 700,000 inhabitants,
the  technical  aspects  and the offer price are weighed  equally;  and,  (c) in
markets with more than 700,000 inhabitants,  the offer price weighs more heavily
than the technical  aspects.  Once an MMDS concession is granted by ANATEL,  the
license  holder is  required  to submit,  within four  months,  an  installation


                                       11
<PAGE>

proposal for its MMDS system's headend. Subsequent to approval of such proposal,
construction  will  be  required  to  be  finalized  and  commercial  operations
commenced  within  12  months;  however,  this  period  may be  extended  for an
additional 12 months.

     In addition to qualifying under the application and bid process,  a license
holder may also be required to  demonstrate  that its  proposed  signal will not
violate  interference  standards in the area of another MMDS license holder. The
Revised MMDS Rule also contains  certain other  technical  criteria  designed to
avoid interference between licensed service areas.

     TWO-WAY MMDS. In some countries,  including the United States, MMDS license
holders  have been granted  additional  spectrum to provide  bi-directional,  or
"two-way,"  services  to  their  customers,   including  internet  access,  data
transmission and other advanced  telecommunications  services. Based upon public
comment  requests and other  information,  the Company believes that ANATEL soon
will approve the use of additional  spectrum for existing and future  holders of
MMDS licenses to be used for advanced data and  telecommunications  services. It
is uncertain at this time what, if any, additional  restrictions will be imposed
upon holders of the additional  spectrum,  how it may be acquired,  and for what
price.

     OTHER  REGULATIONS.  MMDS license  holders are subject to  regulation  with
respect  to the  construction,  marking  and  lighting  of  transmission  towers
pursuant to the Brazilian  Aviation  Code and certain  local zoning  regulations
affecting  construction  of  towers  and  other  facilities.  There  may also be
restrictions  imposed by local authorities.  The pay television industry also is
subject  to  the  Brazilian  Consumer  Code.  The  Consumer  Code  entitles  the
purchasers  of goods or  services  to  certain  rights,  including  the right to
discontinue  a service and obtain a refund if the  services  are deemed to be of
low quality or not rendered adequately. For instance, in case of a suspension of
the  transmission  for a given  period,  the  subscriber  shall be entitled to a
discount  on the  monthly  fees.  The  Revised  MMDS Rule also  contain  certain
provisions  relating to consumer  rights,  including a provision  for  mandatory
discounts in the event of interruption of service.

     Due to the regulated nature of the pay television industry, the adoption of
new, or changes to existing,  laws or regulations or the interpretations thereof
may impede the Company's growth and may otherwise have a material adverse effect
on the Company's results of operations and financial condition.

ITEM 2.  PROPERTIES.

     The Company leases approximately 37,000 square feet of office space for its
corporate  headquarters  and the Brasilia System in Brasilia.  In addition,  the
Company  leases  office space for the Goiania  System,  Belem System and Campina
Grande System consisting of approximately 29,000, 22,000 and 16,000 square feet,
respectively. In addition to leased office space, the Company also owns a lot in
Brasilia,  which  may,  in the  future,  be used as the site  for the  Company's
transmission  tower and offices in such city, and less than 1,500 square feet of
office space in Goiania.  The Company also leases space for transmission  towers
located in Brasilia,  Goiania,  Belem and Campina Grande.  Finally,  the Company
leases  office space and space for  transmission  towers in certain of its newly
awarded  markets.   The  Company  believes  that  office  space  and  space  for
transmission  towers is readily  available  on  acceptable  terms in the markets
where the Company operates wireless cable systems.

ITEM 3.  LEGAL PROCEEDINGS.

     On January 26, 2000,  the Company filed a voluntary  petition under chapter
11 of the United States Bankruptcy Code,  together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan,  and the Plan was  confirmed  at a hearing  by the court on
April 10,  2000.  Overwhelming  majorities  of holders  of the Senior  Notes and
holders of the Company's  common stock voted in favor of the  restructuring  set
forth  in the  Plan.  Effectuation  of the  Plan is  contingent  upon  obtaining
approval of the restructuring  contemplated by the Plan from Agencia Nacional de
Telecomunicacoes,    the   Brazilian    government    agency   that    regulates
telecommunications  services  in Brazil,  and the Central  Bank of Brazil.   The
Company continues to operate and manage its affairs as debtor in possession.  No
trustee has been appointed.


                                       12
<PAGE>

     At this time,  it is not  possible to predict the outcome of the chapter 11
case or its effect on the Company's business.  Additional  information regarding
the chapter 11 case is set forth in Item 1. "Business -  Restructuring  and Plan
of Reorganization,"  Item 7, "Management's  Discussion and Analysis of Financial
Condition and Results of Operations - Restructuring and Plan of Reorganization,"
Note 1 of  Notes  to  Consolidated  Financial  Statements,  and  the  Report  of
Independent Auditors included herein. For a description of other litigation with
respect to the Company,  see also Note 9 of the Notes to Consolidated  Financial
Statements included herein.


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 1999.

                                     PART II

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

     From July 30, 1996 to February 4, 1999, the Company's  common stock,  $0.01
par value per share (the  "Common  Stock"),  was  quoted on the Nasdaq  National
Market  ("Nasdaq")  under the symbol  "PYTV."  Effective  February 4, 1999,  the
Common Stock was delisted from Nasdaq based on the Company's inability to comply
with certain  requirements  for  continued  listing,  including the net tangible
assets and minimum bid price requirements. Following delisting, the Common Stock
has  been  listed  on  the  OTC  Bulletin  Board,  sporadically  traded  in  the
over-the-counter-market  and  reported in the "pink  sheets."  The OTC  Bulletin
board is a controlled quotation service that offers real-time quotes,  last-sale
prices and volume information in over-the-counter equity securities.

     The  following  table  reflects the high and low sale prices for the Common
Stock,  as  reported  by the OTC  Bulletin  Board and  Nasdaq,  for the  periods
indicated:

                                                     HIGH               LOW
                                                     ----               ---

                                                           (Per Share)
     1OTC BULLETIN BOARD

     1999*.....................................$     1-5/8     $        1/8
     -----

     NASDAQ NATIONAL MARKET

     1998
     -----
     Fourth Quarter............................$     2-1/8     $        1/4
     Third Quarter..............................     4                  7/8
     Second  Quarter............................     5                1-7/8
     First  Quarter.............................     5-7/8            2-3/4

-------------------------
* The OTC Bulletin  Board stock  summaries are compiled only once a year and are
  not updated throughout the year.

     On March 31, 2000,  there were  approximately  17 stockholders of record of
the Common Stock. The Company believes that it has  approximately 448 beneficial
owners.

     The Company has never  declared  or paid any cash  dividends  on the Common
Stock and does not presently  anticipate paying any cash dividends on the Common
Stock in the foreseeable future. The Company currently expects that earnings, if
any, will be retained for growth and development of the Company's business.  The
Company's ability to declare and pay dividends is (i) affected by the ability of
the Company's present and future  subsidiaries to declare and pay cash dividends
or  otherwise  transfer  funds to the  Company  since the Company  conducts  its
operations  entirely through its subsidiaries,  and (ii) restricted by the terms
of the  Indenture,  dated as of December 20,  1996,  between the Company and IBJ
Schroder Bank & Trust Company (the  "Indenture"),  pursuant to which the Company
issued $140 million aggregate  principal amount of 12-7/8% Senior Notes due 2004
(the "Senior Notes").


                                       13
<PAGE>

     The Company,  as a holding  company,  depends on receipt of  dividends  and
other  cash  payments  from  its  operating  subsidiaries  in  order to meet the
Company's cash requirements. Such receipts are subject to statutory restrictions
pursuant  to which  the  subsidiaries  may pay  dividends  only out of  retained
earnings.

     Subject to the foregoing and to any restrictions  which may be contained in
future indebtedness of the Company,  the payment of cash dividends on the Common
Stock will be within the sole  discretion of the  Company's  Board of Directors,
and will depend upon the earnings,  capital  requirements and financial position
of the Company,  applicable requirements of law, general economic conditions and
other factors considered relevant by the Company's Board of Directors.

ITEM 6.  SELECTED FINANCIAL DATA.

     The selected consolidated balance sheet data as of December 31, 1995, 1996,
1997, 1998 and 1999 and the selected  consolidated  statement of operations data
for each of the years ended  December 31, 1995,  1996,  1997,  1998 and 1999 are
derived  from,  and are qualified by reference  to, the  Consolidated  Financial
Statements,  which have been  audited by Ernst & Young  Auditores  Independentes
S.C.,  independent  auditors.  The Consolidated  Financial  Statements have been
prepared in accordance with U.S. GAAP in U.S. dollars.  For this purpose,  until
December  31, 1997  amounts in  Brazilian  currency  were  remeasured  into U.S.
dollars in accordance  with the  methodology set forth in Statement of Financial
Accounting  Standards No. 52 ("SFAS No. 52") as it applies to entities operating
in highly inflationary economies.  Pursuant to SFAS No. 52, supplies,  property,
plant and equipment,  intangibles and deferred installation fees and the related
income  statement  accounts were remeasured at exchange rates in effect when the
assets were  acquired or the  liabilities  were  incurred.  All other assets and
liabilities  were  remeasured at fiscal year end exchange  rates;  and all other
income and expense items were  remeasured at average  exchange rates  prevailing
during  the  year.  Remeasuring   adjustments  were  included  in  exchange  and
translation gains (losses).  Effective  January 1, 1998, the Company  determined
that  Brazil  ceased  to  be  a  highly  inflationary  economy  under  SFAS  52.
Accordingly,  as of January 1, 1998,  the  Company  began  using the REAL as the
functional currency of its Brazilian  subsidiaries.  As a result, all assets and
liabilities  are  translated  into dollars at period end exchange  rates and all
income  and  expense  items are  translated  into U.S.  dollars  at the  average
exchange rate prevailing during the period. In addition,  the Company recorded a
loss associated with holding a net foreign currency monetary liability position.
The data  presented  below should be read in conjunction  with the  Consolidated
Financial  Statements  and  related  notes  thereto  and  "Item 7.  Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
other information included elsewhere in this Report.


                                       14
<PAGE>
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31, (1)
                                                        -------------------------------------------------------------------------
                                                        1995          1996          1997          1998          1999
                                                        ----          ----          ----          ----          ----
<S>                                                 <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues .......................................    $  11,404     $  31,388     $  50,547     $  45,408     $  26,177
Operating costs and expenses:
    System operating ...........................        2,957         9,593        17,631        19,617        11,844
    Selling, general and
       administrative ..........................        8,975        16,737        27,965        31,637        20,625
    Depreciation and amortization ..............        2,049         5,921        12,162        21,651        14,205
                                                    ---------     ---------     ---------     ---------     ---------
       Total operating costs and ...............       13,981        32,251        57,758        72,905        46,674
       expenses ................................    ---------     ---------     ---------     ---------     ---------
Operating loss ................................        (2,577)         (863)       (7,211)      (27,497)      (20,497)
Other income (expense) (2) ....................           360        (1,147)      (12,045)      (12,723)      (46,073)
                                                    ---------     ---------     ---------     ---------     ---------
Net income (loss) .............................     $  (2,217)    $   2,010       (19,256)    $ (40,220)    $ (66,570)
                                                    =========     =========     =========     =========     =========
Net income (loss) per share (3) ...............     $   (0.27)    $   (0.22)        (1.76)    $   (3.72)    $   (6.15)
                                                    =========     =========     =========     =========     =========
Weighted average number of common
    stock and common stock
    equivalents (3) ............................        8,086         9,256        10,940        10,825        10,825
                                                    =========     =========     =========     =========     =========
OTHER FINANCIAL DATA:
EBITDA(4) .....................................     $    (216)    $   5,330         5,026 $   $  (5,846)    $  (6,292)
Capital expenditures ..........................        16,621        25,225        37,082        14,062         4,140

OTHER OPERATING DATA:
Number of subscribers at end of ...............        36,594        79,176       111,244        77,069        72,240
    year(5)
Average monthly revenue per
    subscriber(6) ..............................    $   40.00     $   39.63     $   37.91     $   35.39     $   27.01
</TABLE>
<TABLE>
<CAPTION>
                                                                             AS OF DECEMBER 31,
                                                        -------------------------------------------------------------
                                                         1995          1996           1997          1998         1999
                                                         ----          ----           ----          ----         ----
<S>                                                 <C>           <C>           <C>           <C>           <C>
 BALANCE SHEET DATA:
 Working capital (deficit)(7) ..................    $  (6,430)    $ 123,263     $  97,723     $  58,227     $(120,965)
 Pledged securities(8) .........................           --        33,512        17,324            --            --
 Property, plant and equipment, net ............       18,870        38,333        63,405        50,974        25,005
 Total assets ..................................       23,683       202,929       186,397       133,314        83,322
 Total long-term debt ..........................          400       140,200       140,000       140,000            --
 Stockholders'deficiency(9) ....................        7,895        37,748        22,330       (21,767)      (91,642)
</TABLE>-------
(1)  The Selected Consolidated  Financial Data includes (i) TV Filme Servicos on
     a historical  basis and (ii) ITSA and its  subsidiaries  since May 1994 and
     the predecessor of ITSA on a historical basis, as though they had been part
     of TV Filme  for all  periods  presented.  See Note 1a to the  Consolidated
     Financial Statements.

(2)  Other income  (expense) is comprised  primarily of foreign  currency losses
     and interest expense.

(3)  Net income (loss) per share is calculated using the weighted average number
     of shares of stock  outstanding  during the period together with the number
     of shares  issuable upon the exercise of options and warrants issued during
     the twelve months prior to the Company's  initial public offering of Common
     Stock which occurred in August 1996 (the "Initial Public Offering").

(4)  EBITDA is defined as operating  loss plus  depreciation,  amortization  and
     non-cash charges.  While EBITDA should not be construed as a substitute for
     operating  loss or a better  measure  of  liquidity  than  cash  flow  from
     operating activities, which are determined in accordance with U.S. GAAP, it
     is included herein to provide additional  information regarding the ability
     of  the  Company  to  meet  its  capital   expenditures,   working  capital
     requirements  and debt  service.  EBITDA,  however,  is not  necessarily  a
     measure  of the  Company's  ability  to fund its cash  needs.  See "Item 7.
     Management's  Discussion and Analysis of Financial Condition and Results of
     Operations -- Overview."


                                       15
<PAGE>

(5)  See "Item 1. Business -- Operating Systems and the Company's Markets."

(6)  Average   monthly   revenue  per   subscriber  is  calculated  by  dividing
     subscription revenue for the month by the average number of subscribers for
     the month.

(7)  For periods prior to 1998,  working  capital  includes  current  portion of
     pledged securities.

(8)  The pledged  securities  were purchased as collateral for the Senior Notes.
     See Note 7 to the Consolidated Financial Statements.

(9)  TV Filme has never paid cash  dividends on its Common  Stock.  See "Item 5.
     Market For Registrant's Common Equity and Related Stockholder Matters."

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

OVERVIEW

     The Notes to  Consolidated  Financial  Statements  are an integral  part of
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations and should be read in conjunction herewith.

     The Company develops,  owns and operates pay television  systems in markets
in Brazil.  The Company is the sole  provider of MMDS in the cities of Brasilia,
Goiania, Belem and Campina Grande and holds the sole MMDS licenses in the cities
of Bauru, Belo Horizonte,  Caruaru, Franca, Porto Velho, Presidente Prudente and
Uberaba.  The Company also has been  announced as the winner of the MMDS license
for Vitoria; however, it has yet to officially receive this license.

     During 1998 and the first quarter of 1999,  the Company  faced  significant
challenges that ultimately affected the Company's ability to pay interest on its
outstanding 12 7/8% senior notes due 2004 (the "Senior  Notes") issued  pursuant
to an indenture dated as of December 20, 1996 (the  "Indenture").  The Brazilian
government's  delay  in  granting  wireless  cable  television   licenses,   the
instability in emerging markets, the devaluation of the Brazilian currency,  the
REAL,  and  the  resulting  decline  in  consumer  spending  on  wireless  cable
television  in the markets in which ITSA and the  Company's  other  subsidiaries
provide  services,  significantly  impacted the Company's  business plan and its
ability to service its indebtedness  under the Indenture and continue as a going
concern.  While the Company decided to commence  discussions with holders of the
Senior Notes to pursue a comprehensive  financial and operational  restructuring
plan,  the Company  failed to make the required  interest  payment on the Senior
Notes on June 15, 1999.

     The Indenture provides that failure to pay interest on the Senior Notes, if
not cured within 30 days of such failure,  constitutes an Event of Default under
Section 6.1(b) of the Indenture. Section 6.2 of the Indenture provides that upon
the  occurrence  of an Event of  Default,  holders of at least 25% in  principal
amount of the outstanding  Senior Notes may declare the unpaid principal of, and
any accrued interest on, all the Senior Notes to be due and payable immediately.

     RESTRUCTURING AND PLAN OF REORGANIZATION

     Shortly after June 15, 1999,  the Company  requested a meeting with certain
holders of the Senior Notes. The Company also requested that pending discussions
on the possible  restructuring  of the  Company's  obligations  under the Senior
Notes,  such holders  forbear from enforcing any right to accelerate the amounts
due on the Senior Notes and from  enforcing any other rights and remedies  under
the  Indenture.   Such  agreements  to  forbear  were  originally  evidenced  by
forbearance  agreements  among the Company and three holders of the Senior Notes
who collectively  held  approximately  54% of the principal amount of the Senior
Notes and who together  with certain other holders of the Senior Notes formed an
unofficial  committee of Noteholders  (the "Ad Hoc  Noteholders'  Committee") to
represent the interests of the holders of the Senior Notes.


                                       16
<PAGE>

     After negotiations between the Company, the Ad Hoc Noteholders'  Committee,
and  other  interested   parties   regarding   restructuring  of  the  Company's
obligations,  the Company and the certain specified  noteholders (the "Specified
Holders")  entered  into a  Restructuring  Agreement  on January  24,  2000.  In
addition,  the  Specified  Holders  who  are  signatories  to the  Restructuring
Agreement  have  agreed that so long as the  Company is in  compliance  with the
terms of the Restructuring Agreement, they will forbear (and cause the Indenture
Trustee to forbear) from  exercising  their rights under the Senior  Notes,  the
Indenture, applicable law or otherwise, with respect to any default in existence
or  arising  under the  Senior  Notes or the  Indenture  during  the term of the
Restructuring Agreement.

     On January 26, 2000,  the Company filed a voluntary  petition under chapter
11 of the United States Bankruptcy Code,  together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan,  and the Plan was  confirmed  at a hearing  by the court on
April 10,  2000.  Overwhelming  majorities  of holders  of the Senior  Notes and
holders of the Company's  common stock voted in favor of the  restructuring  set
forth  in the  Plan.  Effectuation  of the  Plan is  contingent  upon  obtaining
approval of the restructuring  contemplated by the Plan from Agencia Nacional de
Telecomunicacoes,    the   Brazilian    government    agency   that    regulates
telecommunications  services  in Brazil,  and the  Central  Bank of Brazil.  The
Company continues to operate and manage its affairs as debtor in possession.  No
trustee has been appointed.

     The Company's restructuring principally provides that, upon effectuation of
the Plan,  the senior  noteholders  will  receive a $25 million cash payment and
their  existing notes will be converted into (i) New Senior Secured Notes in the
aggregate principal amount of at least $35 million, subject to adjustment,  with
a five year maturity and interest of 12% per annum (interest  payable-in-kind at
the option of the reorganized company through the first 24 months), and (ii) 80%
of the new common equity of the  reorganized  company.  Current  management will
receive 15% of the new common equity,  and existing  common  stockholders  of TV
Filme, Inc. will receive 5% of the new common equity of the reorganized  company
in exchange for their current  stake.  The Plan  provides  that the  reorganized
company will be a newly-formed Cayman Islands holding company,  and that the New
Senior Secured Notes will be issued by ITSA.

     GENERAL

     Historically,  the  Company  has  generated  operating  losses,  which  may
increase to the extent that  operations of  additional  systems are commenced or
acquired. As the Company continues to develop systems, positive EBITDA from more
developed  systems is expected to be partially or completely offset by corporate
overhead, negative EBITDA from less developed systems and from development costs
associated  with  establishing  new systems.  This trend is expected to continue
until the Company has a sufficiently  large  subscriber base to absorb operating
and development costs of new systems. There can be no assurance that the Company
will be able to achieve  or sustain  net  income in the  future.  The  Company's
Brasilia  System  became  EBITDA  positive  in the  third  quarter  of 1994 with
approximately  6,000  subscribers.  The  Company's  Belem System  became  EBITDA
positive in the fourth quarter of 1995 with approximately 5,000 subscribers.

     Each of the  Company's  existing  systems has  required an initial  capital
investment of approximately  $1.0 million to $1.5 million to build and install a
transmission  tower,  headend  facilities and other  equipment.  These costs are
generally  depreciated  over ten years.  In addition,  each new  subscriber  has
required an average incremental investment of approximately $450, which includes
the cost of a decoder box, installation labor and materials, other equipment and
supplies,  marketing and selling  costs.  The Company  capitalizes  installation
costs,  including  installation  labor,  decoders  and other direct  costs,  and
depreciates these costs over a four year period. Prior to 1998, these costs were
depreciated  over a five  year  period.  The  Company  charges  new  subscribers
installation  fees which vary from market to market,  depending on factors which
include the subscriber's access to other forms of pay television and whether the
installation is the first  installation  in a building.  The Company has charged
its   subscribers  an  installation   fee  typically   ranging  from  $5  -  $75
(approximately $10, net of sales commissions,  in markets which have adopted the
MAIS TV model.) For new market systems,  the Company expects to incur an initial
capital  investment  of  approximately  $1.5 million each to build and install a
transmission  tower,  headend  facilities and other equipment.  Factoring in the


                                       17
<PAGE>

$7.0  million cost of the  licenses  for the new  markets,  the total  estimated
initial  expenditures  for these  markets is  expected to be  approximately  $19
million.  The Company defers  installation fees, net of direct selling expenses,
and is recognizing these fees as revenues ratably over a four-year period. Prior
to 1998, the Company  recognized these fees as revenues ratably over a five-year
period.

     The Company's  historical  subscriber growth has resulted from the addition
of subscribers in Brasilia and from the launch of operating  systems in Goiania,
Belem and  Campina  Grande.  Recent  subscriber  losses have  resulted  from the
general  economic  situation  in  Brazil,  including  the strict  tightening  of
consumer credit and increased levels of unemployment. Revenues primarily consist
of monthly fees paid by subscribers for the programming  packages,  installation
fees recognized for the period and advertising fees and revenue derived from the
provision of high speed Internet access services.  See "Item 1. Business -- High
Speed Internet Access Service." System  operating  expenses include  programming
costs,  a portion of the costs of  compensation  and benefits for the  Company's
employees,   transmitter   site  rentals  and  certain  repair  and  maintenance
expenditures.  Depreciation  and  amortization  expenses  consist  primarily  of
depreciation of decoder boxes, headend facilities and installation costs.

     The  development  of a new  system  requires  significant  expenditures,  a
substantial  portion of which are incurred  before the  realization of revenues.
These  expenditures,  together with the  associated  early  operating  expenses,
result in negative  cash flow until an adequate  revenue  generating  subscriber
base is  established.  As the subscriber  base  increases,  revenue,  as well as
certain costs such as programming  costs,  generally increase while other costs,
such as tower rental and related  maintenance costs, remain constant or increase
at  proportionately  lower levels.  Accordingly,  although costs increase in the
aggregate  as the  subscriber  base  grows,  costs as a  percentage  of revenues
decrease and operating margins should generally increase.

     Although the Company's financial  statements are presented pursuant to U.S.
GAAP in U.S. dollars,  the Company's  transactions are consummated in both REAIS
and U.S.  dollars.  Inflation  and  devaluation  in  Brazil  have  had,  and are
currently having, substantial effects on the Company's results of operations and
financial condition. From time to time, the Company purchases hedge contracts to
reduce the risk of having a substantial portion of its cash in REAIS. At the end
of 1999, the Company held approximately  $28.0 million of such contracts,  which
expired on  February  11,  2000.  See "-- Certain  Factors  Which May Affect the
Company's  Future Results -- Factors Relating to the Company -- Risks Associated
with New Markets and Growth and Expansion Strategy."

     The economic and financial  turmoil in Southeast Asia and the former Soviet
Republics  during  1997 and 1998 has had an  impact  on many  emerging  markets,
including  Brazil.  As a  result  of  these  events,  the  Brazilian  government
originally took  significant  measures to protect the REAL, as well as the gains
achieved over the past several years by Brazil's  economic  stabilization  plan,
the Real Plan. Among other actions,  on October 27, 1997,  Brazil's Central Bank
significantly  raised  short-term  interest  rates,  and, in November  1997, the
Brazilian  government  announced  a  series  of  austerity  measures,  generally
including  budget cuts,  restrictions  on public  indebtedness,  tax  increases,
export  incentives and restrictions on imports.  These measures were designed to
improve the country's  fiscal and current account  deficits and relieve pressure
on the REAL.  Even after  taking these  measures,  the  government  continued to
experience a reduction  in foreign  currency  reserves  which were being used to
purchase  REAIS as a means to protect the relative  value of the REAL versus the
U.S. dollar. Due to the continued  reduction in foreign currency  reserves,  and
other reasons,  the Brazilian  government  sought support from the International
Monetary Fund ("IMF"). On November 13, 1998, the IMF announced an aid package of
more than $41  billion.  To secure these  funds,  in October 1998 the  Brazilian
government announced additional austerity measures including pension plan reform
and  significant  spending  cuts,  which  have been  approved  by the  Brazilian
Congress.  As  part of  these  additional  austerity  measures,  the  government
increased the financial  transactions tax (CPMF) from 0.2% to 0.38%. This tax is
levied on the value of all financial  transactions,  including bank withdrawals,
checks, and stock and fund purchases.  Also, the Brazilian  government increased
the public pension system  contribution by corporations from 2% of revenue to 3%
of revenue and for the first time, subjected financial income, including accrued
intercompany  interest income,  to this tax. Despite these additional  austerity
measures,  in  January  1999  the  Brazilian  government  devalued  the REAL and
subsequently  eliminated the established  trading band. These measures have had,
and will have for the foreseeable  future,  both a direct and indirect impact on
the Company's financial results.

     Soon after the 1997 austerity measures were initiated, the Company began to
experience a significant  increase in customer  delinquency  rates which,  among
other things,  resulted in the Company  significantly  increasing its provisions


                                       18
<PAGE>

for  doubtful  accounts  and  increasing  service  disconnections.   This  trend
continued  throughout 1998 and 1999. The Company has undertaken several steps to
address the impact of the  deterioration in its operating  environment,  such as
performing  credit  checks on  potential  new  subscribers,  changing the way it
compensates  its sales force to emphasize  high quality  sales and  implementing
cost  reduction  measures,  including a headcount  reduction.  In  addition,  as
previously  discussed  the  Company  has become  more  aggressive  in  canceling
delinquent  subscriber accounts.  There can be no assurance that the steps taken
by the Company or measures taken by the Brazilian government will be successful,
or that the  increase in  delinquent  payments and service  disconnections  will
abate. If the steps implemented by the Company and the Brazilian  government are
not  effective  in the near term,  the Company may be unable to meet future cash
requirements. See "-- Liquidity and Capital Resources."

     As a holding company, TV Filme is dependent on the receipt of dividends and
payment of intercompany  obligations from its operating subsidiaries in order to
meet its cash requirements. The payment of dividends from the subsidiaries of TV
Filme to TV Filme and the  payment of any  interest on or the  repayment  of any
principal of any loans or advances  made by TV Filme to any of its  subsidiaries
may be subject to statutory or contractual  restrictions,  are contingent on the
earnings  and  performance  of such  subsidiaries  and are  subject  to  various
business considerations.  See "Item 5. Market For Registrant's Common Equity and
Related Stockholder Matters."

RESULTS OF OPERATIONS

     SELECTED OPERATING DATA. The following table sets forth certain expense and
other data derived from the Consolidated Financial Statements as a percentage of
the Company's revenues for each year presented.

<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                            ------------------------------------------------------------------------------
                                                       (In thousands, except subscriber, per share and share data)
                                                            % OF                         % OF                      % OF
                                                1997       REVENUE         1998         REVENUE         1999      REVENUE
                                                ----       -------         ----         -------         ----      -------
<S>                                        <C>           <C>             <C>           <C>          <C>           <C>
Revenues ...............................   $  50,547           100%      $  45,408          100%    $  26,177       100%
Operating costs and expenses:
System operating .......................      17,631            35%         19,617           43%       11,844        45%
Selling, general and administrative (b)       27,965            55%         31,637           70%       20,625        79%
Depreciation and amortization ..........      12,162            24%         21,651           48%       14,205        54%
                                           ---------     ---------       ---------     ---------     ---------    ------
      Total operating costs and expenses      57,758           114%         72,905          161%       46,674       178%
                                           ---------     ---------       ---------     ---------     ---------    ------
      Operating loss ...................      (7,211)          (14%)       (27,497)         (61%)     (20,497)      (78%)
                                           ---------     ---------       ---------     ---------     ---------    ------
Other income (expense):
  Interest and other expense ...........     (19,167)          (38%)       (19,810)         (44%)     (24,088)      (92%)
  Interest and other income ............       8,985            18%         11,300           25%        7,281        28%

  Monetary loss.........................          --            --          (4,213)          (9%)     (29,266)     (112%)

  Exchange and translation losses.......      (1,863)           (4%)           -0-            --            --        --
                                           ---------     ---------       ---------     ---------     ---------    ------
         Total other expense ...........     (12,045)          (24%)       (12,723)         (28%)     (46,073)     (176%)
                                           ---------     ---------       ---------     ---------     ---------    ------
Net loss ...............................   $ (19,256)          (38%)     $ (40,220)         (89%)   $ (66,570)     (254%)
                                           ---------     ---------       ---------     ---------     ---------    ------
Net loss per share .....................   $   (1.76)                    $   (3.72)                 $   (6.15)
                                           =========                     =========                  =========

Weighted average number of
  shares of common stock and
  common stock equivalents .............      10,940                        10,825                     10,825
                                           =========                     =========                  =========
Other Data:
 EBITDA(a) .............................   $   5,026                    $  (5,846)                  $  (6,292)
                                           =========                     =========                  =========

  Number of subscribers at end
    of  period .........................     111,244                        77,069(b)                  72,240
                                           =========                     =========                  =========
</TABLE>

--------------------
(a)  EBITDA is defined as operating  loss plus  depreciation,  amortization  and
     non-cash charges.  While EBITDA should not be construed as a substitute for
     operating  loss or a better  measure  of  liquidity  than  cash  flow  from


                                       19
<PAGE>

     operating activities, which are determined in accordance with U.S. GAAP, it
     is included herein to provide additional  information regarding the ability
     of  the  Company  to  meet  its  capital   expenditures,   working  capital
     requirements  and debt  service.  EBITDA,  however,  is not  necessarily  a
     measure of the Company's ability to fund its cash needs.

(b)  In the second half of 1998, the Company became more aggressive in canceling
     the accounts of delinquent subscribers.

     NET LOSS.  Net loss for 1999  increased to ($66.6)  million  versus ($40.2)
million in 1998, primarily due to the devaluation of the REAL versus the dollar,
which  caused  a $25  million  increase  in  currency  exchange  loss due to the
Company's net  dollar-denominated  monetary  liability  position.  Reductions in
operating loss due to staff cuts,  stricter accounts receivable policies and the
REAL devaluation were offset by higher net interest and other expense.  Net loss
for 1998 increased to ($40.2)  million  versus ($19.2)  million in 1997 due to a
34,000 reduction in subscriber  count, a change in the depreciation  period from
five  years  to  four  years,  increased  costs  to  support  new  services  and
programming and to generate new subscribers to replace those lost throughout the
year, and the currency exchange loss.

     REVENUES.  The  Company's  revenues  for 1999  decreased by 42% compared to
1998, due primarily to the devaluation of the REAL between the periods,  as well
as some decline in subscriber base.  Revenues for 1998 decreased by 10% compared
to 1997, also due primarily to the REAL devaluation. In both cases, the decrease
in revenues was  partially  offset by revenues  from the  Company's  proprietary
premium channel and high-speed Internet service.

     SYSTEM  OPERATING  EXPENSES.  For 1999 compared to 1998,  system  operating
expenses  decreased by 40%, primarily due to the devaluation of the REAL between
the periods,  offset in part by programming costs, most of which are denominated
in U.S. dollars.  System operating  expenses increased in 1998 by 11% over 1997,
primarily  due to higher  costs to support  the  Company's  proprietary  premium
channel  and  high-speed  internet  access  services,  along with  increases  in
programming and magazine costs.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  ("SG&A")  expenses  decreased  during  1999  by 35%  over  1998,
primarily due to the REAL  devaluation.  This  decrease was offset,  in part, by
debt restructuring costs of $5,145,000, an increase in bank charges due to a new
financial  transactions  tax  implemented  in Brazil in July 1999 and additional
rents paid for office and  transmission  space in cities  where the  Company has
been awarded new  licenses.  SG&A  expenses  increased in 1998 by 13% over 1997,
primarily due to an increase in the provision for litigation and taxes, a higher
bad debt  provision  associated  with the reduction in  subscribers,  and higher
payroll  costs  to  support  the  Company's   proprietary  premium  channel  and
high-speed  internet access service.  These increases were partially offset by a
reduction in advertising and promotion expenses during 1998.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization  decreased in
1999 by 34% over  1998,  primarily  due to the  devaluation  in the  REAL.  This
decrease was offset,  in part,  by the extra  depreciation  caused by additional
capitalized installation costs during the period.  Depreciation and amortization
increased  in  1998  by  78%  over  1997  primarily  due to  the  change  in the
depreciation  period from five years to four years  (effective  January 1, 1998)
and the  acquisition  of over $14  million in  additional  equipment  during the
period.

     INTEREST AND OTHER EXPENSE. Interest and other expense increased in 1999 by
22% over 1998, primarily due to the write-off of capitalized debt issuance costs
and  recognized  losses  associated  with loss  positions  on  foreign  exchange
currency  contracts  held at year end.  Interest and other expense  increased in
1998 by only 3% compared to 1997.

     INTEREST AND OTHER INCOME.  Interest and other income  decreased in 1999 by
36%  compared to 1998,  primarily  due to a decrease in the average cash balance
between  the two  periods,  partially  offset  by the  Company  holding a higher
proportion  of  its  cash  balance  in  Brazil,   which  enabled  it  to  obtain
significantly  higher rates of return.  Interest  and other income  increased in
1998 by 26% versus 1997, primarily as a result of holding a higher percentage of
the Company's cash in Brazil, which earned higher rates of return.


                                       20
<PAGE>

     CURRENCY  EXCHANGE  LOSS.  Due  to  its  net  dollar-denominated  liability
position,  which  occurred  throughout  1998 and  1999,  the  Company  generates
currency  exchange losses in any reporting period in which the value of the REAL
depreciates in relation to the value of the U.S. dollar.

LIQUIDITY AND CAPITAL RESOURCES

     On January  26,  2000,  the Company  filed the Chapter 11 case,  which will
affect the Company's liquidity and capital resources in fiscal 2000. See Item 1.
"Business--Restructuring and Plan of Reorganization."

     The pay  television  business is capital  intensive.  From 1993 through the
first part of 1996,  the Company  raised an  aggregate  of  approximately  $16.8
million  through a series of private  equity  placements to Tevecap and Warburg,
Pincus  Investors,  L.P. In August 1996, TV Filme  completed the Initial  Public
Offering  with net proceeds to the Company of $24.4 million and in December 1996
TV Filme completed the sale of the Senior Notes with net proceeds to the Company
of approximately  $134.0 million. In the past, working capital requirements have
been  primarily  met by (i) venture  capital  financings,  (ii) capital  markets
financings,  (iii) vendor financing which generally  requires payment within 420
days of shipment,  some of which had been  supported by  irrevocable  letters of
credit  guaranteed by Abril and certain of its  affiliates  and (iv)  borrowings
from Abril and certain  affiliates.  As of December 31, 1999, the Company had no
outstanding  borrowings  from Abril and its  affiliates and the Company does not
expect to borrow from Abril or its affiliates in the future.

     As of December  31,  1999,  the Company  had no amounts  outstanding  under
letters of credit. As of January 1, 1999, the Company had import lines of credit
in the aggregate amount of $30.5 million with four commercial  banks. In January
1999,  in  conjunction  with the  devaluation  of the REAL,  all import lines of
credit were cancelled by the banks. Further import purchases by the Company will
have to be individually  negotiated with the banks.  While the Company  believes
that lines of credit,  additional  vendor financing and other credit  facilities
are available, the terms and conditions of such financing vehicles are uncertain
and may not be available  on terms  acceptable  to the  Company.  As a result of
reclassifying  its Senior Notes as a current liability (see "Event of Default on
Senior Notes"),  the Company had a negative working capital at December 31, 1999
of $121.0 million.  Net cash used in operating  activities for the twelve months
ended December 31, 1999 was $4.6 million.

     On February  4, 1999,  the Company  received  notice from the Nasdaq  Stock
Market,  Inc.  that its Common  Stock was  delisted,  effective  on the close of
trading that day. The delisting was a  consequence  of the Company's  failure to
meet  certain  standards  for  continued  listing on Nasdaq,  including  the net
tangible assets and minimum bid price  requirements.  The Company's Common Stock
was  immediately  quoted on the OTC  Bulletin  Board.  The effects of the Nasdaq
delisting include,  without limitation,  the limited release of market prices of
the Common  Stock,  limited news  coverage of the Company,  and  restriction  of
investors'  interest in the Company,  and may have a material  adverse effect on
the  trading  market  and prices for the Common  Stock,  thereby  affecting  the
Company's ability to issue additional securities or secure additional financing.
In addition, because the Common Stock is deemed penny stock under the Securities
Enforcement Penny Stock Reform Act of 1990, additional disclosure is required in
connection with trading in the Common Stock,  including delivery of a disclosure
schedule  explaining  the  nature  and  risk of the  penny  stock  market.  Such
requirements could severely limit the liquidity of the Common Stock.

     In order to  assist  the  Company  in  evaluating  strategic  alternatives,
including  a  possible  debt  restructuring,  and  issues  associated  with  the
Company's debt service  requirements,  the Company has selected BT Alex.  Brown,
Inc.  (now  Deutsche  Bank) as its financial  advisor.  On August 13, 1999,  the
Company reached an agreement in principle with a committee  representing holders
of the Company's  outstanding  12-7/8% Senior Notes due 2004. Under the terms of
the agreement in principle,  the senior  noteholders  will receive a $25 million
cash  payment and their  existing  notes will be  converted  into (i) new Senior
Secured Notes in the aggregate principal amount of $35 million, with a five year
maturity  and  interest  of  12%  per  annum  (interest  payable-in-kind  at the
Company's  option  through the first 24 months),  and (ii) 80% of the new common
equity of the reorganized  company.  Current  management will receive 15% of the
new common  equity,  and the existing  common  stockholders  of the Company will
receive 5% of the common equity of the reorganized company in exchange for their
current stake. All outstanding  stock options will be cancelled.  This agreement
in principle is subject to execution of definitive  documentation,  and is to be
effected pursuant to a pre-arranged plan which has received court approval under
Chapter 11 of the U.S.  Bankruptcy  Code. In addition,  the Agencia  Nacional de


                                       21
<PAGE>

Telecomunicacoes,    the   Brazilian    government    agency   that    regulates
telecommunications  in Brazil,  and the Central  Bank of Brazil must approve the
proposed restructuring.  In the process of reviewing the proposed restructuring,
the Central  Bank may examine the  original  approvals  granted when the Secured
Notes were issued and there is a risk that the Central  Bank may impose  charges
or  additional  taxes with respect to the original  transaction  relating to the
Secured Notes. There can be no assurance that approval of the restructuring will
be given or as to whether any charges or taxes may be imposed. Moreover, charges
or taxes imposed by the Central Bank may result in the  restructuring  not being
feasible  and may have a  material  adverse  effect on the  Company's  financial
condition and results of operations. There can be no assurance that the proposed
restructuring transaction will be completed successfully.

     The Company made capital  expenditures of approximately $4.1 million during
1999. Such capital  expenditures were financed with the proceeds from the Senior
Notes offering and from cash generated from the Company's operations.

     In September 1997, the Brazilian  Ministry of Communications  announced the
bidding process by which additional pay-TV licenses would be awarded  throughout
the  country.  This  award  process  commenced  in  October  1997.  Due to legal
challenges made to the bidding process by several  bidders,  the bidding process
had been  postponed  for all markets.  However,  on May 13,  1998,  the Superior
Justice  Tribunal  issued a favorable  ruling  allowing the bidding process with
respect to a number of the  smaller  markets to go  forward.  In July 1998,  the
license process for the smaller markets was reinstated and in the fourth quarter
of 1998,  the  Company was awarded  licenses  to operate  pay-TV  systems in the
following seven cities:  Bauru,  Campina Grande,  Caruaru,  Franca, Porto Velho,
Uberaba and Presidente  Prudente.  The Company paid an aggregate of $5.0 million
for these seven  licenses,  and launched its operation in Campina  Grande during
the second quarter of 1999. Following a favorable ruling by the Superior Justice
Tribunal in the fourth quarter of 1998,  with respect to the remaining  markets,
on March 10,  1999 ANATEL  initiated  the bid  process  for these  markets.  The
Company  decided not to  participate in this process at that time.  However,  in
October 1999, the Company  participated  in a bidding  process for the cities of
Belo  Horizonte,  Campinas,  Sao Jose dos Campos and  Vitoria.  The  Company was
successful in its bids for Belo  Horizonte  and Vitoria,  for which it offered a
total of approximately $2.3 million.

     The Company  from time to time may  selectively  pursue  joint  ventures or
acquisitions  in the pay  television  industry,  although  it  currently  has no
understanding, commitment or agreement with respect to any such joint venture or
acquisitions.  The  Company  currently  believes  that its  cash and  internally
generated  funds will be  sufficient  to fund its  obligations  pursuant  to the
agreement  in  principle  with  the  committee  of  noteholders   and  the  cash
requirements  for its four  existing  systems and eight new markets for at least
the next twelve months. As of December 31, 1999, of the Company's  approximately
$42.2 million in cash and cash  equivalents,  approximately  $12.9 million (31%)
was invested in U.S.  dollar  denominated  securities.  In the longer term,  the
Company's  funding  needs are  subject to a variety of  factors,  including  its
ability to successfully complete a debt restructuring and plan of reorganization
under  chapter  11 of the  Bankruptcy  Code,  the  number and size of new system
launches  or  acquisitions,   the  implementation  of  alternative  transmission
technologies  and  the  offering  of  additional   telecommunications  services.
Accordingly, there can be no assurance that the Company will be able to meet its
future funding needs.

     As described in Notes 1 and 7 to the financial  statements,  the Company is
in default on its Senior  Notes and has entered into a  Restructuring  Agreement
with certain Specified  Holders and filed a voluntary  petition under chapter 11
of the United States  Bankruptcy Code,  together with a  pre-negotiated  Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy  Court for the  District of Delaware.  The effect of this  bankruptcy
proceeding on the Company's future liquidity cannot be determined at this time.

YEAR 2000 COMPLIANCE

     The company  assessed its exposure to the Year 2000 problem and completed a
comprehensive  response to that  exposure.  The Company had potential  Year 2000
exposures  in three areas:  (i)  financial  and  management  operating  computer
systems used to manage the Company's  business,  (ii) SMS and video transmission
equipment used by the Company and (iii) computer  systems used by third parties,
in  particular  third party  vendors and  suppliers of the Company.  The Company
spent  approximately  $100,000 in its Year 2000 readiness  efforts.  The Company


                                       22
<PAGE>

will  continue to monitor its own systems and those of its suppliers to identify
and address any computer system problems related to the Year 2000.

INFLATION AND EXCHANGE RATES

     Inflation  and  exchange  rate  variations  have had,  and are  expected to
continue  to  have  for  the  foreseeable  future,  substantial  effects  on the
Company's  results  of  operations  and  financial  condition.   In  periods  of
inflation,  many of the Company's expenses will tend to increase.  Generally, in
periods of  inflation,  a company is able to raise its prices to offset the rise
of its expenses and may set its prices without governmental regulation. However,
under a Brazilian law designed to reduce inflation, the prices which the Company
may  charge  to a  particular  subscriber  may not be  increased  until the next
anniversary  of the  subscriber's  initial  subscription  date  and may  only be
increased by a percentage no greater than the  percentage of the increase in the
general  inflation rate which occurred  during the  subscriber's  contract year.
Thus,  the  Company  is less  able to  offset  expense  increases  with  revenue
increases.  Accordingly,  inflation  may have a material  adverse  effect on the
Company's results of operations and financial condition.

     Generally,  inflation in Brazil has been  accompanied by devaluation of the
Brazilian   currency   relative  to  the  U.S.  dollar.   The  Company  collects
substantially  all of its revenues in REAIS,  but pays certain of its  expenses,
including  a  significant  portion of its  equipment  costs,  substantially  all
interest  expense and most of its  programming  costs, in U.S.  dollars.  To the
extent the REAL depreciates at a rate greater than the rate at which the Company
is able to raise prices,  the value of the  Company's  revenues (as expressed in
U.S. dollars) is adversely affected.  This effect on the Company's revenues also
negatively impacts the Company's ability to fund U.S. dollar-based expenditures.

     As of January 1, 1998, the Company's  financial  statements reflect foreign
exchange  gains and losses  associated  with  monetary  assets  and  liabilities
denominated in currencies  other than the REAL. As a result,  the devaluation of
the REAL against the U.S. dollar has caused,  and is expected to cause,  for the
foreseeable future, the Company to record a loss associated with its U.S. dollar
monetary liabilities and a gain associated with its U.S. dollar monetary assets.
Given that the Company has a net U.S. dollar monetary  liability  position,  the
net effect of the devaluation of the REAL against the U.S. dollar is to generate
losses in the  Company's  financial  statements.  In order to protect  against a
possible  further  devaluation  of the REAL,  the  Company may from time to time
enter into certain foreign exchange  contracts.  See "Item 7A.  Quantitative and
Qualitative Disclosures about Market Risk."

RECENT ECONOMIC EVENTS

     The economic and financial  turmoil in Southeast Asia and the former Soviet
Republics  during  1997 and 1998 has had an  impact  on many  emerging  markets,
including  Brazil.  As a  result  of  these  events,  the  Brazilian  government
originally took  significant  measures to protect the REAL, as well as the gains
achieved over the last several years by the REAL Plan.  Among other actions,  in
October 1997,  Brazil's Central Bank  significantly  raised short-term  interest
rates,  and, in November  1997, the Brazilian  government  announced a series of
austerity  measures,  generally  including  budget cuts,  restrictions on public
indebtedness,  tax increases,  export  incentives and  restrictions  on imports.
These measures were designed to improve the country's fiscal and current account
deficits  and relieve  pressure on the REAL.  While  short-term  interest  rates
declined  somewhat  during the second  quarter of 1998,  they returned to levels
approaching 37% per annum by the end of the year and remain above 19% per annum.
Even  with  rates at this  level,  the  government  continued  to  experience  a
reduction in foreign  currency  reserves which were being used to purchase REAIS
as a means to protect the relative value of the REAL versus the U.S. dollar. Due
to the continued reduction in foreign currency reserves,  and other reasons, the
Brazilian  government sought support from the  International  Monetary Fund (the
"IMF").  On November 13, 1998, the IMF announced an aid package of more than $41
billion. To secure funds from the IMF, in October 1998 the Brazilian  government
announced  additional  austerity  measures  including  pension  plan  reform and
significant  spending cuts, which have been approved by the Brazilian  Congress.
As part of these  additional  austerity  measures,  effective in June 1999,  the
government  increased the financial  transactions tax (CPMF) from 0.2% to 0.38%.
This tax is levied on the value of all financial  transactions,  including  bank
withdrawals,  checks, and stock and fund purchases.  Also,  effective in January
1999, the Brazilian  government increased the public pension system contribution
by  corporations,  from 2% of revenue to 3% of revenue  and for the first  time,
subjected financial income,  including accrued intercompany  interest income, to
this tax.  Despite  these  additional  austerity  measures,  in January 1999 the
Brazilian   government  devalued  the  REAL  and  subsequently   eliminated  the
established  trading band, thereby allowing the REAL to float freely against the


                                       23
<PAGE>

U.S. dollar.  These measures have had, and will have for the foreseeable future,
an impact on the Company's financial results.

     Soon after the 1997 austerity measures were initiated, the Company began to
experience a significant  increase in customer  delinquency  rates which,  among
other things,  resulted in the Company  significantly  increasing its provisions
for  doubtful  accounts  and  increasing  service  disconnections.   This  trend
continued  throughout 1998 and 1999. The Company has undertaken several steps to
address the impact of the  deterioration in its operating  environment,  such as
performing  credit  checks on  potential  new  subscribers,  changing the way it
compensates  its sales force to emphasize  high quality  sales and  implementing
cost  reduction  measures,  including a headcount  reduction.  In  addition,  as
previously  discussed  the  Company  has become  more  aggressive  in  canceling
delinquent  subscriber accounts.  There can be no assurance that the steps taken
by the Company or measures taken by the Brazilian government will be successful,
or that the  increase in  delinquent  payments and service  disconnections  will
abate.

FACTORS RELATING TO BRAZIL GENERALLY

     OUR BUSINESS  COULD SUFFER FROM  POLITICAL  AND ECONOMIC  UNCERTAINTIES  IN
BRAZIL.  Changes in policies involving,  among other things,  tariffs,  exchange
controls,  regulatory policy and taxation,  as well as events such as inflation,
currency  devaluation,  social  instability  or  other  political,  economic  or
diplomatic  developments  could  adversely  affect  our  business,   results  of
operations and financial condition.

     GOVERNMENT  RESTRICTIONS  ON THE  CONVERSION AND REMITTANCE OF FUNDS ABROAD
COULD HINDER OUR ABILITY TO OPERATE OUR BUSINESS.  The Brazilian  government has
the  authority  to restrict  the  transfer  of funds  abroad.  If the  Brazilian
government  were  to  exercise  this  power,  as it has  done in the  past,  our
subsidiaries  could be prevented from purchasing  equipment  required to be paid
for in U.S. dollars and from  transferring  funds to TV Filme which are required
in order for TV Filme to make  scheduled  interest  payments on its  outstanding
Notes.  Either of these  events  could  have a  material  adverse  impact on our
business, operating results and financial condition.

FACTORS RELATING TO THE COMPANY

     OUR  SUBSTANTIAL  LEVERAGE  COULD  ADVERSELY  AFFECT OUR ABILITY TO RUN OUR
BUSINESS.  We  currently  have  a  significant  amount  of  indebtedness.   This
substantial  indebtedness  could have important  consequences.  For example,  it
could:

     o    limit our  ability  to obtain  additional  financing  in the future to
          refinance  existing  indebtedness  and for  working  capital,  capital
          expenditures,  acquisitions,  and general corporate  purposes or other
          purposes;

     o    require  us to  dedicate a  substantial  portion of our cash flow from
          operations  and  cash  and/or  marketable  securities  on  hand to the
          payment  of  principal  and  interest  on  our  indebtedness,  thereby
          reducing funds  available for market  expansion and additional  market
          development;

     o    hinder our ability to adjust  rapidly to changing  market  conditions;
          and

     o    make us more vulnerable to economic downturns, limiting our ability to
          withstand   competitive   pressures  and  reduce  our  flexibility  in
          responding to changing business and economic conditions.

     OUR ABILITY TO DISTRIBUTE DIVIDENDS AND MEET DEBT OBLIGATIONS ARE DEPENDENT
ON OUR SUBSIDIARIES. Because we are a holding company, our ability to distribute
dividends and meet our debt  obligations  are dependent upon the earnings of our
subsidiaries  and the  distribution of those earnings to, or upon loans or other
payment of funds by the  subsidiaries  to, us. Our subsidiaries are separate and
distinct  legal  entities  and  have no  obligation  to pay any  amounts  to our
creditors  or to make any funds  available  to our  creditors.  The  payment  of
dividends  from our  subsidiaries  and the  payment  of any  interest  on or the
repayment  of  any  principal  of  any  loans  or  advances  made  to us by  our


                                       24
<PAGE>

subsidiaries,  or by us to our  subsidiaries  (1) may be subject to statutory or
contractual   restriction,   (2)  are  contingent  upon  the  earnings  of  such
subsidiaries and (3) are subject to various business considerations.

     WE HAVE A LIMITED  OPERATING  HISTORY AND A HISTORY OF LOSSES AND MAY NEVER
ACHIEVE PROFITABILITY.  We were incorporated in April 1996. Therefore, we have a
limited  operating  history  upon which to  evaluate  our current  business  and
prospects.  We have  incurred  net losses since our  formation.  At December 31,
1999,  we had an  accumulated  deficit of $130.2  million.  In 1999,  we had net
losses of $66.6  million.  We expect that we will  continue to incur losses from
operations from the foreseeable  future.  We cannot assure you that we will ever
become profitable in the future.

     A FAILURE TO EFFECTIVELY  MANAGE OUR INTERNAL GROWTH WOULD ADVERSELY AFFECT
OUR  BUSINESS.  Our growth has placed a  significant  strain on  managerial  and
operation  resources.  Any inability to manage growth effectively,  or a drop in
productivity  of our  employees  could  have a  material  adverse  effect on our
business, results of operations and financial condition.

     WE WILL NEED ADDITIONAL  CAPITAL TO FINANCE GROWTH.  Our business  requires
substantial investment on a continuing basis to finance:

     o    debt service obligations,

     o    capital  expenditures  and expenses  related to subscriber  growth and
          system development,

     o    the acquisition of new pay television licenses and operations, and

     o    net losses.

The amount and timing of our future  capital  requirements  will  depend  upon a
number of factors, many of which are not within our control, including:

     o    the grant of new licenses,

     o    programming costs,

     o    capital costs,

     o    competitive conditions, and

     o    the costs of any necessary implementation of technological innovations
          or alternative technologies.

     We can make no assurance that we will be able to obtain  additional debt or
equity capital on satisfactory  terms,  or at all, to meet our future  financing
needs.  Furthermore,  the indenture under which our outstanding  debt was issued
restricts the amount of additional  indebtedness which we may incur.  Failure to
obtain any required additional  financing could adversely affect our growth and,
ultimately,  could have a material  adverse  effect on our business,  results of
operations and financial condition.

     OUR  ABILITY TO EXPAND  INTO NEW MARKETS IS SUBJECT TO A NUMBER OF FACTORS.
Our ability to expand successfully into new markets through acquisitions depends
on many factors, including:

     o    the successful identification and acquisition of such systems, and

     o    management's  ability to integrate and operate the acquired businesses
          effectively.

     We may compete for new system  opportunities with other companies that have
significantly  greater  financial  and  managerial  resources.  We can  make  no
assurance  that we will be  successful in obtaining new licenses or launching or
acquiring  any new pay  television  systems or that we will be able to integrate


                                       25
<PAGE>

successfully any acquired systems into our current business and operations.  Our
failure to obtain new licenses or launch or acquire new pay  television  systems
could impede our growth. The failure to integrate  successfully acquired systems
could have a material  adverse effect on our results of operations and financial
condition.

     WE ARE IN A  COMPETITIVE  BUSINESS.  We  face  potential  competition  from
hardwire  cable   operators,   DBS,  local  off-air   VHF/UHF   channels,   home
videocassette recorders and out-of-home theaters. Currently, there are three DBS
providers in Brazil. Legislative,  regulatory and technological developments may
result  in  additional  and  significant  competition.  Competition  in the  pay
television   industry  is  based  upon  program  offerings,   customer  service,
reliability  and  pricing.  Many of our actual and  potential  competitors  have
greater  financial,  marketing and other resources than we do. We cannot provide
any assurance that we will be able to compete successfully.

     OUR BUSINESS COULD SUFFER FROM CHANGES IN GOVERNMENT REGULATION. Changes in
the  regulation of our business  activities,  including  decisions by regulators
affecting our operations,  could have an adverse effect on our business. Any new
regulations could have a material adverse effect on the pay television industry,
as a whole, and on us, in particular.

     WE ARE DEPENDENT ON CERTAIN KEY SUPPLIERS.  We are dependent on certain key
suppliers  for our  programming.  We currently  purchase a large  portion of our
programming from one source under a programming  agreement.  Although we have no
reason to believe that the agreement will be canceled or will not be renewed, if
the agreement is canceled or not renewed,  we will have to seek programming from
other sources.  We cannot provide any assurances that other  programming will be
available  to us on  acceptable  terms or at all or,  if  available,  that  such
programming will be acceptable to our subscribers.

     We  currently  purchase  decoders  and  antennas  from a limited  number of
sources.  Our inability to obtain  sufficient  components as required from these
sources,  or to develop  alternative  sources if and as  required in the future,
could result in delays or reductions in customer  installations  which, in turn,
could have a material  adverse effect on our results of operations and financial
condition.

     In  February  2000,  the  Company's  only  supplier  of  decoders  (General
Instruments,  recently  purchased  by Motorola)  in its four  Operating  Markets
announced that it was  planning  to  discontinue  production for this product in
the  future,  and gave the  Company a limited  time in which to give  additional
orders  for  the  manufacturing  of  this  product.  While  the  Company  has  a
substantial  inventory of decoders  available for use for new  subscribers,  the
technology  used in the decoding  process is  proprietary  and no other supplier
currently could provide the Company with additional  decoders should they become
necessary.  It is unclear if Motorola  will  maintain  this  limited  period for
additional  orders and it is unclear if Motorola  will  license its  proprietary
decoding  technology  to any other  manufacturer.  If Motorola does not continue
production of this decoder,  or permit any other  manufacturer  to do so, and if
the Company  requires  additional  decoders for subscriber  use, it could have a
material adverse effect on our results of operations and financial condition.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company's  primary  market risk exposure is foreign  currency  exchange
rate risk  between  the U.S.  dollar and the  Brazilian  REAL due to the Company
having all of its operations based in Brazil,  and most of its revenues and some
of its expenses  denominated  in REAIS while  substantially  all of its debt and
many of its expenses and capital equipment needs are denominated in dollars.  In
addition, for operating purposes, the Company holds a significant portion of its
available cash in REAIS.

     The Company  manages its risk exposure on its available  cash held in REAIS
by purchasing, from time to time, foreign currency exchange contracts which have
the effect of  "locking-in"  a dollar based exchange rate for the Company's cash
held in Brazil.  The Company believes that the cost of managing risk exposure to
its  dollar-denominated  debt and  expenses is too high to warrant an attempt at
mitigating this risk.

     In an effort to protect  against a possible  devaluation  of the REAL,  the
Company entered into the following foreign currency hedge contracts,  which were
outstanding  as of December  31, 1999 (these  contracts  were  entered  into for
purposes other than trading purposes):


                                       26
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
<S>                       <C>                <C>           <C>         <C>                   <C>
CONTRACT VALUE           EXCHANGE RATE       PREMIUM %      % CDI      CONTRACT DATE         EXPIRATION DATE

US$28,000,000            R$1.867:US$1        +11.25%        100%       December 13, 1999     February 11, 2000
-----------------------------------------------------------------------------------------------------------------
</TABLE>

In 2000, the Company entered into the following foreign currency hedge contracts
to protect against further devaluation of the REAL:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
<S>                     <C>                 <C>           <C>         <C>                   <C>
----------------------------------------------------------------------------------------------------------------
CONTRACT VALUE          EXCHANGE RATE       PREMIUM %      % CDI      CONTRACT DATE          EXPIRATION DATE

US$28,000,000           R$1.770:US$1        +6.8%          100%       February 11, 2000      April 11, 2000
----------------------------------------------------------------------------------------------------------------
</TABLE>

The above  contracts (both tables) require the Company to pay, on the expiration
date,  an  amount  equal to the  calculated  interest  (CDI--see  below)  on the
contract  value.  On the  expiration  date,  the Company is to receive or pay an
amount, in REAIs,  calculated as follows: the "Contract Value R$" divided by the
"Exchange Rate" times (the R$/US$ exchange rate in effect on the expiration date
plus the "Premium %") less the  "Contract  Value R$." If the Company  receives a
net gain from such a  transaction,  it is required to pay 20% of the net gain in
Brazilian federal income tax.

"CDI" is the  CERTIFICADO DE DEPOSITO  INTERBANCARIO,  or the interbank  lending
rate within Brazil.

The Company has not entered into contracts for market risk sensitive instruments
for trading purposes.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The  following  statements  are filed as part of this Annual Report on Form
10-K:

                                                                       FORM 10-K
                                                                        PAGE NO.
                                                                        --------
FINANCIAL  STATEMENTS:

   TV  FILME,  INC.:

     Report of Independent Auditors.....................................    28

     Consolidated Balance Sheets as of December 31,1998   and 1999......    29

     Consolidated Statements of Operations for the years ended
     December 31, 1997, 1998, and 1999..................................    30

     Consolidated Statements of Changes in Stockholders'
     Deficiency for the three years ended December 31, 1997, 1998
     and 1999...........................................................    31

     Consolidated Statements of Cash Flows for the years
     ended December  31, 1997, 1998 and 1999............................    32

     Notes to Consolidated Financial Statements.........................    33



     All  schedules have  been  omitted  because  they are inapplicable or  the
     requested information is shown  in the  consolidated  financial statements
     or related notes.


                                       27
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
TV Filme, Inc.

 1.  We have audited the accompanying  consolidated  balance sheets of TV Filme,
     Inc. and  subsidiaries  as of December  31, 1999 and 1998,  and the related
     consolidated statements of operations, changes in stockholders' deficit and
     cash flows for each of the three  years  ended  December  31,  1999.  These
     financial  statements are the  responsibility of the Company's  management.
     Our  responsibility is to express an opinion on these financial  statements
     based on our audits.

 2.  We conducted  our audits in accordance  with  generally  accepted  auditing
     standards in the United States.  Those  standards  require that we plan and
     perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
     financial statements are free of material  misstatement.  An audit includes
     examining, on a test basis, evidence supporting the amounts and disclosures
     in  the  financial  statements.   An  audit  also  includes  assessing  the
     accounting principles used and significant estimates made by management, as
     well as evaluating the overall financial statement presentation. We believe
     that our audits provide a reasonable basis for our opinion.

 3.  In our opinion,  the consolidated  financial  statements  referred to above
     present  fairly,  in all  material  respects,  the  consolidated  financial
     position of TV Filme,  Inc. and subsidiaries at December 31, 1999 and 1998,
     and the  consolidated  results of its operations and its cash flows for the
     three years ended December 31, 1999, in conformity with generally  accepted
     accounting principles in the United States.

 4.  The accompanying  financial  statements have been prepared assuming that TV
     Filme,  Inc. will continue as a going concern.  As more fully  described in
     Note 1, the  Company  has  recurring  operating  losses  and has a  working
     capital  deficit,  and has filed for  protection  under  Chapter  11 of the
     United States  Bankruptcy  Court.  This raises  substantial doubt about the
     Company's ability to continue as a going concern.  Management's  plans with
     regard  to these  matters  are also  described  in Note 1 to the  Financial
     Statements.  The  financial  statements do not include any  adjustments  to
     reflect   the   possible   future   effects  on  the   recoverability   and
     classification  of assets or the amounts and  classification of liabilities
     that may result from the outcome of this uncertainty.


                                                  ERNST & YOUNG
                                            AUDITORES INDEPENDENTES S.C.

Sao Paulo, Brazil                                /s/ Sergio Citeroni
March 17, 2000                                       Sergio Citeroni
Except for Note 1                                    Partner
and 7, as to which
the date is April
10, 2000.


                                       28
<PAGE>

                         TV FILME, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                                                               DECEMBER 31,
                                                         ----------------------
                                                             1998         1999
                                                             ----         ----
                                                       (IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
   Cash and cash equivalents........................... $   57,492    $  42,175
   Accounts receivable, net............................      4,736        2,474
   Supplies............................................      4,930        2,750
   Prepaid expenses and other current assets...........      2,560        5,700
                                                        ----------    ---------
        Total current assets...........................     69,718       53,099
Property, plant and equipment, net - Note 2............     50,974       25,005
Debt issuance costs, net - Note 7......................      4,731           --
Other assets...........................................      7,891        5,218
                                                        ----------    ---------
        Total assets...................................   $133,314      $83,322
                                                        ==========    =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable....................................... $    3,315    $   6,168
Payroll and other benefits payable.....................      2,892        1,577
Accrued interest payable...............................        751       18,776
Accrued liabilities and taxes payable - Note 9.........      4,533        7,543
Long-term debt in default - Note 7                              --      140,000
                                                         ---------    ---------
        Total current liabilities......................     11,491      174,064
Deferred installation fees.............................      3,590          900
Senior Notes...........................................    140,000           --
Stockholders' deficiency
   Accumulated other comprehensive loss
      Cumulative transaction adjustment - Note 4            (3,877)      (7,182)
   Preferred stock, $.01 par value, 1,000,000
      shares authorized, no shares issued..............         --           --
   Common stock, $.01 par value, 50,000,000
      shares authorized, 10,824,594 and 10,824,594
      shares issued and outstanding ...................        108          108
      Additional paid-in capital.......................     45,657       45,657
      Accumulated deficit..............................    (63,655)     130,225)
                                                        -----------   ----------
        Total stockholders' deficiency.................    (21,767)     (91,642)
                                                        -----------   ----------
        Total liabilities and stockholders' deficiency. $  133,314    $  83,322
                                                        ===========   =========






                             See accompanying notes.


                                       29
<PAGE>


                         TV FILME, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                            DECEMBER 31,
                                                    ----------------------------
                                                    1997        1998       1999
                                                    ----        ----       ----
                                                       (IN THOUSANDS, EXCEPT
                                                            PER SHARE DATA)

Revenues ......................................  $ 50,547   $ 45,408   $ 26,177

Operating costs and expenses:
   System operating-Note 3 ....................    17,631     19,617     11,844
    Selling, general and administrative .......    27,965     31,637     20,625
   Depreciation and amortization ..............    12,162     21,651     14,205
                                                 --------   --------   --------
        Total operating costs and expenses ....    57,758     72,905     46,674
                                                 --------   --------   --------
        Operating loss ........................    (7,211)   (27,497)   (20,497)

Other income (expense):
   Interest and other expense - Notes 3 and 11    (19,167)   (19,810)   (24,088)
   Interest and other income ..................     8,985     11,300      7,281
   Currency exchange loss .....................        --     (4,213)   (29,266)
   Exchange and translation losses ............    (1,863)        --         --
                                                 --------   --------   --------
        Total other expense ...................   (12,045)   (12,723)   (46,073)
                                                 --------   --------   --------
Net loss ......................................  $(19,256)  $(40,220)  $(66,570)
                                                 ========   ========   ========

Net loss per share, basic and diluted .........  $  (1.76)  $  (3.72)  $  (6.15)
                                                 ========   ========   ========

Weighted average number of shares of common
   stock and common stock equivalents .........    10,940     10,825     10,825
                                                 ========   ========   ========





                             See accompanying notes.


                                       30
<PAGE>

                         TV FILME, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

                   FOR THE THREE YEARS ENDED DECEMBER 31, 1999


<TABLE>
<CAPTION>

                                               COMMON STOCK       ADDITIONAL    OTHER
                                                                   PAID-IN     COMPREHEN-  ACCUMULATED
                                           SHARES     PAR VALUE    CAPITAL     SIVE LOSS     DEFICIT       TOTAL
                                           ------     ---------    -------     ---------     -------       -----

                                                          (IN THOUSANDS OF DOLLARS, EXCEPT SHARES)

<S>                                      <C>         <C>         <C>         <C>          <C>          <C>
BALANCE AT DECEMBER 31, 1996 ..........  10,166,176         102      41,825          --       (4,179)      37,748
Issuance of common stock for payment of
    non-cash compensation .............      36,163          --          75          --           --           75
Conversion of outstanding warrants into
    Common stock ......................     622,800           6       3,757          --           --        3,763
Net loss for the year .................          --          --          --          --      (19,256)     (19,256)
                                         ----------  ----------  ----------  ----------   ----------   ----------
BALANCE AT DECEMBER 31, 1997 ..........  10,825,139  $      108  $   45,657               $  (23,435)  $   22,330
Cumulative translation adjustment .....          --          --          --      (3,877)          --       (3,877)
Net loss for the year .................          --          --          --          --      (40,220)     (40,220)
                                         ----------  ----------  ----------  ----------   ----------   ----------

BALANCE AT DECEMBER 31, 1998 ..........  10,825,139  $      108  $   45,657  $   (3,877)  $  (63,655)  $  (21,767)
Cumulative translation adjustment .....          --          --          --      (3,305)          --       (3,305)
Net loss for the year .................          --          --          --          --      (66,570)     (66,570)
                                         ----------  ----------  ----------  ----------   ----------   ----------

BALANCE AT DECEMBER 31, 1999 ..........  10,825,139  $      108  $   45,657  $   (7,182)  $ (130,225)  $  (91,642)
                                         ==========  ==========  ==========  ==========   ==========   ==========
</TABLE>




                                                         See accompanying notes.

                                       31
<PAGE>


                         TV FILME, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31
                                                                       ----------------------
                                                                    1997        1998        1999
                                                                    ----        ----        ----

                                                                     (IN THOUSANDS OF DOLLARS)
<S>                                                            <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................................  $ (19,256)  $ (40,220)  $ (66,570)
Adjustments to reconcile net loss to net cash
  Provided by operating activities:
   Depreciation and amortization ............................     12,162      22,050      14,669
   Provision for losses on accounts receivable ..............      4,989       6,674       1,337
   Non-cash compensation ....................................         75          --          --
   Amortization of debt issuance costs ......................        805       1,567       1,677
   Decrease in deferred installation fees ...................     (1,049)     (3,107)       (737)
   Currency exchange loss ...................................         --       4,213      24,553
Changes in operating assets and liabilities:
   Increase in accounts receivable ..........................     (9,214)     (4,176)     (1,422)
   (Increase) decrease in supplies ..........................     (2,582)        (32)        591
   (Increase) decrease in prepaid expenses and other current
   assets ...................................................     (2,003)        375      (4,092)
   (Increase) decrease in accrued interest receivable .......       (679)        679          --
   (Increase) decrease in other assets ......................     (1,292)     (6,449)        286
    Decease in pledged securities ...........................     16,867      16,645          --
   Increase (decrease) in accounts payable ..................      1,618      (9,023)      4,369
   Increase (decrease) in payroll and other benefits payable         565         950        (685)
   Increase in accrued interest payable .....................        179          --      18,025
   Increase  in accrued liabilities and taxes payable .......        649       3,522       3,403
                                                               ---------   ---------   ---------
Net cash provided by (used in) operating activities .........      1,884      (6,332)     (4,596)
                                                               ---------   ---------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions:
   Property, plant and equipment ............................    (37,082)    (14,062)     (3,593)
                                                               ---------   ---------   ---------
Net cash used in investing activities .......................    (37,082)    (14,062)     (3,593)
                                                               ---------   ---------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt ......................     (2,926)         --          --
Proceeds from issuance of senior notes, net of costs ........         --          --          --
Debt issuance costs .........................................       (819)         --          --
Issuance of common stock and warrants .......................      3,763          --          --
Decrease in payables from affiliates ........................       (200)       (200)         --
                                                               ---------   ---------   ---------
Net cash used in financing activities .......................       (182)       (200)         --
                                                               ---------   ---------   ---------
Effect of exchange rate changes on cash .....................         --      (2,889)     (7,128)
                                                               ---------   ---------   ---------
Net change in cash and cash equivalents .....................    (35,380)    (23,483)    (15,317)
Cash and cash equivalents at beginning of year ..............    116,355      80,975      57,492
                                                               ---------   ---------   ---------
Cash and cash equivalents at end of year ....................  $  80,975   $  57,492   $  42,175
                                                               =========   =========   =========
</TABLE>


                             See accompanying notes.


                                       32
<PAGE>

                         TV FILME, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A. COMPANY BACKGROUND

     In  connection  with  an  initial  public  offering  (the  "Initial  Public
Offering"),  of its common stock, $.01 par value per share (the "Common Stock"),
TV Filme,  Inc. (the  "Company")  was formed in April 1996 to become the holding
company of and successor to ITSA-Intercontinental  Telecomunicacoes S.A. and its
subsidiaries  ("ITSA").  The transfer of ITSA to the Company has been  accounted
for in a manner  similar to a pooling of interests.  ITSA was formed in May 1994
as a holding company for and successor to TV Filme Servicos de  Telecomunicacoes
S.A. ("TVFSA"). The transfer of TVFSA to ITSA has been accounted for in a manner
similar to a pooling of interests.

     At  its  formation,   the  Company  entered  into  a   restructuring   (the
"Restructuring")  pursuant  to  which  all of the  preferred  stock  of ITSA was
converted into common stock of ITSA,  based on the conversion  rates at the date
of  issuance  of the  preferred  stock.  Each share of common  stock of ITSA was
exchanged  for  1,844  shares  of  Common  Stock of the  Company.  As all of the
preferred stock of ITSA has been converted and there were no preferred dividends
paid or due as a result  of the  conversion,  all  preferred  and  common  stock
issuances  of the  predecessor  companies  have been  reflected  as issuances of
Common Stock of the Company.  Prior to the  consummation  of the Initial  Public
Offering and the  Restructuring,  TVFSA  operated the Company's  wireless  cable
system in  Brasilia,  and held the  licenses to operate the  Company's  wireless
cable systems in Brasilia,  Goiania and Belem.  ITSA owned  substantially all of
TVFSA, TV Filme Goiania Servicos de Telecomunicacoes  Ltda. ("TV Filme Goiania")
and TV Filme  Belem  Servicos  de  Telecomunicacoes  Ltda.  ("TV Filme  Belem").
Pursuant  to the  Restructuring,  (i)  51% of the  voting  stock  of  TVFSA  was
transferred to an entity, all of which is owned by certain existing shareholders
of ITSA who were or are  Brazilian  nationals,  with ITSA  retaining  49% of the
voting stock and 83% of the  economic  interests  in TVFSA;  (ii) the  operating
assets of the wireless cable system of Brasilia were  transferred  from TVFSA to
TV Filme Brasilia  Servicos de  Telecomunicacoes  Ltda.  ("TV Filme  Brasilia"),
which is  substantially  owned by ITSA;  and (iii) TVFSA  entered  into  various
agreements with ITSA and its subsidiaries pursuant to which, among other things,
TVFSA has authorized  ITSA to operate the existing  wireless cable systems under
its current  licenses.  Subsequent to the  Restructuring  and the Initial Public
Offering, the Company owns 100% of ITSA, which holds 49% of the voting stock and
83% of the economic  interests of TVFSA and 100% of TV Filme Brasilia,  TV Filme
Goiania and TV Filme  Belem.  As of November  1997,  the licenses to operate the
existing  wireless cable systems were  transferred from TV Filme Servicos to the
respective operating companies, TV Filme Brasilia, TV Filme Goiania and TV Filme
Belem.

     Accordingly,  the consolidated  financial statements of the Company include
ITSA and its subsidiaries on a historical basis as though they have been part of
the Company for all periods presented. All significant intercompany transactions
and balances have been eliminated in consolidation.

     The Company develops,  owns and operates pay television  systems in markets
in Brazil.  The Company has established  wireless cable operating systems in the
cities of Brasilia,  Goiania and Belem and has been awarded  licenses to operate
pay television systems in seven additional markets in Brazil.

     On January 26, 2000,  the Company filed a voluntary  petition under chapter
11 of the United States Bankruptcy Code,  together with a pre-negotiated Plan of
Reorganization and the Disclosure Statement relating to such Plan, with the U.S.
Bankruptcy Court for the District of Delaware. The court approved the Disclosure
Statement on March 1, 2000. Following approval of the adequacy of the Disclosure
Statement, ballots respecting the Plan were circulated to those parties entitled
to vote on the Plan,  and the Plan was  confirmed  at a hearing  by the court on
April 10,  2000.  Overwhelming  majorities  of holders  of the Senior  Notes and
holders of the Company's  common stock voted in favor of the  restructuring  set
forth  in the  Plan.  Effectuation  of the  Plan is  contingent  upon  obtaining
approval of the restructuring  contemplated by the Plan from Agencia Nacional de
Telecomunicacoes, the Brazilian government agency that regulates


                                       33
<PAGE>

telecommunications  services  in Brazil,  and the Central  Bank of Brazil.   The
Company continues to operate and manage its affairs as debtor in possession.  No
trustee has been appointed.

     These conditions  raise  substantial  doubt as to the Company's  ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of this uncertainty.


     B. METHOD OF PRESENTATION

     The consolidated  financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States in
U.S.  dollars.  Until  December 31, 1997,  amounts in  Brazilian  currency  were
remeasured  into U.S.  dollars in accordance  with the  methodology set forth in
Statement of Financial  Accounting Standards No. 52 ("SFAS 52") as it applies to
entities operating in highly inflationary economies.  Supplies,  property, plant
and equipment, intangibles and deferred installation fees and the related income
statement  accounts were  remeasured at exchange rates in effect when the assets
were acquired or the liabilities were incurred. All other assets and liabilities
were  remeasured  at year end exchange  rates,  and all other income and expense
items were  remeasured at average  exchange  rates  prevailing  during the year.
Remeasurement  adjustments  were  included in  exchange  and  translation  gains
(losses).

     Effective January 1, 1998, the Company  determined that Brazil ceased to be
a highly inflationary economy under SFAS 52. Accordingly, as of January 1, 1998,
the Company  began using the REAL as the  functional  currency of its  Brazilian
subsidiaries.  As a result,  all  assets and  liabilities  are  translated  into
dollars  at period end  exchange  rates and all  income  and  expense  items are
translated into U.S. dollars at the average exchange rate prevailing  during the
period.  In addition,  the Company recorded a loss associated with holding a net
foreign currency monetary liability position.

     C. NET LOSS PER SHARE

     Basic EPS is computed by dividing  income or loss by the  weighted  average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution from the exercise or  conversion  of securities  into common
stock when such  securities  are  dilutive to earnings  per share.  The basic or
diluted  EPS  measured  under  SFAS  128 are not  materially  different  than if
measured under APB No. 15.

     D. CASH EQUIVALENTS

     The Company  considers  all highly  liquid  investments  with a maturity of
three months or less when purchased to be cash equivalents.

     E. SUPPLIES

     Supplies are recorded at the lower of cost or market.

     F. PROPERTY, PLANT AND EQUIPMENT

     Property,  plant and equipment are stated at cost. The Company  capitalizes
materials,  subcontractor  costs,  labor and overhead  incurred  associated with
initial subscriber  installations.  The Company continues to depreciate the full
installation cost subsequent to any subscriber disconnections.

     Depreciation is computed on the straight-line  basis using estimated useful
lives  ranging  from 5 to 10 years  for  buildings  and  leasehold  improvements
(limited  to the  shorter  of the lease term or the  useful  life),  5 years for
machinery and  equipment,  furniture  and fixtures and 4 years for  installation
costs. Prior to 1998, installation costs were depreciated over a 5 year period.

     G. INTANGIBLE ASSETS

     Intangible assets are comprised primarily of pay television licenses, which
are amortized on a  straight-line  basis over a period of 10 years.  Accumulated
amortization  at December 31, 1997,  1998 and 1999 was $449,000,  $817,000,  and
$1,105,000 respectively.


                                       34
<PAGE>

     H. REVENUE RECOGNITION

     Revenues from subscribers are recognized in the period service is rendered.
Installation  fees are  recognized  as revenue  to the extent of direct  selling
costs incurred,  with the remainder deferred and amortized to income over a four
year period. Prior to 1998, such fees were amortized over a five year period.

     I. ALLOWANCE FOR DOUBTFUL ACCOUNTS

     The Company had an allowance for doubtful accounts of $387,000 and $651,000
at December 31, 1998 and 1999,  respectively.  Charges to the  allowance  during
1997, 1998 and 1999 were $3,945,100, $8,000,000 and $1,100,000 respectively.

     J. STOCK OPTIONS

     The Company  accounts for stock options  granted to employees in accordance
with the provisions of Accounting  Principles Board Opinion 25,  "Accounting for
Stock Issued to Employees"  ("APB 25"). Under APB 25, because the exercise price
of the  Company's  employee  stock option grants is greater than or equal to the
market price on the date of grant, no compensation is recognized.

     K. INTEREST EXPENSE

     Interest  expense  approximates  the  amount of cash  interest  paid,  plus
amounts unpaid but accrued  associated with the Company's  restructuring  of its
long-term debt (see Note 7).

     L. FOREIGN EXCHANGE CONTRACTS

     The Company  enters into  foreign  exchange  contracts  as a hedge  against
potential  exchange rate variations on cash and cash equivalents held in foreign
currency.  Realized gains and losses are recognized, and the resulting credit or
debit is recorded, in interest and other expense.

     M. USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

     N. COMPREHENSIVE INCOME

     The Company has adopted  Statement of Financial  Accounting  Standards  No.
130,  "Reporting  Comprehensive  Income" ("SFAS 130").  SFAS 130 establishes new
rules for the reporting and display of comprehensive  income and its components;
however,  the  adoption of this  statement  had no impact on the  Company's  net
income or shareholders'  equity. SFAS 130 requires foreign currency  translation
adjustments to be included in other comprehensive income.

     O. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments  and  Hedging  Activities."  The  Company  expects  to adopt the new
Statement  effective  January 1, 2000. The Statement will require the Company to
recognize all  derivatives on the balance sheet at fair value.  The Company does
not  anticipate  that the  adoption of this  Statement  will have a  significant
effect on its results of operations or financial position.


                                       35
<PAGE>

     2. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment is comprised of the following at December 31:

                                                               1998       1999
                                                               ----       ----
                                                               (IN MILLIONS OF
                                                                   DOLLARS)

Land....................................................   $    1.0   $    1.0
Building and leasehold improvements.....................        2.1        1.3
Machinery and equipment.................................       35.1       24.1
Furniture and fixtures..................................        1.4        0.8
Installation costs......................................       50.2       37.1
                                                           --------   --------
                                                               89.8       64.3
Accumulated depreciation................................      (38.8)     (39.3)
                                                           ---------  --------
                                                            $  51.0      $25.0
                                                           ========   ========

     Depreciation  expense  of  $12,009,000,   $21,651,000  and  $13,338,000  is
included in the  statements of operations for the years ended December 31, 1997,
1998 and 1999, respectively.

     3. RELATED PARTY TRANSACTIONS

     Substantially  all  programming is supplied by a subsidiary of Tevecap S.A.
("Tevecap"),  a stockholder of the Company,  pursuant to a programming contract.
Amounts  paid to such  affiliate  in  1997,  1998  and  1999  were  $10,394,000,
$10,607,000  and $7,643,000  respectively.  Through  September 1997, the Company
purchased from Tevecap a program guide which it  distributed to its  subscribers
monthly. In October 1997, the Company discontinued  purchasing the program guide
produced by Tevecap and began producing and  distributing its own program guide.
The amount paid to Tevecap for the program guide during 1997 was $679,000.

     The Company  purchased two licenses to operate  wireless cable systems from
Abril  S.A.   ("Abril")  for  $400,000  each,   payable  in  four  equal  annual
installments,   which  do  not  bear  interest.   The  $200,000  which  remained
outstanding as of December 31, 1997 was repaid in February 1998.

     The Company purchases equipment and supplies from vendors under irrevocable
letters of credit.  Abril and a subsidiary of Tevecap guarantee such obligations
from time to time.  Total issued and  outstanding  letters of credit at December
31, 1997, 1998 and 1999 were  $7,665,000,  $500,000,  and $0,  respectively.  At
December  31,  1997,  1998 and 1999,  issued and  outstanding  letters of credit
secured by affiliates were $110,000,  $0, and $0  respectively.  The maturity of
outstanding letters of credit at December 31, 1998 was 420 days.

     4. COMPREHENSIVE LOSS

     The calculation of comprehensive  loss for the twelve months ended 1998 and
1999 is as follows:

                                                              1998         1999
                                                              ----         ----
                                                                (IN THOUSANDS)

Net Loss...............................................   $ (40,220)  $ (66,570)
Foreign currency translation adjustments...............      (3,877)     (3,305)
                                                          ---------    --------
                                                          $ (44,097)  $ (69,875)

     Accumulated  comprehensive  loss,  consisting  entirely of foreign currency
translation  adjustments,  was $3,877 and $7,182 at December  31, 1998 and 1999,
respectively.


                                       36
<PAGE>

     5. STOCKHOLDERS' DEFICIENCY

     In July 1994, the Company issued and sold 2,126,132  shares of Common Stock
to Warburg, Pincus Investors, L.P. for a purchase price of $5,000,000.

     In August  1995,  the Company  issued and sold  1,052,924  shares of Common
Stock to Warburg, Pincus Investors, L.P. for a purchase price of $3,300,000.

     In 1994 and 1995, the Company issued options to purchase 125,392 and 99,576
shares of Common Stock,  respectively,  to officers of the Company.  All options
were vested at the date of grant. The fair value of the stock at the date of the
1995 grant was  deemed to be  $312,000  and,  therefore,  a charge for  non-cash
compensation  of $312,000 was recorded in 1995 and included in selling,  general
and administrative expenses. All options were exercised in the year of grant.

     As a finders' fee in connection with the equity offerings in 1994 and 1995,
the Company  granted  options to purchase  193,620 shares of Common Stock to two
advisers at a nominal exercise price. In 1994 and 1995, such options for 149,364
and 44,256 shares, respectively, were exercised.

     In March 1996,  the Company  issued and sold 783,700 shares of Common Stock
and  warrants  to  purchase  an  additional  567,952  shares of Common  Stock to
Warburg,  Pincus Investors,  L.P. for approximately $5.1 million, and issued and
sold  287,664  shares of Common  Stock and  warrants to  purchase an  additional
208,372 shares of Common Stock to Tevecap for approximately  $1.9 million.  Such
warrants had an exercise price of $6.52 per share.

     Immediately  prior to the consummation of the Initial Public  Offering,  in
connection  with the  Restructuring,  the Company issued  3,962,756,  1,456,760,
254,472,  254,472  and  1,069,520  shares of  Common  Stock to  Warburg,  Pincus
Investors,  L.P., Tevecap,  Mr. Hermano Studart Lins de Albuquerque,  Mr. Carlos
Andre  Studart  Lins  de  Albuquerque  and  Mrs.  Maria  Nise  Studart  Lins  de
Albuquerque,  respectively, with a value at the initial public offering price of
$10.00  per  share  of  $39,627,560,  $14,567,600,  $2,544,720,  $2,544,720  and
$10,695,200,  respectively. Such shares were issued in exchange for all of their
shares of  common  stock of ITSA,  which  have the same  value as the  shares of
Common Stock received in the exchange.

     Immediately  prior to the consummation of the Initial Public  Offering,  in
connection  with the  Restructuring,  the  Company  issued  warrants to purchase
567,952 shares of Common Stock to Warburg,  Pincus, warrants to purchase 208,372
shares of Common  Stock to Tevecap and  warrants to  purchase  18,440  shares of
Common  Stock to two other  stockholders  of the Company in exchange  for all of
their  warrants to purchase  shares of common stock of ITSA.  The warrants  were
exercisable  either for cash, the  cancellation of indebtedness or on a cashless
exercise basis.  In September  1997,  577,172 of the warrants were exercised for
cash for a total  purchase  price of  $3,763,161.  In  addition,  the  remaining
217,592  warrants  were  exchanged  for an aggregate of 45,628  shares of Common
Stock on a cashless  exercise basis. Such warrants were converted into shares of
Common Stock based on the  difference  between the  exercise  price of $6.52 per
share and the average  closing price of the Common Stock on the Nasdaq  National
Market during the five trading days preceding the date of exercise ($8.25).

     6. STOCK-OPTION PLAN

     In connection with the Initial Public  Offering,  the Board of Directors of
the Company adopted and the  stockholders of the Company approved the 1996 Stock
Option Plan (such plan, as  subsequently  amended in September  1997 and October
1998, is hereinafter referred to as the "Plan"). The Plan provides for the grant
of stock options to officers,  key employees,  consultants  and directors of the
Company. The Plan is administered by the Compensation Committee of the Board and
the total  number of shares of Common  Stock for which  options  may be  granted
pursuant to the Plan is  1,736,432,  subject to certain  adjustments  reflecting
changes  in the  Company's  capitalization.  The Plan  allows  the  granting  of
incentive stock options,  which may not have an exercise price below the greater
of par value or the market value on the date of grant, and  non-qualified  stock
options, which have no restrictions as to exercise price other than the exercise


                                       37
<PAGE>

price cannot be below par value.  All options must be exercised no later than 10
years from the date of grant. Options to purchase 407,000 shares of Common Stock
were granted upon the  consummation of the Initial Public  Offering,  297,000 of
which are exercisable at $10.00 per share, and 110,000 of which were exercisable
at $11.00  per  share,  and  which  generally  vest 20% per year for five  years
beginning  on the  first  anniversary  of  consummation  of the  Initial  Public
Offering.

     Additional options to purchase Common Stock were granted as follows:

                           NUMBER OF          EXERCISE
        DATE                OPTIONS            PRICE
        ----                -------            -----
     Dec. 1996              10,000            $11.750
     Feb. 1997              10,000            $11.750
     July 1997              15,000            $10.125
     Oct. 1997             308,500             $6.000
     Dec. 1997             150,000             $5.625
     July 1998              10,000             $3.875

     Of the total number of options  which were  exercisable  as of December 31,
1999, 210,000 options have been forfeited in accordance with their terms.

     Pro forma disclosure  information has not been presented as all outstanding
options  are  expected  to  be  cancelled  in  conjunction  with  the  Company's
restructuring  process under Chapter 11 of the U.S. Bankruptcy Code (see Notes 1
and 7).

     7. LONG-TERM DEBT IN DEFAULT

     On December 20, 1996, the Company issued $140 million  principal  amount of
12-7/8% Senior Notes due December 15, 2004 (the "Senior Notes"). The proceeds of
the Senior  Notes were loaned to ITSA and  evidenced  by an  intercompany  note.
Interest is payable  semi-annually in arrears on June 15 and December 15 of each
year,  commencing  on June  15,  1997.  Of the  $140  million  loaned  to  ITSA,
approximately  $33.5  million was used to purchase U.S.  government  securities,
scheduled  interest and principal  payments on which was in an amount sufficient
to provide  for  payment in full when due of the first four  scheduled  interest
payments on the Senior Notes,  the last of which  occurred on December 15, 1998.
Until the third  quarter  of 1999,  debt  issuance  costs were  capitalized  and
amortized  over the period of the debt under the  effective  yield  method  (see
below).

     The Senior Notes are redeemable on or after December 15, 2000 at the option
of the Company,  in whole or in part from time to time, at specified  redemption
prices  declining  annually to 100% of the principal amount on or after December
15, 2003,  plus accrued  interest.  The Senior Notes contain  certain  covenants
that,  among other things,  limit the ability of the Company to incur additional
indebtedness  and pay  dividends or make  certain  other  distributions.  Upon a
change of control,  the  Company is  required  to make an offer to purchase  the
Senior Notes at a purchase price equal to 101% of the aggregate principal amount
thereof,  plus  accrued  and unpaid  interest,  if any. In  accordance  with the
covenants of the Senior Notes and the Company's  current  level of leverage,  at
December 31, 1999 it is unable to make any dividend payments.

     Under the provisions of the Senior Note indenture,  the Company is required
to make semi-annual interest payments on June 15 and December 15 of each year to
the  noteholders.  On June 15,  1999,  the Company  failed to make the  required
interest  payment,  and did not make the payment  within the  subsequent  30 day
grace period  allowable under the terms of the indenture,  which caused an event
of default to occur.  While the Company has reached an  agreement  in  principle
with a committee  representing  holders of the Senior Notes to restructure  this
obligation,  and a pre-arranged  plan implementing  such  restructuring has been
approved by the  bankruptcy  court (as  described in Note 1), the  restructuring
transaction  contemplated by the plan has not yet been effected.  As a result of
this event of default,  the Company has classified the Senior Note, as a current
liability in the  accompanying  balance  sheet.  The  agreement in principle was
reached in August 1999;  accordingly,  the Company  wrote off the deferred  debt
issuance cost of $3.3 million in the third quarter 1999.


                                       38
<PAGE>

     The Company  believes that the Senior Notes,  as of December 31, 1999, were
trading at approximately 20% of the principal value.

         8.  INCOME TAXES

         The reasons for the difference  between total tax expense (benefit) and
the amount  computed  by applying  the  effective  Brazilian  tax rate to income
before income taxes are as follows:

                                                 1997        1998        1999
                                                 ----        ----        ----
                                                      (IN THOUSANDS OF
                                                           DOLLARS)
Income taxes (benefit) at effective
      Brazilian rate........................   $(6,354)   $(13,273)   $(22,648)
Nondeductible compensation expense..........       215       1,651       3,876
Effect of change in tax rate................       103          --         667
Increase (decrease) in valuation allowance..     6,036      11,622      18,105
                                               -------    --------    --------
Tax expense (benefit).......................   $    --    $     --    $     --
                                               =======    =========   ========

     The Company has not  recognized  any future  income tax benefit for its net
operating loss  carryforwards in excess of net deferred tax liabilities as it is
not  assured  that it will be able to realize a benefit  for such  losses in the
future. The net operating loss carryforwards amounted to $66,921 and $114,527 at
December 31, 1998 and 1999,  respectively.  Under  Brazilian  law, net operating
losses may be carried  forward  for an  unlimited  period of time.  Use of these
losses, however, is restricted to 30% of taxable income in a tax period.

     Deferred  income taxes reflect the net tax effect of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. The approximate effect of
temporary differences as of December 31, 1998 and 1999 is as follows:

                                                            1998       1999
                                                            ----      ----
                                                           (IN THOUSANDS OF
                                                                DOLLARS)
Deferred tax assets
Net operating loss carryforwards......................... $21,414    $38,456
Deferred installation fees...............................   1,185        306
Other....................................................   2,912      2,558
                                                          -------    -------
                                                           25,511     41,316
Valuation allowance...................................... (18,838)   (36,943)
                                                          --------   -------
                                                          $ 6,673     $4,373
                                                          =======    =======


Fixed assets............................................. $ 6,673     $4,373
                                                          -------    -------
                                                          $ 6,673     $4,373
                                                          =======    =======

     9. TAX AND LABOR CONTINGENCIES

     The Company has several labor lawsuits and tax contingencies. The provision
for  contingencies  of $3,274,000  and $5,708,000 at December 31, 1998 and 1999,
respectively,  is  included  in  "Accrued  liabilities  and taxes  payable"  and
represents management's loss expectation for these contingencies.


                                       39
<PAGE>

     10. COMMITMENTS

     The Company leases office space  and vehicles, and has entered into various
transmission  tower rental  agreements.  Rent expense  amounted to approximately
$2,091,080,  $3,508,000  and  $2,527,000  for the years ended December 31, 1997,
1998 and 1999, respectively. A substantial number of these rental agreements are
renewed on a  continuous  basis.  The  Company  also has  entered  into  various
contracts to secure programming. These agreements are readjusted periodically.

     Lease commitments at December 31, 1999 are as follows:

2000...........................................................      1,555,000
2001...........................................................      1,525,000
2002...........................................................        450,000
2003...........................................................        447,000

     11. FOREIGN EXCHANGE CONTRACTS

     At  December  31, 1998 and 1999,  the Company had $24.1 and $28.0  million,
respectively,  of foreign exchange contracts.  The Company regularly enters into
such  contracts,  typically with a duration of six months or less. The contracts
held at December 31, 1999 expired in February 2000.  These  contracts  allow the
Company to receive in REAIS, at maturity,  the dollar equivalent of the contract
value  calculated  using the exchange rate as of the maturity date. At maturity,
the Company is required to pay the contract value plus interest calculated using
the interbank lending rate during the life of the contract.  Net contract gains,
if any, are subject to a 20% tax levied in Brazil. Realized gains and losses are
reported in "Interest and other expense."  Unrealized  losses as of December 31,
1999 totaled  $1,298,000  and have also been  recognized  in "Interest and other
expense."

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

     None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The  following  table sets forth  certain  information  with respect to the
persons who are members of the Board of Directors or are  executive  officers of
the Company as of March 23, 2000.

                 NAME                  AGE                POSITION
                 ----                  ---                --------
Hermano Studart Lins de Albuquerque    37    Chief Executive Officer,  Secretary
                                             and Director
Carlos Andre Studart Lins              35    President, Chief Operating Officer,
de Albuquerque                               acting Chief Financial Officer  and
                                             Director
Douglas M. Karp                        45    Managing  Director of E.M. Warburg,
                                             Pincus & Co. LLC
Gary D. Nusbaum                        33    Managing  Director of E.M. Warburg,
                                             Pincus & Co. LLC
Jose Augusto Pinto Moreira             56    President of Tevecap S.A.
Douglas Duran                          46    Chief  Financial Officer of Tevecap
                                             S.A.

     The business  experience of each of the directors and executive officers of
the Company during the last five years is as follows:


                                       40
<PAGE>

     HERMANO STUDART LINS DE ALBUQUERQUE, one of the co-founders of the Company,
has served as Chief Executive  Officer,  Secretary and a director of the Company
since its  incorporation.  Mr.  Lins  received a Master's  degree in  Artificial
Intelligence  from the  University of Sussex,  England and a Bachelor of Science
degree in Electronic Engineering from the University of Brasilia. Mr. Lins was a
member of the MMDS Regulation Commission,  a Brazilian government advisory board
and  is a  member  of  the  Technical  Advisory  Board  for  National  Satellite
Publishing  Inc.  Mr. Lins is the brother of Mr.  Carlos  Andre  Studart Lins de
Albuquerque.

     CARLOS ANDRE STUDART LINS DE  ALBUQUERQUE,  one of the  co-founders  of the
Company, has served as President,  Chief Operating Officer and a director of the
Company since its  incorporation and as the acting Chief Financial Officer since
October  1998.  Mr.  Lins  also  served as  Treasurer  of the  Company  from its
incorporation until July 1997. Mr. Lins received a Bachelor of Science degree in
Physics  from the  University  of Brasilia  and a Bachelor of Science  degree in
Mathematics  from the University of Ceub. Mr. Lins is the brother of Mr. Hermano
Studart Lins de Albuquerque.

     DOUGLAS M. KARP has served as Chairman  of the Board of the  Company  since
its incorporation.  Mr. Karp has been a General Partner of Warburg, Pincus & Co.
and a Member and Managing  Director of E.M.  Warburg,  Pincus & Co., LLC and its
predecessors  since May 1991. Prior to joining E.M. Warburg,  Pincus & Co., LLC,
Mr. Karp held several positions with Salomon Inc.,  including  Managing Director
from January 1990 to May 1991,  Director  from January 1989 to December 1989 and
Vice  President  from October 1986 to December  1988.  Mr. Karp is a director of
Journal Register Company, Qwest Communications International, Inc., Golden Books
Family  Entertainment,  Inc.,  Primus  Telecommunications  Group,  Incorporated,
Paging Network do Brasil S.A. and several privately held companies.

     GARY D.  NUSBAUM has served as a director  of the Company  since July 1998.
Mr. Nusbaum also served as a director of the Company from its  incorporation  to
March  1997 and as Vice  President  of the  Company  from its  incorporation  to
December 1996. Mr. Nusbaum has been a Managing Director of E.M. Warburg,  Pincus
& Co., LLC since  January  1997.  Mr.  Nusbaum was a Vice  President of Warburg,
Pincus Ventures,  Inc. from January 1995 to January 1997 and was an Associate at
Warburg, Pincus Ventures, Inc. from September 1989 to December 1994. Mr. Nusbaum
is a director of Journal  Register  Company,  Paging  Network do Brasil S.A. and
several privately held companies.

     JOSE AUGUSTO  PINTO  MOREIRA has served as a director of the Company  since
its incorporation. Mr. Moreira has been President of Tevecap S.A. since February
1999 and prior to that  served as the  Executive  Vice-President  of Finance and
Administration  of Abril S.A.  since 1982.  Mr. Moreira is a director of several
privately held companies.

     DOUGLAS  DURAN has served as a director of the Company  since  August 1998.
Mr. Duran has been the Chief  Financial  Officer of Tevecap S.A.  since 1994 and
served as TVA Related  Companies'  Director of Tevecap S.A. from October 1991 to
1994.  Prior to joining  Tevecap S.A.,  Mr. Duran was employed by Abril S.A. for
more than 20 years, most recently as its Treasury Director.

     The number of  directors  of the  Company,  as  determined  by the Board of
Directors is seven.  There is currently one open Board seat.  The Board consists
of three classes:  Class I, Class II and Class III, as nearly equal in number as
possible. One of the three classes,  comprising  approximately  one-third of the
directors,  is  elected  each year to  succeed  the  directors  whose  terms are
expiring.  Directors  hold office until the annual meeting for the year in which
their terms expire and until their successors are elected and qualified  unless,
prior to that date, they have resigned,  retired,  or otherwise left office.  In
accordance with the Company's  Certificate of  Incorporation,  Class I directors
are to be elected at the 2000 Annual Meeting of Stockholders, Class II directors
are to be elected at the 2001  Annual  Meeting  of  Stockholders,  and Class III
directors are to be elected at the 2002 Annual Meeting of Stockholders.


                                       41
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities  Exchange Act of 1934 (the "Exchange  Act")
requires the Company's directors, certain officers and persons holding more than
10% of a registered class of the Company's equity  securities to file reports of
ownership and reports of changes in ownership  with the  Securities and Exchange
Commission (the "Commission") and any exchange on which the Company's securities
are traded.  Directors,  certain  officers and greater than 10% stockholders are
also  required by Commission  regulations  to furnish the Company with copies of
all such reports that they file. Based on the Company's review of copies of such
forms  provided to it, the Company  believes that all filing  requirements  were
complied with during the fiscal year ended December 31, 1999.

ITEM 11.  EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

     The following  table sets forth  information  concerning  compensation  for
services in all capacities  awarded to, earned by, or paid to, any person acting
as the Company's Chief Executive  Officer during 1999,  regardless of the amount
of compensation paid, and the other most highly  compensated  executive officers
of the Company whose  aggregate cash and cash equivalent  compensation  exceeded
$100,000 (collectively, the "Named Executive Officers"):

<TABLE>
<CAPTION>
                                                                                 LONG-TERM
                                                                                COMPENSATION
                                            ANNUAL COMPENSATION                    AWARDS
                             -------------------------------------------------  -----------
                                                                   OTHER         SECURITIES     ALL OTHER
                                                                   ANNUAL        UNDERLYING    COMPENSATION
NAME AND POSITION            YEAR    SALARY ($)   BONUS ($)    COMPENSATION(1)    OPTIONS         ($)(2)
-----------------            ----    ----------   ---------    ---------------    -------         ------
<S>                          <C>     <C>          <C>             <C>             <C>             <C>
Hermano Studart
   Lins de Albuquerque,      1999    $203,000     $     --        $    --              --         $6,500
   Chief Executive Officer   1998     201,748      125,000        $    --              --          6,425
                             1997     143,750      150,000(3)          --         100,000          6,250


Carlos Andre Studart
   Lins de Albuquerque,      1999    $203,000           --             --              --          6,500
   President, Chief          1998     201,748      125,000             --              --          6,425
   Operating Officer and     1997     143,750      150,000(3)          --         100,000          6,250
   acting Chief Financial
   Officer
</TABLE>

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

(1)  No amounts  have been  reflected  in this  column  for any Named  Executive
     Officer  because the  aggregate  value of  perquisites  and other  personal
     benefits for each officer in the specified years was below the Commission's
     threshold for disclosure  (i.e.,  the lesser of $50,000 or 10% of the total
     of annual salary and bonus for such officer).

(2)  Represents Company paid life insurance premiums.

(3)  Includes  non-cash bonus payments made to each Named  Executive  Officer in
     the form of Common Stock in the amount of $25,000.



                                       42
<PAGE>

EMPLOYMENT AGREEMENTS

     The Company and ITSA have entered into  employment  agreements with each of
Messrs.  Hermano Lins and Carlos Andre Lins,  pursuant to which Mr. Hermano Lins
serves full time as Chief  Executive  Officer of the Company,  Mr.  Carlos Andre
Lins serves full time as President and Chief  Operating  Officer of the Company,
and each has agreed to serve in  comparable  executive  positions  at ITSA.  The
minimum  annual base salary under such  agreements  for each of Messrs.  Lins is
$125,000.  Such salaries are reviewed at least  annually by the Board and may be
increased but not decreased.  In addition,  each of Messrs.  Lins is eligible to
receive an annual  bonus,  payable by ITSA,  in amounts  determined by the Board
taking into  consideration,  among other  things,  the  financial  and operating
performance  of the  Company.  Pursuant  to each of  Messrs.  Lins's  employment
agreements,  if the Company terminates the executive's employment either without
"cause" (as defined  therein) or because of the death of the executive,  ITSA is
required to pay the executive any unpaid base salary accrued through the date of
termination,  plus an amount  equal to an  additional  12 months'  base  salary.
Although Brazilian law does not permit employment  agreements of this type to be
for a fixed term, each agreement does include a non-competition  provision and a
prohibition on the solicitation of clients and employees.

STOCK OPTIONS

STOCK OPTION PLAN

     In July 1998 the Board adopted, and in October 1998 the stockholders of the
Company approved,  the Amended and Restated Stock Option Plan which provides for
the grant to officers,  key  employees  and  consultants  of the Company of both
"incentive  stock  options",  within the meaning of Section 422 of the  Internal
Revenue Code of 1986, as amended,  and stock options that are  non-qualified for
U.S. federal income tax purposes. The total number of shares of Common Stock for
which  options may be granted  pursuant to the Stock  Option Plan is  1,736,432,
subject   to  certain   adjustments   reflecting   changes   in  the   Company's
capitalization.  In  addition,  no employee  may  receive  options for more than
200,000  shares of Common Stock in the  aggregate in any fiscal year.  The Stock
Option Plan is  administered by the  Compensation  Committee.  The  Compensation
Committee  determines,   among  other  things,  which  officers,  employees  and
consultants  receive  options under the plan, the time when options are granted,
the type of option (incentive stock options or non-qualified  stock options,  or
both) to be granted,  the number of shares  subject to each option,  the time or
times when the options become  exercisable,  and, subject to certain  conditions
discussed  below,  the option price and duration of the options.  Members of the
Company's  Compensation  Committee are not eligible to receive options under the
Stock Option Plan.

     The  exercise  price for  incentive  stock  options  is  determined  by the
Compensation  Committee,  but may not be less than the fair market  value on the
date of grant and the term of any such  option may not exceed ten years from the
date of grant. With respect to any participant in the Stock Option Plan who owns
stock representing more than 10% of the voting power of the outstanding  capital
stock of the Company,  the exercise price of any incentive  stock option may not
be less than 110% of the fair  market  value of such shares on the date of grant
and the term of such option may not exceed five years from the date of grant.

     The exercise  price of  non-qualified  stock  options is  determined by the
Compensation  Committee  on the date of grant,  but may not be less than the par
value of the Common Stock on the date of grant,  and the term of such option may
not exceed ten years from the date of grant.

     Payment  of the option  price may be made by  certified  or bank  cashier's
check,  by tender of shares of Common Stock then owned by the optionee or by any
other means  acceptable to the Company.  Options  granted  pursuant to the Stock
Option  Plan are not  transferrable,  except by will or the laws of descent  and
distribution in the event of death. During an optionee's  lifetime,  the options
are exerciseable only by the optionee.

     The  Board  has the  right at any  time  and from  time to time to amend or
modify the Stock Option Plan, without the consent of the Company's  stockholders
or  optionees;  provided  that no  such  action  may  adversely  affect  options
previously granted without the optionee's consent,  and provided further than no
such  action,  without the  approval of the  stockholders  of the  Company,  may
increase  the total  number of shares  of Common  Stock  which may be  purchased
pursuant to options granted under the plan, expand the class of persons eligible
to receive grants of options under the plan,  decrease the minimum option price,
extend the maximum term of options  granted under the plan or extend the term of
the plan. The expiration date of the Stock Option Plan after which no option may
be granted thereunder is 2006.


                                       43
<PAGE>

YEAR-END VALUE TABLE

     The following  table sets forth  information  regarding the number and year
end value of unexercised  options held at December 31, 1999 by each of the Named
Executive  Officers.  No options or stock appreciation  rights were exercised by
the Named Executive Officers during fiscal 1999.

                                        FISCAL 1999 OPTION VALUES

                             NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                            UNDERLYING UNEXERCISED        "IN-THE-MONEY" (1)
                               OPTIONS AT FISCAL          OPTIONS AT FISCAL
                                 YEAR-END (#)                YEAR-END ($)
NAME                       EXERCISABLE/UNEXERCISABLE  EXERCISABLE/UNEXERCISABLE
----                       -------------------------  -------------------------
Hermano Studart Lins
   de Albuquerque..........     64,000/146,000                $0/$0
Carlos Andre Studart Lins
   de Albuquerque..........     64,000/146,000                $0/$0

------------
(1)  Options  are  "in-the-money"  if the fair  market  value of the  underlying
     securities exceeds the exercise price of the options. The amounts set forth
     represent the difference between $0.375 per share, the fair market value of
     the Common Stock  issuable  upon  exercise of options at December 31, 1999,
     and the exercise price of the option,  multiplied by the applicable  number
     of options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     During 1999, the members of the Compensation  Committee were Messrs.  Karp,
Moreira and Nusbaum. Mr. Karp is the Chairman of the Board, a position which was
an officer  position of the Company until  December  1996, and Mr. Nusbaum was a
Vice President of the Company.  Messrs. Karp and Nusbaum are general partners of
Warburg,  Pincus & Co., a New York general  partnership ("WP") which is the sole
general partner of Warburg,  Pincus Investors,  L.P.  ("Warburg,  Pincus").  Mr.
Moreira is the Executive  Vice-President of Finance and  Administration of Abril
S.A.

COMPENSATION OF DIRECTORS

     Independent  directors are eligible to receive an annual fee of $10,000,  a
meeting fee of $1,000 for every  meeting of the Board of Directors  attended and
each  committee  meeting held  separately and a $500 fee for each meeting of the
Board and each committee meeting participated in by telephone. All directors are
reimbursed for out-of-pocket expenses.  Under the Stock Option Plan, the Company
may, from time to time and in the sole discretion of the Board, grant options to
directors who are not members of the Compensation Committee.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, as of March 23, 2000, by (i) each person known to
the Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers, and
(iv) all directors  and  executive  officers as a group.  All  information  with
respect  to  beneficial  ownership  has been  furnished  to the  Company  by the
respective stockholders of the Company.


                                       44
<PAGE>

                                              AMOUNT AND NATURE OF   PERCENTAGE
                                                   BENEFICIAL            OF
NAME AND ADDRESS (1)                               OWNERSHIP (2)       CLASS (2)
--------------------                          --------------------   -----------

Warburg, Pincus Investors, L.P.
   466 Lexington Avenue
   New York, New York 10017(3)................      4,937,008            45.6%
Tevecap S.A.
   Rua do Rocio, 313
   Suite 101
   Sao Paulo, Brazil..........................      1,500,455            13.9
Maria Nise Studart Lins de Albuquerque........      1,069,520             9.9
Hermano Studart Lins de Albuquerque(4)........        333,134             3.1
Carlos Andre Studart Lins de Albuquerque(4)...        333,134             3.1
Douglas M. Karp(5)............................      4,937,008            45.6
Jose Augusto Pinto Moreira(6).................      1,500,455            13.9
Douglas Duran (6).............................      1,500,455            13.9
Gary D. Nusbaum (5)...........................      4,937,008            45.6
All executive officers and directors
  as a group (6 persons)......................      7,103,731            65.4

----------------
(1)  Unless  otherwise  indicated above or in footnote 5 below,  the address for
     each    stockholder    identified    above   is   TV   Filme,    Inc.   c/o
     ITSA-Intercontinental   Telecomunicacoes  Ltda,  SCS  Quadra  07-Bl.A,  Ed.
     Executive Tower, Sala 601, 70.300-911 Brasilia-DF, Brazil.

(2)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Commission.  In  computing  the  number of shares  beneficially  owned by a
     person and the percentage ownership of that person,  shares of Common Stock
     subject to options and  warrants  held by that  person  that are  currently
     exercisable  or  exercisable  within 60 days of March 23,  2000 are  deemed
     outstanding.  Such  shares,  however,  are not deemed  outstanding  for the
     purposes of computing the percentage ownership of any other person.  Except
     as indicated in the footnotes to this table,  each stockholder named in the
     table has sole voting and  investment  power with respect to the shares set
     forth opposite such stockholder's name.

(3)  E.M.  Warburg,  Pincus & Co.,  LLC, a New York  limited  liability  company
     ("E.M. Warburg"),  manages Warburg, Pincus. WP, the sole general partner of
     Warburg,  Pincus,  has a 20%  interest in the  profits of Warburg,  Pincus.
     Lionel I. Pincus is the managing  partner of WP and the managing  member of
     E.M.  Warburg and may be deemed to control  both WP and E.M.  Warburg.  The
     members of E.M. Warburg are substantially the same as the partners of WP.

(4)  Includes the following number of shares of Common Stock which the executive
     officers have the right to acquire  through the exercise of options  within
     60 days of March 23, 2000: Mr. Hermano Lins,  64,000;  and Mr. Carlos Andre
     Lins, 64,000.

(5)  All of the shares indicated as owned by Messrs.  Karp and Nusbaum are owned
     directly by Warburg,  Pincus and are included because of their  affiliation
     with Warburg,  Pincus.  Mr. Karp, the Chairman of the Board of the Company,
     and Mr.  Nusbaum,  a Director of the Company,  are Managing  Directors  and
     Members of E.M. Warburg and General Partners of WP. As such,  Messrs.  Karp
     and Nusbaum may be deemed to have an indirect  pecuniary  interest,  within
     the  meaning of Rule 16a-1  under the  Exchange  Act,  in an  indeterminate
     portion of the shares of Common Stock beneficially owned by Warburg, Pincus
     and WP. Messrs. Karp and Nusbaum disclaim  "beneficial  ownership" of these
     shares within the meaning of Rule 13d-3 under the Exchange Act. The address
     of Messrs.  Karp and Nusbaum is c/o E.M.  Warburg,  Pincus & Co.,  LLC, 466
     Lexington Avenue, New York, New York 10017.

(6)  All of the shares indicated as owned by Mr. Moreira and Mr. Duran are owned
     directly  by Tevecap  and are  included  because of Mr.  Moreira's  and Mr.
     Duran's  respective  affiliations with Tevecap.  Messrs.  Moreira and Duran

                                       45
<PAGE>

     each disclaim "beneficial  ownership" of these shares within the meaning of
     Rule 13d-3 under the Exchange Act.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     From time to time during January 1994 to March 1996, Tevecap and certain of
its  affiliates  made  short-term  loans  to the  Company  for  working  capital
purposes.  During this period, the maximum amount  outstanding  pursuant to such
loans was  approximately  $6.4 million.  During April 1996, the Company  resumed
borrowing from Tevecap and its affiliates for working capital  purposes,  all of
which  borrowings were repaid with the proceeds of the Company's  initial public
offering with the exception of $200,000 which was due in February 1997 and 1998,
each of which has been repaid in full.

         In July 1994,  the Company,  Tevecap and certain other parties  thereto
entered  into  an  agreement   pursuant  to  which  Tevecap  agreed  to  provide
programming  exclusively  to the  Company  in certain  areas  (the  "Programming
Agreement").  In June 1996, the  Programming  Agreement was amended and restated
effective  August 2, 1996. In the years ended December 31, 1997,  1998 and 1999,
TVA  Sistema's  and  its  affiliates'   revenues  from  the  Company  aggregated
approximately $10.4 million, $10.6 million and $7.6 million, respectively.

         In late 1994,  TV Filme  Servicos  purchased  licenses  to operate  the
Company's  wireless  cable systems in Goiania and Belem from an affiliate of TVA
Sistema for a purchase price of $400,000 each. The Company  believes such prices
were below fair market value.  Such purchase prices were payable in equal annual
installments of $100,000 per license, due in February of each of the years 1995,
1996,  1997 and 1998. The final  installment was paid by the Company in February
1998.

         In connection with the Company's  initial public offering,  the Company
entered into the restructuring  (the  "Restructuring")  pursuant to which all of
the  preferred  stock of ITSA was  converted  into common stock of ITSA and each
share of common stock of ITSA was  exchanged for 1,844 shares of Common Stock of
the Company.  Pursuant to the  Restructuring,  (i) 51% of the voting stock of TV
Filme Servicos was  transferred to TVTEL Ltda., an entity all the stock of which
is owned by certain  stockholders  of the Company who are  Brazilian  nationals,
including  certain  directors  and  executive  offices  of the  Company  (namely
Tevecap,  Mrs. Maria Nise Lins,  Messrs.  Hermano Lins and Carlos Andre Lins and
Ms. Maria Veronica Lins), with ITSA retaining 49% of the voting stock and 83% of
the economic  interests in TV Filme Servicos;  (ii) the operating  assets of the
wireless cable systems of Brasilia were transferred from TV Filme Servicos to TV
Filme Brasilia; and (iii) TV Filme Servicos entered into various agreements with
ITSA and its  subsidiaries  pursuant  to which,  among  other  things,  TV Filme
Servicos has  authorized  ITSA to operate the existing  wireless  cable  systems
under its current  licenses.  The Company has a representative  on the executive
management  team of TV Filme Servicos and any sale or transfer of any current or
future  license  held by TV Filme  Servicos is  prohibited.  ITSA  entered  into
various agreements with TV Filme Servicos which authorize ITSA's subsidiaries to
operate the existing  wireless cable systems under its current  licenses and all
other pay  television  systems under future  licenses.  As of November 1997, the
licenses to operate the existing  wireless cable system were transferred from TV
Filme Servicos to the respective operating companies, TV Filme Brasilia Servicos
de   Telecomunicacoes   Ltda.,   TV   Filme   Goiania   Brasilia   Servicos   de
Telecomunicacoes  Ltda and TV Filme Belem Brasilia Servicos de  Telecomunicacoes
Ltda.

         The Company believes that the above  transactions  were or are on terms
no less  favorable to the Company than could have been obtained in  transactions
with independent third parties.  All future transactions between the Company and
its officers, directors,  principal stockholders or their respective affiliates,
will be on terms no less  favorable  to the Company  than can be  obtained  from
unaffiliated third parties.

                                     PART IV


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

(A)      1.   FINANCIAL STATEMENTS.

         The  financial  statements  are  included  in Part II,  Item 8. of this
         Report.


                                       46
<PAGE>


         2.    FINANCIAL  STATEMENT  SCHEDULES  AND  SUPPLEMENTARY   INFORMATION
               REQUIRED TO BE SUBMITTED.

         All schedules have been omitted  because they are  inapplicable  or the
         required information is shown in the consolidated  financial statements
         or notes.

(B)      REPORTS ON FORM 8-K.

         No Current  Reports on Form 8-K were  filed by the  Company  during the
         fourth quarter of 1999.

(C)      INDEX TO EXHIBITS.

         The following is a list of all Exhibits filed as part of this Report:

EXHIBIT
 NUMBER                               DESCRIPTION OF DOCUMENT

**2.1         First Amended  Disclosure  Statement relating to the First Amended
              Plan of Reorganization,  dated February 29, 2000,  approved by the
              U.S.  Bankruptcy  Court for the  District  of Delaware on March 1,
              2000.
**2.2         First  Amended  Plan of  Reorganization  under  Chapter  11 of the
              Bankruptcy Code, dated February 29, 2000.
*3.1(i)       Certificate of Incorporation of TV Filme  (incorporated  herein by
              reference to Exhibit 3.1 to TV Filme's  Registration  Statement on
              Form S-1,  dated  May 3,  1996,  Registration  No.  333-4512  ("TV
              Filme's S-1")).
*3.1(ii)      Amended and Restated By-Laws of TV Filme  (incorporated  herein by
              reference  to  Exhibit  3.1(ii)  to TV  Filme's  Form 10-Q for the
              fiscal quarter ended June 30, 1997, File No. 0-28670).
*4.1          Indenture, dated as of December 20, 1996, between TV Filme and IBJ
              Schroder Bank & Trust Company,  as Trustee  (including the form of
              the Senior Notes) (incorporated herein by reference to Exhibit 4.1
              to TV Filme's  Registration  Statement on Form S-4, dated February
              4, 1997, Registration No. 333-21057 ("TV Filme's S-4")).
*4.2          Registration Rights Agreement, dated December 20, 1996, between TV
              Filme and Bear,  Stearns & Co. Inc.,  BT  Securities  Corporation,
              J.P. Morgan  Securities Inc. and Alex.  Brown & Sons  Incorporated
              (incorporated  herein by  reference  to Exhibit  4.2 to TV Filme's
              S-4).
*4.3          Purchase Agreement,  dated December 16, 1996, between TV Filme and
              Bear, Stearns & Co. Inc., BT Securities  Corporation,  J.P. Morgan
              Securities  Inc.  and  Alex.  Brown  & Sons  Incorporated,  as the
              Initial  Purchasers  (incorporated  herein by reference to Exhibit
              4.3 to TV Filme's S-4).
*4.4          Note,  dated December 20, 1996, of ITSA to TV Filme  (incorporated
              herein by reference to Exhibit 4.4 to TV Filme's S-4).
*4.5          Note Pledge Agreement,  dated as of December 20, 1996,  between TV
              Filme and IBJ Schroder Bank & Trust Company,  as Collateral  Agent
              (incorporated  herein by  reference  to Exhibit  4.5 to TV Filme's
              S-4).
*4.6          Collateral Pledge and Security Agreement, dated as of December 20,
              1996,  among ITSA, TV Filme and IBJ Schroder Bank & Trust Company,
              as Collateral Agent  (incorporated  herein by reference to Exhibit
              4.6 to TV Filme's S-4).
*4.7          Subsidiary  Guarantee,  dated as of December 20, 1996,  made by TV
              Filme Brasilia Servicos de Telecomunicacoes  (incorporated  herein
              by reference to Exhibit 4.7 to TV Filme's S-4).
*4.8          Subsidiary  Guarantee,  dated as of December 20, 1996,  made by TV
              Filme Belem Servicos de Telecomunicacoes  (incorporated  herein by
              reference to Exhibit 4.8 to TV Filme's S-4).
*4.9          Subsidiary  Guarantee,  dated as of December 20, 1996,  made by TV
              Filme Goiania Servicos de Telecomunicacoes (incorporated herein by
              reference to Exhibit 4.9 to TV Filme's S-4).  Amended and Restated
              Stock  Option Plan  (incorporated  herein by  reference to Exhibit
              10.1 to TV
*10.1         Filme's Annual Report on Form 10-K for the year ended December.31,
              1998).+
*10.2         Form of Stock Option Agreement  (incorporated  herein by reference
              to Exhibit 10.2 to TV Filme's S-1).+


                                       47
<PAGE>

EXHIBIT
 NUMBER                               DESCRIPTION OF DOCUMENT

*10.3         Stockholders Agreement, dated as of July 26, 1996, entered into by
              and among Warburg,  Pincus,  Tevecap, Mrs. Maria Nise Studart Lins
              de  Albuquerque,  Mr.  Hermano  Studart Lins de  Albuquerque,  Mr.
              Carlos Andre Studart Lins de  Albuquerque  and Ms. Maria  Veronica
              Studart Lins de Albuquerque  (incorporated  herein by reference to
              Exhibit 10.3 to TV Filme's S-4).
*10.4         Registration Rights Agreement,  dated as of July 26, 1996, entered
              into by and  among  Warburg,  Pincus,  Tevecap,  Mrs.  Maria  Nise
              Studart  Lins  de   Albuquerque,   Mr.  Hermano  Studart  Lins  de
              Albuquerque,  Mr.  Carlos Andre Studart Lins de  Albuquerque,  Ms.
              Maria Veronica Studart Lins de Albuquerque, Joseph Wallach, Donald
              Deely  Pearson and TV Filme  (incorporated  herein by reference to
              Exhibit 10.4 to TV Filme's S-4).
*10.5         Employment  Agreement,  dated as of July 26, 1996, entered into by
              and  among  TV  Filme,  ITSA  and  Mr.  Hermano  Studart  Lins  de
              Albuquerque  (incorporated  herein by reference to Exhibit 10.5 to
              TV Filme's S-4).+
*10.6         Employment  Agreement,  dated as of July 26, 1996, entered into by
              and among TV Filme,  ITSA and Mr.  Carlos  Andre  Studart  Lins de
              Albuquerque  (incorporated  herein by reference to Exhibit 10.6 to
              TV Filme's S-4).+
*10.7         Programming License Agreement,  dated as of June 27, 1996, entered
              into by and between TV Filme and Tevecap  (incorporated  herein by
              reference to Exhibit 10.12 to TV Filme's S-4).
*10.8         Master  Operating  Agreement,  dated as of July 26, 1996,  entered
              into  by  and  among  TV  Filme,   ITSA  and  TV  Filme   Servicos
              (incorporated  herein by reference to Exhibit  10.13 to TV Filme's
              S-4).
*10.9         Articles of Association of TV Filme Servicos  (incorporated herein
              by reference to Exhibit 10.14 to TV Filme's S-4).
*10.10        Form  of  Indemnification  Agreement  between  TV  Filme  and  the
              directors and officers  parties  thereto  (incorporated  herein by
              reference to Exhibit 10.12 to TV Filme's S-1).+
**10.11       Restructuring  Agreement,  dated  January 24, 2000 by and among TV
              Filme, Inc. and Specified Holders (included as Exhibit B to the to
              the  First  Amended  Plan of  Reorganization  attached  hereto  as
              Exhibit 2.2).
**21          List of Subsidiaries of TV Filme.
**23.1        Consent of Ernst & Young Auditores Independentes S.C., independent
              auditors.
**24          Powers of Attorney (Appears on signature page).
**27.1        Financial Data Schedule.


--------------
 +  Management contract or compensatory plan or arrangement.
 *  Incorporated herein by reference.
**  Filed herewith.



                                       48
<PAGE>


                                   SIGNATURES

    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  in the City of New
York, State of New York, on the 14th day of April, 2000.

                                  TV FILME, INC.


                                  By: /s/ Hermano Studart Lins de Albuquerque
                                     -------------------------------------------
                                     Hermano Studart Lins de Albuquerque
                                     Chief Executive Officer

         KNOWN BY ALL MEN BY THESE  PRESENTS,  that each person whose  signature
appears below  constitutes and appoints  Hermano Studart Lins de Albuquerque and
Carlos Andre Studart Lins de  Albuquerque  his true and lawful  attorney-in-fact
and agent,  with full power of substitution and  resubstitution,  for him and in
his  name,  place  and  stead,  in any and all  capacities,  to sign any and all
amendments  to this Annual Report on Form 10-K,  and to file the same,  with all
exhibits  thereto  and  other  documents  in  connection  therewith,   with  the
Securities  and Exchange  Commission,  granting unto said  attorney-in-fact  and
agent,  full power and  authority to do and perform each and every act and thing
requisite  and  necessary to be done in and about the  premises,  as fully as he
might or could do in  person,  hereby  ratifying  and  confirming  all that said
attorney-in-fact  and  agent or  their or his  substitutes  or  substitute,  may
lawfully do or cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on the 17th day of April, 2000.

            SIGNATURE                                        TITLE(S)
            ---------                                        --------
 /s/ Hermano Studart Lins de Albuquerque     Chief Executive Officer,
----------------------------------           Secretary and Director
Hermano Studart Lins de Albuquerque          (Principal Executive Officer)


/s/ Carlos Andre Studart Lins de Albuquerque President, Chief Operating Officer,
----------------------------------           acting Chief Financial Officer
Carlos Andre Studart Lins de Albuquerque     (Principal Financial and Accounting
                                             Officer) and Director

/s/ Douglas M. Karp
----------------------------------           Chairman and Director
Douglas M. Karp

/s/ Jose Augusto Pinto Moreira
----------------------------------           Director
Jose Augusto Pinto Moreira

/s/ Douglas Duran
----------------------------------           Director
Douglas Duran

/s/ Gary D. Nusbaum
----------------------------------           Director
Gary D. Nusbaum



                                       49
<PAGE>


EXHIBIT
NUMBER                 DESCRIPTION OF DOCUMENT

**2.1    First  Amended  Disclosure  Statement  relating to the
         First Amended Plan of  Reorganization,  dated February
         29, 2000,  approved by the U.S.  Bankruptcy  Court for
         the District of Delaware on March 1, 2000.
**2.2    First Amended Plan of Reorganization  under Chapter 11
         of the Bankruptcy Code, dated February 29, 2000.
*3.1(i)  Certificate of Incorporation of TV Filme (incorporated
         herein  by  reference  to  Exhibit  3.1 to TV  Filme's
         Registration Statement on Form S-1, dated May 3, 1996,
         Registration No. 333-4512 ("TV Filme's S-1")).
*3.1(ii) Amended and Restated By-Laws of TV Filme (incorporated
         herein by reference  to Exhibit  3.1(ii) to TV Filme's
         Form 10-Q for the fiscal  quarter ended June 30, 1997,
         File No. 0-28670).
*4.1     Indenture,  dated as of December 20, 1996,  between TV
         Filme  and  IBJ  Schroder  Bank &  Trust  Company,  as
         Trustee  (including  the  form  of the  Senior  Notes)
         (incorporated herein by reference to Exhibit 4.1 to TV
         Filme's  Registration  Statement  on Form  S-4,  dated
         February  4, 1997,  Registration  No.  333-21057  ("TV
         Filme's S-4")).
*4.2     Registration  Rights  Agreement,  dated  December  20,
         1996,  between TV Filme and Bear,  Stearns & Co. Inc.,
         BT Securities Corporation, J.P. Morgan Securities Inc.
         and  Alex.  Brown  & Sons  Incorporated  (incorporated
         herein by reference to Exhibit 4.2 to TV Filme's S-4).
*4.3     Purchase  Agreement,  dated December 16, 1996, between
         TV Filme and Bear,  Stearns & Co. Inc.,  BT Securities
         Corporation,  J.P.  Morgan  Securities  Inc. and Alex.
         Brown & Sons  Incorporated,  as the Initial  Purchaser
         (incorporated herein by reference to Exhibit 4.3 to TV
         Filme's S-4).
*4.4     Note,  dated  December 20,  1996,  of ITSA to TV Filme
         (incorporated herein by reference to Exhibit 4.4 to TV
         Filme's S-4).
*4.5     Note Pledge Agreement,  dated as of December 20, 1996,
         between  TV  Filme  and  IBJ  Schroder  Bank  &  Trust
         Company, as Collateral Agent  (incorporated  herein by
         reference to Exhibit 4.5 to TV Filme's S-4).
*4.6     Collateral Pledge and Security Agreement,  dated as of
         December  20,  1996,  among  ITSA,  TV  Filme  and IBJ
         Schroder Bank & Trust  Company,  as  Collateral  Agent
         (incorporated herein by reference to Exhibit 4.6 to TV
         Filme's S-4).
*4.7     Subsidiary  Guarantee,  dated as of December 20, 1996,
         made by TV Filme Brasilia Servicos de Telecomunicacoes
         (incorporated herein by reference to Exhibit 4.7 to TV
         Filme's S-4).
*4.8     Subsidiary  Guarantee,  dated as of December 20, 1996,
         made by TV Filme Belem  Servicos  de  Telecomunicacoes
         (incorporated herein by reference to Exhibit 4.8 to TV
         Filme's S-4).
*4.9     Subsidiary  Guarantee,  dated as of December 20, 1996,
         made by TV Filme Goiania Servicos de  Telecomunicacoes
         (incorporated herein by reference to Exhibit 4.9 to TV
         Filme's S-4).
*10.1    Amended and Restated  Stock Option Plan  (incorporated
         herein by  reference  to  Exhibit  10.1 to TV  Filme's
         Annual   Report  on  Form  10-K  for  the  year  ended
         December.31, 1998).+
*10.2    Form of Stock Option Agreement (incorporated herein by
         reference to Exhibit 10.2 to TV Filme's Form S-1).+


                                       50
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION OF DOCUMENT

*10.3    Stockholders  Agreement,  dated as of July  26,  1996,
         entered into by and among  Warburg,  Pincus,  Tevecap,
         Mrs.  Maria  Nise  Studart  Lins de  Albuquerque,  Mr.
         Hermano Studart Lins de Albuquerque,  Mr. Carlos Andre
         Studart Lins de  Albuquerque  and Ms.  Maria  Veronica
         Studart Lins de  Albuquerque  (incorporated  herein by
         reference to Exhibit 10.3 to TV Filme's S-4).
*10.4    Registration  Rights  Agreement,  dated as of July 26,
         1996,  entered  into  by and  among  Warburg,  Pincus,
         Tevecap,  Mrs. Maria Nise Studart Lins de Albuquerque,
         Mr. Hermano  Studart Lins de  Albuquerque,  Mr. Carlos
         Andre Studart Lins de Albuquerque,  Ms. Maria Veronica
         Studart Lins de Albuquerque,  Joseph  Wallach,  Donald
         Deely  Pearson  and TV Filme  (incorporated  herein by
         reference to Exhibit 10.4 to TV Filme's S-4).
*10.5    Employment  Agreement,  dated  as of  July  26,  1996,
         entered  into by and  among  TV  Filme,  ITSA  and Mr.
         Hermano  Studart  Lins  de  Albuquerque  (incorporated
         herein by  reference  to  Exhibit  10.5 to TV  Filme's
         S-4).+
*10.6    Employment  Agreement,  dated  as of  July  26,  1996,
         entered  into by and  among  TV  Filme,  ITSA  and Mr.
         Carlos Andre Studart Lins de Albuquerque (incorporated
         herein by  reference  to  Exhibit  10.6 to TV  Filme's
         S-4).+
*10.7    Programming  License  Agreement,  dated as of June 27,
         1996, entered into by and between TV Filme and Tevecap
         (incorporated  herein by reference to Exhibit 10.12 to
         TV Filme's S-4).
*10.8    Master Operating Agreement, dated as of July 26, 1996,
         entered into by and among TV Filme,  ITSA and TV Filme
         Servicos  (incorporated herein by reference to Exhibit
         10.13 to TV Filme's S-4).
*10.9    Articles   of   Association   of  TV  Filme   Servicos
         (incorporated  herein by reference to Exhibit 10.14 to
         TV Filme's S-4).
*10.10   Form of Indemnification Agreement between TV Filme and
         the   directors   and   officers    parties    thereto
         (incorporated  herein by reference to Exhibit 10.12 to
         TV Filme's S-1).+
**10.11  Restructuring Agreement, dated January 24, 2000 by and
         among TV Filme,  Inc. and Specified  Holders (included
         as  Exhibit  B to the to the  First  Amended  Plan  of
         Reorganization attached hereto as Exhibit 2.2).
**21     List of Subsidiaries of TV Filme.
**23.1   Consent of Ernst & Young Auditores Independentes S.C.,
         independent auditors.
**24     Powers of Attorney (Appears on signature page).
**27.1   Financial Data Schedule.

--------------
 +  Management contract or compensatory plan or arrangement.
 *  Incorporated herein by reference.
**  Filed herewith.


                                       51