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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, 1998

                 |_| 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 OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
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].

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant as of March 12, 1999 was approximately $662,972.

     As of March 12, 1999,  10,825,139 shares of the registrant's  Common Stock,
$0.01 par value, were outstanding.

     DOCUMENTS INCORPORATED BY REFERENCE.  None.

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<PAGE>

                                TABLE OF CONTENTS
PART I
------
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

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.........  26
Item 8.  Financial Statements and Supplementary Data........................  27
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure...............................................  27

PART III

Item 10. Directors and Executive Officers of the Registrant.................  40
Item 11. Executive Compensation.............................................  41
Item 12. Security Ownership of Certain Beneficial Owners and Management.....  44
Item 13. Certain Relationships and Related Transactions.....................  46

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...  47




                                       i
<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 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 one
of the country's largest pay television  programming  distributors;  and certain
members of management and their family.


<PAGE>

COMPANY OVERVIEW

         The Company  develops,  owns and  operates  pay  television  systems in
markets  in  Brazil.   The  Company  is  the  sole   provider  of   multi-point,
multi-channel  distribution systems ("MMDS") in the cities of Brasilia,  Goiania
and Belem.  Together,  these cities have a total population of approximately 5.8
million and encompass  approximately  1.3 million  households,  an estimated 1.1
million  of  which  can  be  served  by  the  Company's   line-of-sight  ("LOS")
transmission.  There is only one hardwire cable provider in each of Brasilia and
Goiania  and no hardwire  cable  provider in Belem.  However,  a hardwire  cable
license has been issued to a  competitor  in Belem.  The  Company  expects  this
competitor   to  commence   service  in  the  third  quarter  of  1999.  Of  the
approximately 1.3 million households in Brasilia, Goiania and Belem, the Company
estimates that  approximately  60% of such households are currently  unpassed by
hardwire cable. The Company has a subscriber base of approximately  78,000 as of
December 31, 1998.  Through a bidding process  reinstated in July 1998 following
significant delays resulting from legal challenges to such process,  the Company
has been  awarded  licenses  to operate  MMDS in the  following  seven small and
medium markets: Bauru, Campina Grande, Caruaru, Franca, Porto Velho, Uberaba and
Presidente Prudente,  which markets encompass,  in the aggregate,  approximately
490,000  households.  Currently,  Bauru,  Franca and  Presidente  Prudente  have
operating hardwire cable competitors. The Company has paid U.S. $5.0 million for
the seven new licenses. The Company has no outstanding  applications pending for
any  additional  markets.  The proposal  process for some of the larger  markets
commenced on March 10, 1999. The Company is currently evaluating whether it will
participate  in these  auctions  given  its  current  financial  situation,  the
competitive  environment in each auctioned market and the state of the Brazilian
economy.  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 become the leading provider of pay television services in those markets.  The
Company  believes that the markets in Brazil which it is targeting are currently
under penetrated by existing pay television providers.

         The Company  believes that wireless cable  technology is well suited to
its current and potential  target  markets and is an attractive  alternative  to
existing television choices. Wireless cable service can be deployed more rapidly
than most  alternative  technologies and provides  immediate  coverage of entire
markets,  enabling service to be delivered to all potential subscribers that are
in the unobstructed path of the transmission  tower.  Wireless cable service can
be  deployed  at  a  significantly  lower  system  capital  cost  per  installed
subscriber  than hardwire cable because (i) typically the headend for a wireless
cable system has a relatively low cost, (ii) capital  expenditures  for wireless
cable  systems  are generally  only  required  at the  headend  facility  and in
connection  with  installation  of  subscriber  reception  equipment  and  (iii)
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 services in Brazil are concerned with such features as
programming, service, reliability and price and are generally indifferent to the
method of delivery.

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


                                       2
<PAGE>

hardwire  cable   industry  and  wireless   cable   industry  began   developing
concurrently.  By December 31, 1998,  approximately  185 hardwire cable licenses
and 48 wireless cable licenses had been issued by the Brazilian government.  The
Company believes that as of December 31, 1998, fewer than 25% 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  34  million
television households. As of December 31, 1998, the Company estimates that there
were  approximately  2.6  million  pay  television   subscribers,   representing
approximately 7.6% 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.


OPERATING SYSTEMS AND THE COMPANY'S MARKETS

         The table below provides information regarding the Company's markets as
of December 31, 1998:
<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.........................      2,060,000              486,000              430,000           37         Feb. 1994(4)
Belem............................      1,950,000              408,000              354,000           36         Feb. 1995
Goiania..........................      1,840,000              454,000              338,000           36         Jan. 1995
                                   ------------------  --------------------- ------------------
Total in Operating Markets.......      5,850,000            1,348,000            1,122,000
                                   ==================  ===================== ==================
New Markets (5)..................      2,150,000              490,000              460,000
                                   ==================  ===================== ==================
</TABLE>
-----------

(1)      Represents the Company's estimate of the total population and the total
         number of households within the greater  metropolitan  areas of each of
         its markets.  The Company's  estimates for Brasilia,  Goiania and Belem
         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 new markets are
         based on data provided  by Brazil's Telecommunications National  Agency
         during the bidding process.

                                       3
<PAGE>

(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 and Belem 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 seven markets for  which the Company has currently 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,
1998.  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 430,000 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 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, 1998, 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, 1998, 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


                                       4
<PAGE>

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 354,000 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.  In 1998,  the Belem System
began offering the People and Art/Travel  Channel to its subscribers.  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.  Although
there  currently is no hardwire or other  wireless cable provider in the city of
Belem, a  hardware  cable  license  has been  issued.  The  Company  expects the
competitor to commence service in the third quarter of 1999.

         GOIANIA SYSTEM.  Goiania, with an estimated metropolitan  population of
approximately 1.8 million as of December 31, 1998, 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
338,000 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 which have not yet been placed in service. 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, 1998, it was the second
largest pay television provider in Goiania based on total number of subscribers.


NEW MARKETS

         The Company has been  awarded  licenses to operate  MMDS systems in the
following seven markets:  Bauru, Campina Grande,  Caruaru,  Franca, Porto Velho,
Uberaba and Presidente  Prudente.  The Company  believes that, in the aggregate,
these  markets  collectively  encompass  a  total  population  of  approximately
2,150,000,  total  households  of  approximately  490,000 and LOS  households of
approximately  460,000.  Bauru,  Franca and  Presidente  Prudente have operating
hardwire  cable  competitors.  Under the terms of the  licenses  awarded  to the
Company for its seven 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.


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 an exclusive license to transmit  programming  available
from  Tevecap  and its  subsidiaries  via  wireless  and  hardwire  cable in the


                                       5
<PAGE>

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. The
Company also has certain rights with respect to marketing  satellite  television
services in the Company's current operating markets.

         The Company also offers  selected  local  programming to supplement its
channel line-up.  For example,  the Company owns the rights to televise annually
through  2001 all of the games of the Goias State Soccer  Championship  matches,
and the rights to televise  annually  through  1999 all 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.  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, 1998 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 broad-
                                   cast channel from Portugal
CNN International...............   International version of CNN
TNT.............................   Brazilian version of TNT


                                       6
<PAGE>

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.
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)

*      Offered only in Brasilia.
**     Offered only in Belem and Goiania.
***    Offered only in Belem.
****   Offered as a premium channel.

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 intends to offer
Internet  access  service  to  non-pay-TV  subscribers,   both  residential  and
corporate,  and may also offer this  service in Goiania and Belem,  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


                                       7
<PAGE>

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.  The Company  believes
that this approach will enable 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.

         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. In February 1999,
the Company decided to charge, in all of its operations, a standard installation
fee of approximately $60.

         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.

         In the  fourth  quarter of 1998,  the  Company  decided  to  centralize
various  activities  in  a  single  service  center  in  Brasilia.   Along  with
centralizing its 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 is expected to
be  completed  in April 1999 and the Company  believes  that this  project  will
further improve and enhance 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,  1998,  the  Company had a total of 755  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


                                       8
<PAGE>

subject  to  collective   bargaining   agreements.   The  collective  bargaining
agreements  covering  the  employees of TV Filme  Brasilia and TV Filme  Goiania
expire June 30, 1999.  The collective  bargaining  agreements are with the Union
for the Employees of Radio and TV Broadcasting Companies.  Employees of TV Filme
Belem 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 employees in Belem. 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 Brasilia,
Goiania and Belem 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 is expected to be 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 in Brasilia,  Goiania and Belem. 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.


COMPETITION

         Through its  subsidiaries,  the Company is the only entity  licensed to
operate wireless cable systems in each of its 10 licensed  markets.  The Company


                                       9
<PAGE>

currently provides service via 24 wireless analog cable channels in Brasilia and
Goiania and via 25 wireless analog cable channels in Belem, and has authority to
provide  service  using up to 31  wireless  analog  cable  channels in each such
market.  The Company  believes that, as of December 31, 1998, 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, 1998, 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. There currently is no hardwire
cable  provider in the city of Belem; however, a hardwire cable license has been
awarded and the Company  expects  competition  to begin in the third  quarter of
1999.

         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, an affiliate of Tevecap, 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


                                       10
<PAGE>

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 seven new
markets are held by TV 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.



                                       11
<PAGE>

         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  proposal for its MMDS system's headend.  Subsequent to approval of
such  proposal,   construction  is  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.

         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


                                       12
<PAGE>

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 and Belem System  consisting
of approximately 29,000 and 22,000 square feet, respectively.  Also, the Company
leases  approximately  16,000  square  feet of  office  space  and  space  for a
transmission tower in Campina Grande, one of the Company's seven new markets. 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 and Belem.  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.

         The Company is from time to time involved in  litigation  incidental to
the conduct of its business.  There is no pending legal  proceeding to which the
Company is a party  which,  in the opinion of the  Company,  is likely to have a
material  adverse  effect on the  Company's  results of  operations or financial
condition.

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

         The Company held its Annual Meeting of Stockholders on October 1, 1998.
Proposals  presented for a stockholder vote were (i) the election of three Class
II Directors,  (ii) the approval of an amendment to the  Company's  Stock Option
Plan, and (iii) the  ratification  of the appointment of Ernst & Young Auditores
Independentes S.C. as independent auditors for the Company for fiscal year 1998.

         Each of the incumbent Class II directors  nominated by the Company were
elected with the following voting results:


                                       13
<PAGE>

<TABLE>

<S>                                                          <C>                     <C>                <C>
                                                                Votes                 Votes               Votes
                                                                 For                 Against            Withheld
                                                                -----                -------            --------
Carlos Andre Studart Lins de Albuquerque.............         9,813,329               4,185               4,185
Douglas M. Karp......................................         9,813,329               4,185               4,185
Douglas Duran........................................         9,813,329               4,185               4,185
</TABLE>


          The  amendment to the Company  Stock Option Plan was approved with the
following voting results:
<TABLE>
<CAPTION>

                 
                 Votes                                   Votes
                 Cast                                    Cast
                  For                                   Against                              Abstentions
                 -----                                  -------                              -----------
<S>            <C>                                      <C>                                     <C>  
               8,535,404                                245,624                                 2,800
</TABLE>


          The appointment of Ernst & Young Auditores  Independentes  S.C. as the
Company's  independent  auditors  for  fiscal  year 1998 was  approved  with the
following voting results:

<TABLE>
<CAPTION>
            Votes                          Votes
             Cast                          Cast                                                     Broker
             For                          Against                    Abstentions                   Non-votes
            -----                         -------                    -----------                   ---------
<S>       <C>                               <C>                         <C>                         <C>   
          9,815,214                         500                         1,800                         --
</TABLE>


                                     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 Nasdaq, for the periods indicated:

                                       14
<PAGE>

<TABLE>
                                                                      HIGH          LOW
                                                                     ------        -----
                                                                         (Per Share)
1998
<S>                                                                 <C>         <C>  
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   
                                                                                          
1997                                                                                      
Fourth Quarter..................................................    $ 8-3/8     $ 4      
Third Quarter ..................................................     10-3/4       7-3/4 
Second Quarter..................................................     12-3/4       8-3/8 
First Quarter ..................................................     14-1/4      11     
</TABLE>                                                            

         On March 12, 1999, there were approximately 13 stockholders of record
of the  Common  Stock.  The  Company  believes  that  it has  in  excess  of 500
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").

         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, 1996,
1997 and 1998 and the selected  consolidated  statement of  operations  data for
each of the years ended December 31, 1994, 1995, 1996, 1997 and 1998 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


                                       15
<PAGE>

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.


<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,(1)
                                                     ----------------------------------------------------------------------------
                                                                1994         1995         1996        1997           1998
                                                                ----         ----         ----        ----           ----
                                                                                (DOLLARS IN THOUSANDS, EXCEPT
                                                                                   OTHER OPERATING DATA)
<S>                                                          <C>          <C>          <C>           <C>        <C>       
STATEMENT OF OPERATIONS DATA:
Revenues .................................................   $   2,438    $  11,404    $  31,388     $ 50,547   $   45,408
Operating costs and expenses:
   System operating ......................................         773        2,957        9,593       17,631       19,617
   Selling, general and administrative ...................       2,394        8,975       16,737       27,965       31,637
   Depreciation and amortization .........................         365        2,049        5,921       12,162       21,651
                                                             ---------   ----------    ---------    ---------    ----------
      Total operating costs and expenses .................       3,532       13,981       32,251       57,758       72,905
                                                             ---------    ---------    ---------    ---------    ----------
Operating loss ...........................................      (1,094)      (2,577)        (863)      (7,211)     (27,497)
Other income (expense) ...................................       1,612          360       (1,147)     (12,045)     (12,723)
                                                              --------    ---------    ---------    ---------    ----------
Net income (loss) ........................................   $     518    $  (2,217)   $  (2,010)   $ (19,256)   $ (40,220)
                                                             =========    =========    =========    =========    ==========
Net income (loss) per share (2) ..........................   $    0.08    $   (0.27)   $   (0.22)   $   (1.76)   $   (3.72)   
                                                             =========    =========    =========    =========    ==========
Weighted average number of common stock and common
   stock equivalents (2) .................................       6,885        8,086        9,256       10,940       10,825
                                                             =========    =========    =========    ==========   ==========
                                                                                                                                  

OTHER FINANCIAL DATA:
EBITDA(3) ................................................   $    (729)   $   (216)    $   5,330    $   5,026      $(5,846)
Capital expenditures .....................................       3,637       16,621       25,225       37,082       14,062

                                       16
<PAGE>

OTHER OPERATING DATA:
Number of subscribers at end of year(4) ..................       7,641       36,594       79,176      111,244       77,069
Average monthly revenue per subscriber(5) ................   $   34.13    $   40.00    $   39.63    $   37.91     $  35.39
                                                                                                                         
</TABLE>
<TABLE>
<CAPTION>
                                                                                        AS OF DECEMBER 31,
                                                            ----------------------------------------------------------------
                                                                 1994         1995         1996         1997          1998
                                                              ---------    ---------    ---------    ---------    ----------

                                                                                      (DOLLARS IN THOUSANDS)
<S>                                                          <C>          <C>          <C>          <C>          <C>      
BALANCE SHEET DATA:
Working capital (deficit)(6) ............................    $   3,204    $  (6,430)   $ 123,263    $  97,723    $  58,227
Pledged securities(7) ...................................         --             --       33,512       17,324          ---
Property, plant and equipment, net ......................        4,182       18,870       38,333       63,405       50,974
Total assets ............................................       10,008       23,683      202,929      186,397      133,314
Total long-term debt ....................................          600          400      140,200      140,000      140,000
Stockholders' equity (deficit) (8) ......................        6,500        7,895       37,748       22,330      (21,767)
</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)      Net income (loss) per share (after  giving effect to the  Restructuring
         (as defined below)) 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").

(3)      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."

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

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

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

                                       17
<PAGE>

(7)      The pledged  securities  were  purchased as  collateral  for the Senior
         Notes. See Note 6 to the Consolidated Financial Statements.

(8)      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 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  and Belem and holds the sole MMDS  licenses in the cities of
Bauru, Campina Grande,  Caruaru,  Franca,  Porto Velho,  Presidente Prudente and
Uberaba.

         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 $500, 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. 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 $5.0 million cost of
the licenses for the seven new markets, the total estimated initial expenditures
for these seven markets is expected to be approximately  $15.5 million.  License
fees for the seven new markets were paid to the  Brazilian  government  in 1998.
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.



                                       18
<PAGE>

         The  Company's  historical  subscriber  growth  has  resulted  from the
addition of subscribers in Brasilia and from the launch of operating  systems in
Goiania  and Belem.  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 1998, the Company held approximately  $24.1 million of such contracts,  which
expired  on January  11,  1999.  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. 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. 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
("IMF"). On November 13, 1998, the IMF announced an aid package of more than $41
billion of which $5.3 billion has been made available to Brazil through February
1999. An additional  $9.3 billion is expected to be made  available to Brazil in


                                       19

<PAGE>

April  1999.  To  secure  funds  from the IMF,  in  October  1998 the  Brazilian
government announced additional austerity measures including pension plan reform
and significant spending cuts, some of which have been approved by the Brazilian
Congress.  As part of these  additional  austerity  measures,  the government is
attempting to increase 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,
thereby  allowing  the REAL to float  freely  against  the  U.S.  dollar.  These
measures have had, and will have for the foreseeable  future,  both a direct and
indirect impact on the Company's  financial results.  Indirectly,  the austerity
measures,   in  conjunction   with  high  short-term   interest  rates  and  the
devaluation,  have resulted in tightening of consumer credit and increased rates
of unemployment,  causing the Company to have increased difficulty in generating
additional sales and in reducing rates of customer delinquency.  Directly, these
measures have reduced the Company's net revenue and increased its cash expenses.
Had these  measures been in effect  throughout  1998,  these measures would have
reduced the  Company's  net revenue by  approximately  1% and increased its cash
expenses by approximately  $1.2 million.  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 the Company
anticipates  that this trend  will  continue  for the  foreseeable  future.  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  cancelling  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.


                                       20
<PAGE>

<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31,
                                             -----------------------------------------------------------------------
                                                          % OF                       % OF                    % OF
                                              1996       REVENUE       1997        REVENUE       1998      REVENUE
                                              ----       -------       ----        -------       ----      -------
<S>                                        <C>             <C>      <C>              <C>     <C>             <C> 
Revenues ...............................   $  31,388       100%     $ 50,547         100%    $  45,408       100%
Operating costs and expenses:
System operating .......................       9,593        31%       17,631          35%       19,617        43%
Selling, general and administrative ....      16,737        53%       27,965          55%       31,637        70%
Depreciation and amortization ..........       5,921        19%       12,162          24%       21,651        48%
                                            ---------   -------     ---------    --------     ---------  --------
      Total operating costs and expenses      32,251       103%       57,758         114%       72,905       161%
                                            ---------   -------     ---------    --------     ---------  --------
      Operating loss ...................        (863)       (3%)      (7,211)        (14%)     (27,497)      (61%)
                                            ---------   -------     ---------    --------     ---------  --------

Other income (expense):
  Interest and other expense ...........      (1,049)       (3%)     (19,167)        (38%)     (19,810)      (44%)
  Interest and other income ............         664         2%        8,985          18%       11,300        25%
  Monetary loss.........................          --         --           --          --        (4,213)       (9%)
  Exchange and translation losses ......        (762)       (2%)      (1,863)         (4%)         -0-         --
                                            ---------   --------    ---------    ---------    ---------   --------
        Total other expense ............      (1,147)       (4%)     (12,045)        (24%)     (12,723)      (28%)
                                            ---------   -------     ---------    ---------    ---------   --------
Net loss ...............................   $  (2,010)       (6%)   $ (19,256)        (38%)   $ (40,220)      (89%)
                                           ---------    -------     ---------    ---------    ---------   --------
Net loss per share .....................   $   (0.22)              $   (1.76)                $   (3.72)
                                           =========               =========                 =========
Weighted average number of
  shares of common stock and
  common stock equivalents .............       9,256                  10,940                    10,825
                                           =========               =========                 =========
Other Data:
 EBITDA(a) .............................   $   5,330               $   5,026                 $  (5,846)
                                           =========               =========                 =========
  Number of subscribers at end
    of  period .........................      79,176                 111,244                  77,069(b)
                                           =========               =========                 =========
</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 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 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


                                       21
<PAGE>

new services and  programming  and to generate new  subscribers to replace those
lost  throughout the year, and a monetary loss associated with the Company's net
dollar-denominated  monetary liability position.  Net loss for 1997 increased to
($19.2)  million  from ($2.0)  million in 1996 due to the issuance of the Senior
Notes in late 1996 and to increased  expenses  associated with the growth in the
subscriber base of over 32,000.

         REVENUES.  The Company's  revenues in 1998 decreased by 10% compared to
1997, due primarily to lower installation fees and an 8% devaluation of the REAL
against the U.S. dollar. This revenue decrease was partially offset by increased
revenues from the Company's  proprietary premium channel and high-speed Internet
access  service.  Revenues  in 1997  increased  by 61%  compared  to  1996,  due
primarily to an increase of over 32,000 subscribers during 1997, offset somewhat
(approximately $1.6 million) by an increase in taxes on revenues in Brasilia.

         Average  monthly  revenue  decreased to $35.39 in 1998 versus $37.91 in
1997,  primarily due to an 8% devaluation  of the REAL against the U.S.  dollar.
Average monthly revenue decreased to $37.91 in 1997 from $39.63 in 1996, also as
a result of the  depreciation  of the REAL against the U.S. dollar and increased
soft disconnects resulting from higher delinquency rates.

         SYSTEM OPERATING EXPENSES.  For 1998 compared to 1997, system operating
expenses  increased  by 11%,  primarily  due to  higher  costs  to  support  the
Company's  proprietary  premium  channel and high speed  Internet access service
($1.3 million),  along with increases in programming and magazine costs.  System
operating expenses increased in 1997 by 84% over 1996 primarily due to growth in
the  subscriber  base,  which  was  supported  by  additional   programming  and
production  costs  ($3.5  million),  development  of the  Company's  proprietary
premium channel ($1.5 million) and employee costs ($2.5 million).

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  ("SG&A")  expenses  increased  during  1998  by  13%  over  1997
primarily  due to an increase in the provision  for  litigation  and taxes ($2.8
million),  a  higher  bad  debt  provision  associated  with  the  reduction  in
subscribers  ($1.7  million),  and higher payroll costs to support the Company's
proprietary  premium  channel  and  high-speed  Internet  access  service  ($1.3
million).  These  increases were partially  offset by a reduction in advertising
and promotion  expense ($1.2  million).  SG&A expenses  increased in 1997 by 67%
over 1996,  primarily due to the growth in the number of subscribers  throughout
1997.  This growth fueled  increases in advertising and promotion to attract 
new  subscribers  ($2.0 million),  payroll to support the new subscribers  ($2.0
million) and an increase in the bad debt provision ($3.7 million).

         DEPRECIATION AND AMORTIZATION.  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  to support the  Company's  existing
operations  and to prepare for  launching  new markets which were awarded at the
end of 1998.  Depreciation and amortization  increased in 1997 by 105% over 1996
primarily due to growth in the number of installed subscribers during 1997.

         INTEREST INCOME AND INTEREST EXPENSE. Interest income increased in 1998
by 26% over 1997  primarily  as a result of holding a higher  proportion  of the
Company's  cash in Brazil,  which  earned  significantly  higher rates of return
compared to interest which could be earned in the U.S.  Both interest income and



                                       22
<PAGE>

interest  expense  increased  in 1997 over 1996  (interest  income by 1,251% and
interest  expense by 1,727%) due to the Company's  Senior Notes offering in late
1996 and the investment of a significant portion of the proceeds from the Senior
Notes offering which generated interest income.

         MONETARY LOSS AND EXCHANGE AND TRANSLATION  LOSS. The Company generated
a  monetary  loss  in 1998 of  $4.2  million  due to its net  dollar-denominated
monetary  liability  position  throughout  the year. As of January 1, 1998,  the
Company determined that Brazil ceased to be a highly inflationary  economy under
the provisions of SFAS 52. Accordingly, no monetary gain or loss was recorded in
1997.

         In 1997, the Company reported  exchange and translation  losses of $1.9
million due to the remeasurement of short-term assets and liabilities from REAIS
to U.S. dollars in accordance with SFAS 52 for companies in highly  inflationary
economies.  Reports of exchange and  translation  gains and losses  ceased as of
January 1, 1998 due to the  provisions of SFAS 52.  Unless  Brazil  returns to a
highly  inflationary  status, the Company does not believe it will record future
exchange and translation gains or losses.

LIQUIDITY AND CAPITAL RESOURCES

         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 360
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, 1998, 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,  1998,  approximately  $0.5 million was  outstanding
under  letters of credit with a maturity of 420 days.  As of December  31, 1998,
the Company had import lines of credit in the aggregate  amount of $30.5 million
with four commercial banks, of which  approximately  $30.0 million was available
on such date. 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 the  Initial  Public  Offering  and the  Senior  Notes
offering, the Company had positive working capital at December 31, 1998 of $58.2
million.  Net cash used in  operating  activities  for the twelve  months  ended
December 31, 1998 was $6.3 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


                                       23

<PAGE>

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  select a  financial  advisor  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 is
currently  evaluating  proposals submitted by various financial advisors.  There
can be no assurance that any  transaction  will result from this process or that
any transaction pursued will be completed successfully.  In addition,  there can
be no assurance that the Company will be able to meet future cash requirements.

         The Company made capital  expenditures of  approximately  $14.0 million
during 1998. 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  has paid an  aggregate  of $5.0
million for these seven licenses.  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  is  currently  evaluating  whether  it will  participate  in these
auctions given its current financial situation,  the competitive  environment in
each auctioned market and the state of the Brazilian  economy.  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 debt service  obligations,  the cash requirements for its
three  existing  systems  and seven  new  markets  for at least the next  twelve
months. As of December 31, 1998, of the Company's approximately $57.5 million in
cash and cash  equivalents,  approximately  $17.1  million (30%) was invested in
U.S.  dollar  denominated  securities.  As of March 21, 1999,  of the  Company's
approximately  $48.0 million in cash and cash equivalents,  approximately  $16.5
million (34%) 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  obtain  new  financing  and/or  successfully  complete  a debt
restructuring,  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.

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


                                       24
<PAGE>

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 a result of the  devaluation of the REAL in January 1999, the Company expects
to report a substantial monetary loss and higher expenses and lower revenues for
the first quarter of 1999. The full impact of the devaluation  cannot  currently
be estimated.

         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. 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


                                       25
<PAGE>

         currency reserves,  and other reasons,  the Brazilian government sought
support from the IMF. On November 13, 1998,  the IMF announced an aid package of
more than $41 billion,  of which $5.3 billion has been made  available to Brazil
through  February  1999.  An  additional  $9.3  billion is  expected  to be made
available to Brazil in April 1999. To secure funds from the IMF, in October 1998
the Brazilian  government  announced  additional  austerity  measures  including
pension  plan  reform and  significant  spending  cuts,  some of which have been
approved  by the  Brazilian  Congress.  As part of  these  additional  austerity
measures,  the  government is attempting to increase 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, thereby allowing the REAL to float freely against the
U.S. dollar.  These measures have had, and will have for the foreseeable future,
both  a  direct  and  indirect  impact  on  the  Company's   financial  results.
Indirectly, the austerity measures, in conjunction with high short-term interest
rates and  devaluation,  have  resulted in  tightening  of  consumer  credit and
increased  rates  of  unemployment,   causing  the  Company  to  have  increased
difficulty  in  generating  additional  sales and in reducing  rates of customer
delinquency. Directly, these measures have reduced the Company's net revenue and
increased its cash expenses.  Had these measures been in effect throughout 1998,
these measures would have reduced the Company's net revenue by  approximately 1%
and increased its cash expenses by  approximately  $1.2 million.  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 the  Company  anticipates  that  this  trend  will  continue  for the
foreseeable  future.  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.

YEAR 2000 COMPLIANCE

         GENERAL  DESCRIPTION  OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS
OF THE YEAR 2000 ON INFORMATION  TECHNOLOGY ("IT") AND NON-IT SYSTEMS.  The Year
2000 issue is the result of computer  programs  being  written  using two digits
rather than four to define the applicable  year.  Any of the Company's  computer
programs or hardware  that have  date-sensitive  software or embedded  chips may
recognize  a date using "00" as the year 1900  rather  than the year 2000.  This
could  result in a system  failure or  miscalculations  causing  disruptions  of
operations,  including,  among other  things,  a temporary  inability to process
transactions, send invoices, or engage in similar normal business activities.

         Based on recent  assessments,  the Company  determined  that it will be
required  to modify or  replace  certain  hardware  and  software  so that those
systems  will  properly  utilize  dates beyond  December  31, 1999.  The Company


                                       26
<PAGE>

presently  believes that with  modifications or replacements of certain existing
hardware and software,  the Year 2000 issue can be mitigated.  However,  if such
modifications  and replacements are not made, or are not completed  timely,  the
Year 2000 issue could have a material  adverse  impact on the  operations of the
Company.

         The  Company's  plan to  resolve  its Year  2000  issues  involves  the
following four phases: assessment,  remediation, testing and implementation.  To
date,  the Company has fully  completed its assessment of all systems that could
be  significantly  affected by the Year 2000  issue.  The  completed  assessment
indicated  that most of the Company's  significant IT systems could be affected,
particularly the Subscriber Management System ("SMS"), the accounting system and
video transmission system. However, based upon a review of the SMS and the video
transmission  system,  the Company  believes that its core  product,  television
programming,  will not  require  remediation  to be Year 2000  issue  compliant.
Accordingly,  the Company does not believe  that the Year 2000 issue  presents a
material  exposure as it relates to the  Company's  products.  In addition,  the
Company has gathered  information  about the Year 2000 compliance  status of its
significant suppliers and continues to monitor their compliance.

         STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE
FOR  COMPLETION  OF EACH  REMAINING  PHASE.  For its IT  exposures,  to date the
Company is approximately 75% complete on the remediation phase and has completed
all  necessary  reprogramming  for the SMS and video  transmission  system.  The
Company is currently  evaluating if any  reprogramming of the accounting  system
will be necessary  and expects to complete any  necessary  remediation  no later
than June 30, 1999.  Testing of the accounting system will commence  immediately
after  any  necessary  remediation  is  complete.  Other  systems,  such  as the
Company's  internal  network and electronic  mail system required no remediation
and have passed the testing phase successfully.

         NATURE AND LEVEL OF IMPORTANCE  OF THIRD PARTIES AND THEIR  EXPOSURE TO
THE YEAR 2000 ISSUE.  The  Company's  billing  system  interfaces  directly with
significant third party vendors (primarily banks) who provide electronic billing
services using credit cards and direct debits to customers'  bank accounts.  The
Company is in the process of working with third party vendors to ensure that the
Company's  systems  that  interface  directly  with third  parties are Year 2000
compliant by December 31, 1999. Each bank has a unique interface for both credit
cards and direct debit  transactions.  As a result, the Company is attempting to
create a single standard interface for all banks and has offered to produce this
interface  using its own  resources.  The Company is uncertain if all banks will
accept a  standard  interface  and  cannot  begin the  remediation  phase  until
determining if a single  solution can be utilized or if separate  solutions will
be required for each bank. In any event,  as each bank controls and dictates its
own unique  interface,  remediation is dependent  upon the individual  bank. The
Company  has no  means of  ensuring  that  these  interfaces  will be Year  2000
compliant and has prepared a contingency  plan in the event the  interfaces  are
not timely compliant.

         The Company has queried  its  significant  suppliers  that do not share
information  systems with the Company (external agents). To date, the Company is
not aware of any  external  agent with a Year 2000  issue that would  materially
impact the Company's  operations.  However, the Company has no means of ensuring
that  external  agents will be Year 2000  compliant.  The  inability of external
agents to complete their Year 2000 remediation process in a timely fashion could
materially  impact the Company.  The effect of non-compliance by external agents
is not determinable.



                                       27
<PAGE>

         COSTS.  The  Company  plans to  primarily  use  internal  resources  to
reprogram,  or replace,  test and implement the software and operating equipment
for Year  2000  modifications.  The  total  cost of the  Year  2000  project  is
estimated at $200,000.  To date, the Company has solely used internal,  existing
labor on the various phases of the Year 2000 project.

         RISKS.  Management of the Company believes it has an effective  program
in place to resolve the Year 2000 issue in a timely manner.  As noted above, the
Company has not yet completed all necessary phases of the Year 2000 program.  In
the event the Company does not complete any additional  phases,  the Company may
not be able to collect  payments  from  customers  using  direct debit or credit
cards and/or face delays in accounting and other management  reporting  systems.
In addition,  in the unlikely event that television program distributors are not
Year 2000  compliant,  the  Company  could be unable to receive  and  retransmit
television  programming  to its customers.  Further,  disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of any potential liability and/or lost revenue cannot be
reasonably estimated at this time.

         CONTINGENCY  PLANS.  The  Company  has  contingency  plans for  certain
critical applications and is working on such plans for others. These contingency
plans  involve,  among other actions,  billing all customers by invoice,  manual
workarounds and adjusting staffing as needed.

         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 conditions.

         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.




                                       28
<PAGE>


         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, for working capital, capital expenditures,
     acquisitions  and  general corporate  purposes or  other  purposes  in  the
     future;

     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
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  foundation.  At December 31,
1998, we had an accumulated deficit of $63.7 million. In 1998, we had net losses
of  $40.2  million.  We  expect  that we will  continue  to  incur  losses  from
operations  for the  forseeable  future.  We cannot assure you that we will ever
become profitable in the future.




                                       29
<PAGE>

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




                                       30
<PAGE>

         WE ARE IN A COMPETITIVE  BUSINESS.  We face potential  competition from
other wireless cable and 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 the terms of 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.

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.


                                       31
<PAGE>

         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, 1998 (these  contracts  were  entered  into for
purposes other than trading purposes):

<TABLE>
<CAPTION>
Contract Value        Contract Value     Exchange        Premium     %       Contract
R$                    at 12/31/98 US$    Rate            %           CDI     Date            Expiration Date
--------------        ---------------    -----------     -------     ---     --------        ---------------        
<S>                   <C>                <C>             <C>         <C>     <C>             <C>
R$16,613,571          US$13,744,991      R$1.18/US$1     +11.51%     93%     Sep. 11, 1998   Jan. 11, 1999
R$12,504,248          US$10,345,204      R$1.18/US$1     +11.17%     92%     Sep. 11, 1998   Jan. 11, 1999
</TABLE>

In 1999, 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 R$         Exchange Rate       Premium %       % CDI       Contract Date    Expiration Date
-----------------         -------------       ---------       -----       -------------    ---------------
R$20,000,000              R$1.3193/US$1       +0.5%           93%         Jan. 14, 1999    Jul. 13, 1999
R$17,000,000              R$1.50/US$1         +2.0%           100%        Jan. 15, 1999    Jul. 14, 1999
</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:
<TABLE>
<CAPTION>
<S>                                                                                           <C>

                                                                                              FORM 10-K
                                                                                               PAGE NO.
                                                                                              ----------
FINANCIAL STATEMENTS:
  TV FILME, INC.:
     Report of Independent Auditors....................................................          33
     Consolidated Balance Sheets as of December 31, 1997 and 1998......................          34
     Consolidated Statements of Operations for the years ended December 31, 1996,
      1997, and 1998...................................................................          35
     Consolidated Statements of Changes in Stockholders' Equity for
      the years ended December 31, 1996, 1997 and 1998.................................          36
     Consolidated Statements of Cash Flows for the years ended December 31,
      1996, 1997 and 1998..............................................................          37
     Notes to Consolidated Financial Statements........................................          38



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


                                       32
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
TV Filme, Inc.

         We have  audited the  accompanying  consolidated  balance  sheets of TV
Filme,  Inc. and  subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for each of the three years  ended  December  31,  1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

         We conducted our audits 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.

         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,  1998 and  1997,  and the
consolidated  results of its  operations  and its cash flows for the three years
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles in the United States.

         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 is in the process of  selecting a financial  advisor to assist it
in evaluating strategic  alternatives,  including a possible debt restructuring,
and issues associated with the Company's debt service requirements.  This raises
substantial  doubt about 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.




                                                   /s/ERNST & YOUNG
                                                   -----------------------------
                                                   AUDITORES INDEPENDENTES S. C.

Sao Paulo, Brazil
March 12, 1999




















                                       33
<PAGE>

<TABLE>
<CAPTION>

                                                   TV FILME, INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS

                                                                           DECEMBER 31,
                                                                 ---------------------------------
                                                                      1997             1998
                                                                      ----             ----
                                                                    (IN THOUSANDS OF DOLLARS)
<S>                                                              <C>              <C>         
ASSETS
Current assets:
   Cash and cash equivalents.................................    $     80,975     $     57,492
   Accounts receivable, net..................................           7,832            4,736
   Supplies..................................................           5,303            4,930
   Prepaid expenses and other current assets.................           3,178            2,560
   Interest receivable.......................................             679               --
   Pledged securities-current................................          16,645               --
                                                                 -------------    ------------
        Total current assets.................................         114,612           69,718
Property, plant and equipment, net...........................          63,405           50,974
Debt issuance costs, net.....................................           6,298            4,731
Other assets.................................................           2,082            7,891
                                                                 -------------    ------------
        Total assets.........................................        $186,397         $133,314
                                                                 =============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
Accounts payable.............................................    $     12,724     $      3,315
Payroll and other benefits payable...........................           2,103            2,892
Accrued interest payable.....................................             751              751
Accrued liabilities and taxes payable........................           1,111            4,533
Payables to affiliates-current...............................             200               --
                                                                 ------------      -----------
        Total current liabilities............................          16,889           11,491
Deferred installation fees...................................           7,178            3,590
Senior Notes.................................................         140,000          140,000
Stockholders' equity:
   Accumulated other comprehensive loss
      Cumulative transaction adjustment......................              --           (3,877)
   Preferred stock, $.01 par value, 1,000,000
      Shares authorized, no shares issued....................              --               --
   Common stock, $.01 par value, 50,000,000
      Shares authorized, 10,825,139 and 10,825,139                
      Shares issued and outstanding .........................             108              108
      Additional paid-in capital.............................          45,657           45,657
      Accumulated deficit....................................         (23,435)         (63,655)
                                                                 --------------   -------------
        Total stockholders' equity...........................          22,330          (21,767)
                                                                 -------------    -------------
        Total liabilities and stockholders' equity...........    $    186,397     $    133,314
                                                                 =============    ============




                                                       See accompanying notes.
</TABLE>


                                       34
<PAGE>

<TABLE>

                                                   TV FILME, INC. AND SUBSIDIARIES

                                                CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------
                                                          1996         1997        1998
                                                          ----         ----        ----
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                     <C>         <C>         <C>     
Revenues ............................................   $ 31,388    $ 50,547    $ 45,408

Operating costs and expenses:
   System operating-Note 3 ..........................      9,593      17,631      19,617
   Selling, general and administrative .............      16,737      27,965      31,637
   Depreciation and amortization ....................      5,921      12,162      21,651
                                                        --------    --------      ------
        Total operating costs and expenses ..........     32,251      57,758      72,905
                                                        --------    --------      ------
        Operating loss ..............................       (863)     (7,211)    (27,497)

Other income (expense):
   Interest and other expense - Note 3 ..............     (1,049)    (19,167)    (19,810)
   Interest and other income - Note 3 ...............        664       8,985      11,300
   Monetary Loss ....................................         --          --      (4,213)
   Exchange and translation losses ..................       (762)     (1,863)          --
        Total other expense .........................     (1,147)    (12,045)    (12,723)
                                                        ---------   ---------   ---------
Net loss ............................................   $ (2,010)   $(19,256)   $(40,220)
                                                        =========   =========   =========
Net loss per share, basic and diluted ...............   $  (0.22)   $  (1.76)   $  (3.72)
                                                        ========    =========  ==========
Weighted average number of shares of common stock
     and common stock equivalents ...................      9,256      10,940      10,825
                                                        ========    =========  ==========
</TABLE>

















                                                       See accompanying notes.



                                       35
<PAGE>

<TABLE>
<CAPTION>
                                                   TV FILME, INC. AND SUBSIDIARIES

                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                             FOR THE THREE YEARS ENDED DECEMBER 31, 1998




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

                                                          (IN THOUSANDS OF DOLLARS, EXCEPT SHARES)


<S>                                          <C>          <C>        <C>          <C>             <C>              <C>      
BALANCE AT DECEMBER 31, 1995 ...........     6,193,996          62      10,070           --            (2,237)         7,895
Issuance of common stock and warrants ..     1,097,180          11       7,140           --                --          7,151
Non-cash compensation ..................            --          --         272           --                --            272
Initial public offering of common stock,
    net of costs .......................     2,875,000          29      24,343           --                --         24,372
Equity adjustment for restructuring ....            --                      --           --                68             68
Net loss for the year ..................            --          --          --           --            (2,010)        (2,010)
                                            ----------    --------   ---------    ---------       ------------     ----------
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)
                                            ==========    ========   =========   ==========       ============     ==========
</TABLE>                                                                        















                                                       See accompanying notes.


                                       36
<PAGE>

<TABLE>
<CAPTION>
                                                   TV FILME, INC. AND SUBSIDIARIES

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                     YEAR ENDED DECEMBER 31
                                                                             1996             1997             1998
                                                                             ----             ----             ----

                                                                                    (IN THOUSANDS OF DOLLARS
       <S>                                                               <C>           <C>              <C>       

       CASH FLOWS FROM OPERATING ACTIVITIES
       Net loss........................................................  $  (2,010)    $    (19,256)    $  (40,220)
       Adjustments to reconcile net loss to net cash
         provided by operating activities:
          Depreciation and amortization................................      5,921           12,162         22,050
          Provision for losses on accounts receivable..................      1,296            4,989          6,674
          Non-cash compensation........................................        272               75             --
          Amortization of debt issuance costs..........................         14              805          1,567
          Increase (decrease) in deferred installation fees............      3,222           (1,049)        (3,107)
          Monetary loss................................................         --               --          4,213
       Changes in operating assets and liabilities:
          Increase in accounts receivable..............................     (3,122)          (9,214)        (4,176)
          Increase in supplies.........................................     (1,089)          (2,582)           (32)
          (Increase) decrease in prepaid expenses and other current
          assets.......................................................       (678)          (2,003)           375
          (Increase) decrease in accrued interest receivable...........         --             (679)           679
          Increase in other assets.....................................       (421)          (1,292)        (6,449)
          Decease in pledged securities...............................          --           16,867         16,645
          Increase (decrease) in accounts payable......................      4,230            1,618         (9,023)
          Increase in payroll and other benefits payable...............        255              565            950
          Increase in accrued interest payable.........................        502              179            ---
          Increase  in accrued liabilities and taxes payable...........         51              649          3,522
                                                                        -----------    -------------    -----------
       Net cash provided by (used in) operating activities.............      8,443            1,884         (6,332)
                                                                        -----------    -------------    -----------

       CASH FLOWS FROM INVESTING ACTIVITIES
       Acquisitions:
          Property, plant and equipment................................    (25,225)         (37,082)       (14,062)
                                                                        -----------     ------------    -----------
       Net cash used in investing activities...........................    (25,225)         (37,082)       (14,062)
                                                                        -----------     ------------    -----------

       CASH FLOWS FROM FINANCING ACTIVITIES
       Increase (decrease) in short-term debt..........................      2,996           (2,926)            --
       Proceeds from initial public offering, net of costs ............     24,372               --             --
       Proceeds from issuance of senior notes, net of costs............    133,950               --             --
       Pledged securities..............................................    (33,512)              --             --
       Debt issuance costs.............................................         --             (819)            --
       Issuance of common stock and warrants...........................      7,151            3,763             --
       Increase (decrease) in payables from affiliates.................     (1,863)            (200)          (200)
                                                                        ------------    ------------    -----------
       Net cash provided by (used in) financing activities.............    133,094             (182)          (200)
                                                                        ------------    ------------    -----------
       Effect of exchange rate changes on cash.........................         --               --         (2,889)
                                                                        ------------    ------------    -----------
       Net change in cash and cash equivalents.........................    116,312          (35,380)       (23,483)
       Cash and cash equivalents at beginning of year..................         43          116,355         80,975
                                                                        ------------    ------------    -----------
       Cash and cash equivalents at end of year........................   $116,355      $    80,975     $   57,492
                                                                        ============    ============    ===========
</TABLE>

                                                       See accompanying notes.


                                       37
<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.

         In connection  with the Initial Public  Offering,  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


                                       38
<PAGE>

in the cities of Brasilia,  Goiania and Belem and has been  awarded  licenses to
operate pay television systems in seven additional markets in Brazil.

         The  Company is in the  process of  selecting  a  financial  advisor to
assist it in  evaluating  strategic  alternatives,  including  a  possible  debt
restructuring,   and  issues   associated   with  the  Company's   debt  service
requirements.  There can be no assurance that any  transaction  will result from
this process or that any transaction pursued will be completed successfully.  In
addition, there can be no assurance that the Company will be able to meet future
cash requirements.

         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

         The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128,  "Earnings Per Share" ("SFAS 128"),  for year-end 1997.  SFAS
128, which  supersedes  APB Opinion No. 15,  "Earnings Per Share," was issued in
February 1997. SFAS 128 requires dual  presentation of basic and diluted earning
per share ("EPS") for complex capital structures on the face of the statement of
operations.  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.  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.


                                       39
<PAGE>

         Depreciation  is computed on the  straight-line  basis using  estimated
useful  lives   ranging  from  5  to  10  years  for   buildings  and  leasehold
improvements, 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  and 1998  was  $449,000  and
$817,000, respectively.

         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 $1,710,000  and
$387,000 at December 31, 1997 and 1998,  respectively.  Charges to the allowance
during  1996,   1997  and  1998  were  $945,000,   $3,945,100  and   $8,000,000,
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.

         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


                                       40
<PAGE>

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.

         2.  PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment is comprised of the following at December
31:
<TABLE>
<CAPTION>
                                                                 1997     1998
                                                                 ----     ----
                                                               (IN MILLIONS OF
                                                                  DOLLARS)
<S>                                                           <C>       <C>

Land.....................................................     $    1.0  $   1.0
Building and leasehold improvements......................          0.7      2.1
Machinery and equipment..................................         35.2     35.1
Furniture and fixtures...................................          1.1      1.4
Installation costs.......................................         45.4     50.2
                                                              --------  -------
                                                                  83.4     89.8
Accumulated depreciation.................................        (20.0)   (38.8)
                                                              --------- --------
                                                              $   63.4  $  51.0
                                                              ========= ========
</TABLE>

         Depreciation  expense of  $5,762,000,  $12,009,000  and  $21,651,000 is
included in the  statements of operations for the years ended December 31, 1996,
1997 and 1998, 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 1996, 1997 and 1998 were $6,731,000,
$10,394,000 and $10,607,000  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.
Amounts paid to Tevecap for the program guide during 1996 and 1997 were $750,000
and $679,000, respectively.

         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.


                                       41
<PAGE>

         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 and 1998 were  $7,665,000  and  $500,000,  respectively.  At
December 31, 1997 and 1998, issued and outstanding  letters of credit secured by
affiliates  were  $110,000 and $0,  respectively.  The  maturity of  outstanding
letters of credit at December 31, 1998 was 420 days.

         4.  STOCKHOLDERS' EQUITY

         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.

         The  Company  recorded  non-cash  compensation  of  $272,000 in 1996 in
connection with the issuance of 23,121 shares of Common Stock to officers of the
Company,  which amount has been included in selling,  general and administrative
expenses.

         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




                                       42
<PAGE>

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).

         5.  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 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:
<TABLE>
<CAPTION>
                                                NUMBER OF          EXERCISE
                            DATE                OPTIONS             PRICE
                         ----------            ---------          ---------
                         <S>                    <C>                <C>
                         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
</TABLE>


          Of the total number of options which were  exercisable  as of December
31, 1998, 210,000 options have expired in accordance with their terms.

         Pro forma  information  regarding  net loss and loss per share has been
determined as if the Company had accounted for its employee  stock options under
the fair value method of FASB  Statement No. 123,  "Accounting  for  Stock-Based
Compensation."  The fair value for these  options was  estimated  at the date of
grant  using  a   Black-Scholes   option   pricing   model  with  the  following
weighted-average assumptions for 1997 and 1998, respectively: risk-free interest




                                       43
<PAGE>

rate of 5.5% and 5.7%,  dividend  yield of 0% and 0%;  volatility  factor of the
expected market price of the Common Stock of .46 and .68; and a weighted-average
expected life of the option of 7.5 and 7.5 years.

         For purposes of pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the options vesting  period.  The Company's
pro forma information for the year ended December 31, 1997 follows (in thousands
of dollars):
<TABLE>
<CAPTION>
                                            1997            1998
                                        -----------     ----------
           <S>                          <C>             <C>
           Pro forma net loss             $(19,812)     $ (41,059)
           Pro forma loss per share          (1.81)     $   (3.79)
</TABLE>


         6.  LONG-TERM DEBT

         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.
Debt issuance  costs are  capitalized  and amortized over the period of the debt
under the effective yield method.

         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, 1998 it is unable to make any dividend payments.

         The Company  believes that the Senior  Notes,  as of December 31, 1998,
were trading at approximately 20% - 25% of the principal value.

         7.  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:




                                       44
<PAGE>


<TABLE>
<CAPTION>
                                                            1996        1997          1998
                                                            ----        ----          ----
                                                              (IN THOUSANDS OF DOLLARS)
<S>                                                     <C>          <C>            <C>       
Income taxes (benefit) at effective                                                           
      Brazilian rate..................................  $   (613)    $ (6,354)      $(13,273)
Effect of monetary adjustments under
      Brazilian tax law...............................        --           --             -- 
Nondeductible compensation expense....................        78          215          1,651
Effect of change in tax rate..........................      (232)         103             -- 
Other.................................................        --           --             -- 
Increase (decrease) in valuation allowance............       767        6,036         11,622
                                                        ---------    ---------      ---------
Tax expense (benefit).................................  $     --     $     --       $     --
                                                        =========    =========      =========
</TABLE>

         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 at December 31,
1998.  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, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
                                                        1997           1998
                                                        ----           ----
                                                          (IN THOUSANDS OF
                                                              DOLLARS)
<S>                                                    <C>           <C>
Deferred tax assets
Net operating loss carryforwards...................    $14,544       $21,414
Deferred installation fees.........................      2,369         1,185
Other..............................................        225         2,912
                                                      ---------    ---------
                                                        17,138        25,511
Valuation allowance................................     (7,216)      (18,838)
                                                      ---------    ---------
                                                       $ 9,922     $   6,673
                                                      =========    =========
Deferred tax liabilities
Fixed assets.......................................    $ 9,922     $   6,673
Other..............................................         --            --
                                                      --------     ---------
                                                       $ 9,922     $   6,673
                                                     =========     =========
</TABLE>


                                       45
<PAGE>


         Effective  January 1, 1997, the effective  Brazilian tax rate increased
from  30.5% to 33%.  This has been  reflected  in the  deferred  tax  assets and
liabilities at December 31, 1996.

         8. Commitments

         The Company  leases  office space,  vehicles and satellite  transponder
space, and has entered into various  transmission tower rental agreements.  Rent
expense amounted to approximately $2,062,000,  $2,091,080 and $3,508,000 for the
years ended December 31, 1996, 1997 and 1998, 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, 1998 are as follows:


      1999.................................................    $ 2,340,000
      2000.................................................      1,830,000
      2001.................................................      1,150,000
      2002.................................................      1,020,000
   
         9. Foreign Exchange Contracts

          At December  31,  1998,  the Company  had $24.1  million of  contracts
maturing  January  11,  1999.  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.  Unrealized  losses as of December 31, 1998  totaled
$852,000.


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, 1999.
<TABLE>
<CAPTION>

                     NAME                      AGE                       POSITION
                     ----                      ---                       --------
<S>                                             <C>        <C>                                
Hermano Studart Lins de Albuquerque             36         Chief Executive Officer, Secretary
                                                           and Director
Carlos Andre Studart Lins de Albuquerque        34         President, Chief Operating Officer,
                                                           acting Chief Financial Officer and
                                                           Director
Douglas M. Karp                                 43         Managing Director of E.M. Warburg,
                                                           Pincus & Co. LLC
Gary D. Nusbaum                                 32         Managing Director of E.M. Warburg,
                                                           Pincus & Co. LLC
Jose Augusto Pinto Moreira                      55         President of Tevecap S.A.
Douglas Duran                                   45         Chief Financial Officer of Tevecap
                                                           S.A.
</TABLE>


                                       46
<PAGE>

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

         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 General  Partner of
Warburg, Pincus & Co. and a Member and 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


                                       47
<PAGE>

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 III directors
are to be elected at the 1999 Annual Meeting of Stockholders,  Class I directors
are to be  elected  at the 2000  Annual  Meeting  of  Stockholders  and Class II
directors are to be elected at the 2001 Annual Meeting of Stockholders.

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, 1998.

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 1998,  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,....  1998    $201,748      $125,000        $   --                --           $6,425
   Chief Executive Officer   1997     143,750       150,000(3)         --             100,000          6,250
                             1996     113,979       200,000(3)         --             110,000            --
                                                                                                            
Carlos Andre Studart                                                                                        
   Lins de Albuquerque,....  1998     201,748       125,000            --                --            $6,425
   President, Chief          1997     143,750       150,000(3)         --             100,000           6,250
   Operating Officer and     1996     113,979       200,000(3)         --             110,000             --
   acting Chief Financial                                                                                   
   Officer                                                                                                  
                                                                                                            
Alvaro J. Aguirre,                                                                                          
   Chief Financial                                                                                          
   Officer(5)..............  1998     151,000          -0-           22,712(2)           --               --
                             1997     143,750       150,000(3)          --            100,000             --
                             1996      62,499       200,000(3)          --            110,000             --
                                                                                                            
</TABLE>

                                       48
<PAGE>

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

(1)  The amount  reflected  for Mr.  Aguirre  for 1998  includes  $13,500.00  of
     housing  allowance  expense and $9,212 of car  allowance.  No other 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 the Named  Executive  Officers in
     the form of Common Stock in the following amounts (i) for 1997,  $25,000 to
     each Named Executive Officer and (ii) for 1996, $123,333 to Messrs. Hermano
     Lins and Carlos Andre Lins and $25,000 to Mr. Aguirre.

(4)  Mr. Carlos Andre Lins assumed the duties of acting Chief Financial  Officer
     following Mr. Aguirre's resignation in October 1998.

(5)  Mr. Aguirre joined the Company in June 1996 and resigned in October 1998.

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


                                       49
<PAGE>

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.

YEAR-END VALUE TABLE

         The  following  table sets forth  information  regarding the number and
year end value of  unexercised  options held at December 31, 1998 by each of the
Named Executive Officers. No options or stock appreciation rights were exercised
by the Named Executive Officers during fiscal 1998.


                                       50
<PAGE>

<TABLE>
<CAPTION>

                            FISCAL 1998 OPTION VALUES
<S>                                          <C>                              <C>

                                               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
Alvaro J. Aguirre........................        130,000/80,000(2)                     $0/$0
</TABLE>

------------
(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, 1998, and the exercise price of the option,  multiplied by
         the applicable number of options.
(2)      All options which were  exercisable by  Mr. Aguirre as  of December 31,
         1998 have expired in accordance with their terms.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         During 1998,  the members of the  Compensation  Committee  were Messrs.
Karp,  Moreira,  Libowitz  (from  January  through  June) and Nusbaum (from June
through  December).  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. Mr. Libowitz, who resigned as a director in June 1998, is a general partner
of Warburg Pincus.

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,  1999,  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


                                       51
<PAGE>

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.
<TABLE>
<CAPTION>

                                               AMOUNT AND NATURE OF   PERCENTAGE
                                                    BENEFICIAL            OF
NAME AND ADDRESS (1)                                OWNERSHIP (2)     CLASS (2)
--------------------                             ------------------  -----------
<S>                                                <C>                  <C>
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
Alvaro J. Aguirre............................          9,294                *
All executive officers and directors                                          
  as a group (6 persons).....................      7,103,731             65.4
</TABLE>

--------------------------
*        Less than 1%.

(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, 1999
         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.



                                       52
<PAGE>

(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, 1999: 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 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, 1996,  1997 and 1998,
TVA  Sistema's  and  its  affiliates'   revenues  from  the  Company  aggregated
approximately $6.7 million, $10.4 million and $10.6 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
Sistem 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


                                       53
<PAGE>

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.





























                                       54
<PAGE>


                                     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.

         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.

         During  the fourth  quarter  of 1998,  the  Company  filed two  Current
Reports on Form 8-K. The first Form 8-K was filed by the Company on November 25,
1998, pursuant to Item 5 thereof,  announcing its intention to commence a tender
offer for its outstanding 12-7/8% Senior Notes due 2004 and also announcing that
the  Company  had  received  notice  from the Nasdaq  Stock  Market  that it had
determined  that delisting of the Company's  common stock was appropriate due to
the Company's inability to satisfy certain Nasdaq maintenance requirements.  The
second Form 8-K was filed by the Company on December 16, 1998,  also pursuant to
Item 5 thereof  announcing  that it had amended  certain  terms of the Company's
proposed tender offer.

(C)      INDEX TO EXHIBITS.

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

  EXHIBIT
   NUMBER                          DESCRIPTION OF DOCUMENT
-------------            -         -----------------------
    *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).


                                       55
<PAGE>

    *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.+
   *10.2        Form of Stock Option Agreement (incorporated herein by reference
                to Exhibit 10.2 to TV Filme's S-1).+
   *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).+
  **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.

                                       56
<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 13th day of April, 1999.

                                 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 13th day of April, 1999.

                 SIGNATURE                   TITLE(S)

        /s/ HERMANO STUDART LINS DE          Chief Executive Officer,
             ALBUQUERQUE                     Secretary and Director
-----------------------------------------    (Principal Executive Officer)
 Hermano Studart Lins de Albuquerque         

     /s/ CARLOS ANDRE STUDART LINS DE        President, Chief Operating Officer,
             ALBUQUERQUE                     acting Chief Financial Officer
-----------------------------------------    (Principal Financial and Accounting
Carlos Andre Studart Lins de Albuquerque     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

                                       57
<PAGE>

<TABLE>
<CAPTION>

   EXHIBIT                                                                               SEQUENTIALLY
   NUMBER                                DESCRIPTION OF DOCUMENT                         NUMBERED PAGE
------------                             -----------------------                         -------------
                                            
<S>              <C>                                                                     <C>
    *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 .+
   *10.2         Form  of  Stock  Option  Agreement   (incorporated   herein  by
                 reference to Exhibit 10.2 to TV Filme's S-1).+
   *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).


                                       58
<PAGE>

   *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).+
  **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.


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