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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, 1997

            |_|  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 20, 1998 was approximately $12,358,894.

    As  of  March 20, 1998, 10,825,139  shares of the registrant's Common Stock,
$0.01 par value, were outstanding.

    DOCUMENTS INCORPORATED BY REFERENCE.  The information called for by Part III
is incorporated by reference to the definitive Proxy Statement for the Company's
1998 Annual Meeting of Stockholders,  which will be filed on or before April 30,
1998.

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<PAGE>

                          TABLE OF CONTENTS

                                                                            PAGE
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

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

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

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

      Competition............................................................7

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

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

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

      Item 4.  Submission of Matters to a Vote of Security Holders..........10

PART II

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

      Item 6 Selected Financial Data........................................11

      Item 7.Management's Discussion and Analysis of Financial
             Condition and Results of Operations............................13

      Item 7A.  Quantitative and Qualitative Disclosures about
                Market Risk.................................................23

      Item 8.  Financial Statements and Supplementary Data..................24

      Item 9.  Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure..........................36

PART III

      Item 10.  Directors and Executive Officers of the Registrant..........36

      Item 11.  Executive Compensation......................................36

      Item 12.  Security Ownership of Certain Beneficial Owners and
                Management..................................................36

      Item 13.  Certain Relationships and Related Transactions..............36

PART IV

      Item 14.  Exhibits, Financial Statement Schedules, and Reports
             on Form 8-K....................................................37


                                       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  AND TRENDS  AFFECTING  THE
COMPANY'S  FINANCIAL  CONDITION AND RESULTS OF OPERATIONS.  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")  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
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 is a publicly-traded  holding company organized in 1996 under the
laws of the State of Delaware  (Nasdaq  National  Market  symbol:  "PYTV").  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.

Company Overview

      The  Company  develops,  owns  and  operates  pay  television  systems  in
mid-sized  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.  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.
Since  the  beginning  of  1994,  the  Company's   subscriber   base  has  grown

                                      1
<PAGE>

substantially,  increasing from 1,864  subscribers to 111,244  subscribers as of
December  31,  1997.  See  "Item 7.  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operation - Overview."

      During  1996,  27  requests  for  licenses  were filed by the  Company for
licenses to operate MMDS  systems.  Considering  the number of license  requests
filed by competing telecommunications  companies, in October 1997, the Brazilian
Government  instituted an official  bidding process for the granting of new MMDS
licenses. As a result of the bidding process,  formal applications were required
to  be  filed  by  all  interested   parties.  To  date,  seven  license  tender
invitations,  for 92 markets covering  approximately 8.2 million LOS households,
have been issued by the Brazilian Ministry of Communications for MMDS.  However,
due to challenges made to the bidding process by several  bidders,  the date for
submission of proposals  has been  postponed.  This matter is currently  pending
before the Brazilian  Supreme Court.  Although the Company  anticipates that the
bidding  process  will  recommence  in the first  half of 1998,  there can be no
assurance  that the bidding  process  will  recommence  in such time frame.  See
"--Regulatory  Environment" and "Item 7. Management's Discussion and Analysis of
Financial  Condition  and Results of  Operations  -- Certain  Factors  Which May
Affect the Company  Future  Results -- Factors  Relating to the Company -- Risks
Associated with New Markets and Growth and Expansion Strategy."

      The  Company  primarily  targets  mid-sized  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  mid-sized  markets in Brazil are currently
underpenetrated by existing pay television providers.

      The Company  believes that wireless cable technology is well suited to its
current  and  targeted  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 only  generally  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  hardwire
cable industry and wireless cable industry  began  developing  concurrently.  By
December 31, 1997,  approximately  100 hardwire  cable  licenses and 12 wireless
cable licenses had been issued by the Brazilian government. The Company believes
that as of December 31, 1997, fewer than 20%  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,  1997,  the Company  estimates  that there were
approximately 2.5 million pay television subscribers, representing approximately
7.4% 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.

                                       2
<PAGE>

Operating Systems and the Company's Markets

      The table below provides information regarding the Company's markets as of
December 31, 1996:
<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...............    2,000,000           472,000          417,102             37        Feb. 1994(4)
Belem..................    1,900,000           398,000          345,000             36        Feb. 1995
Goiania................    1,800,000           444,000          331,000             36        Jan. 1995
                           -------------    --------------    ------------
Total in Operating         5,700,000         1,314,000        1,093,102
Markets................
                           =============    ==============    ============
-----------
</TABLE>

(1)   Represents the Company's estimate of the number of total households within
      the  greater  metropolitan  areas of  Brasilia,  Belem  and  Goiania.  The
      Company's  estimates  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.

(2)   Represents the Company's estimate of the number of LOS households within a
      35 kilometer radius in Brasilia and a 30 kilometer radius in each of Belem
      and  Goiania  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  subscription
      channels and includes an additional seven wireless cable  channels in such
      markets over which the Company is authorized to transmit.

(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.

      Since the  beginning  of 1994,  the  Company's  subscriber  base has grown
substantially,  increasing from 1,864  subscribers to 111,244  subscribers as of
December  31, 1997.  See "See Item 7.  Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations - Overview." A description of the
Company's current markets follows.

      BRASILIA SYSTEM. Brasilia, the capital of Brazil, had an estimated greater
metropolitan  population of  approximately  2.0 million as of December 31, 1997.
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 417,102 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
system  EBITDA  positive in the third quarter of 1994 with  approximately  6,000
subscribers. In addition to monthly subscriber revenue, the Brasilia system also
generates  advertising  revenues.  The Brasilia System  transmits at 50 watts of
power per channel  from a  transmission  tower  which is 300 feet above  average
terraine. The principal pay  television  provider 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, 1997, it was the largest pay television
provider in Brasilia based on the total number of subscribers. In December 1997,
the  Company  began  providing  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 "- Internet Access Service."

                                       3
<PAGE>

      BELEM SYSTEM. Belem, with an estimated greater metropolitan  population of
approximately  2.0 million as of  December  31,  1997,  lies at the mouth of the
Amazon River and is a major  trading port for the rich natural  resources of the
Amazon rain  forest.  The Company  launched  service in Belem in February  1995.
Although the city is relatively flat, trees block wireless cable transmission in
Belem more often than they do in Brasilia and Goiania and thus, the Belem System
requires increased utilization of signal repeaters. The Belem System reaches the
greater Belem area, including the cities of Mosqueiro,  Ananindeua, Icoaraci and
Marituba  and the islands of Outeiro and  Barcarena.  The  Company's  current 30
kilometer coverage territory encompasses  approximately 345,000 households which
the Company believes can be served by LOS transmission.

      The Belem 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 an  additional  seven  wireless
cable  channels  which have not yet been  placed in  service.  The Belem  System
became EBITDA  positive in the fourth quarter of 1995 with  approximately  5,000
subscribers.  The Belem System transmits at 50 watts of power per channel from a
transmission  tower which is 300 feet above average terrain.  There currently is
no hardwire or other wireless cable provider in the city of Belem.

      GOIANIA  SYSTEM.  Goiania,  with an estimated  metropolitan  population of
approximately 1.8 million as of December 31, 1997, 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
331,000 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  Multicanal,  a hardwire  cable  operator and  affiliate of the Globo
Organization. The Company believes that, at December 31, 1997, it was the second
largest pay television provider in Goiania based on total number of subscribers.

Programming

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

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

      The  Programming  Agreement  also  provides  that  if  Tevecap  obtains  a
license to operate  hardwire  cable  systems  in any of the  Company's  current

                                       4
<PAGE>

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,
which the  Company  offers to its  subscribers  in the Goiania  market,  and the
rights to  televise  annually  through  1999 all of the games of the Para  State
Soccer  Championship,  which the Company offers to its  subscribers in the Belem
market. The Company also offers certain exclusive sports programming,  including
ESPN Brazil on which selected games of the Sao Paulo Soccer Championship and the
Rio de Janeiro Soccer  Championship  matches are offered.  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),  is now available in each of the
Company's  markets as a premium channel.  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, 1997 are as follows:

CHANNEL                             DESCRIPTION
-------                             -----------

HBO Brazil...............   Brazilian version of HBO
HBO Brazil 2.............   HBO Brazil with a six hour time delay
ESPN Brazil..............   Brazilian version of ESPN
Eurochannel..............   Package of programming from free TV in Europe
Mundo....................   Variety channel
CMT Brazil...............   Brazilian version of Country Music Television
MTV Brazil...............   Brazilian version of MTV
MTV Latino *............    Spanish language version of MTV
RTPi **..................   Radio and Television Portugal, a free broadcast
                            channel from Portugal
CNN International........   International version of CNN
TNT......................   Brazilian version of TNT
Cartoon Network..........   Cartoon Network produced in the U.S.
Fox......................   General entertainment
Discovery Channel........   Brazilian version of Discovery Channel
ESPN International.......   International version of ESPN
Warner...................   Warner channel produced in the U.S.
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
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
SBT......................   Local off-air channel
Bandeirantes.............   Local off-air channel
Record...................   Local off-air channel
Nacional.................   Local off-air channel
Manchete.................   Local off-air channel
Cultura..................   Local off-air channel

                                       5
<PAGE>

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

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. Under current  telecommunications  regulations
in Brazil,  only MMDS  providers of pay-TV are permitted to offer  advanced data
services such as internet access using their networks. Wired cable providers are
prohibited,  at this time, from offering similar  services.  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 commencing  operations in a potential new market, the
Company conducts pre-marketing  surveys to evaluate the demographics and terrain
of such market.  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 on  several  factors,  including
whether the  subscriber  is in a single family home or multiple  dwelling  unit.
This  development  plan ensures that the quality of  installations  and customer
service  remains high. In each market,  the Company's  marketing staff typically
applies the following 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.

      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 installations at multiple
dwelling units in which drop lines already have been installed require less time
and,  accordingly,  are less  costly.  The Company  charges its  subscribers  an
installation fee typically ranging from $40 to $105.

      CUSTOMER  SERVICE.  The Company  believes that  delivering  high levels of
customer service in installation and maintenance enables it to maintain customer
satisfaction  and to minimize  churn.  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
and has established an  intra-company  electronic mail system to provide a forum
for  employees  to  exchange  ideas  concerning   means  to  increase   customer
satisfaction.  The Company also has various  employee bonus  programs  linked to
measures of customer satisfaction.

      SUBSCRIBER   MANAGEMENT   SYSTEMS.   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 9 employees  dedicated to the  development,
enhancement and integration of the Company's subscriber management systems.

                                       6
<PAGE>

Employees

      As of  December  31,  1997,  the  Company  had a total  of 808  employees,
substantially  all of whom are employed by TV Filme's  subsidiaries.  All of the
Company's  employees,  except for Messrs.  Hermano  Lins,  Carlos Andre Lins and
Alvaro Aguirre, are subject to collective bargaining agreements.  The collective
bargaining  agreements  covering the employees of TV Filme Brasilia and TV Filme
Goiania  expire in October  1998.  The Company is  currently  renegotiating  the
collective  bargaining  agreement  governing the employees of TV Filme Belem and
expects that a new agreement  will be signed in the near future.  The collective
bargaining  agreements  are with the  Union  for the  Employees  of Radio and TV
Broadcasting  Companies.  The Company has  experienced  no work  stoppages.  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.  The Company  believes that its
relationships with its employees are good.

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.

      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 license coverage areas of 50 kilometers.
In   certain   areas   within  the   Company's   markets   that  are   otherwise
terrain-blocked,  the  Company  utilizes  signal  repeaters  to  enhance  signal
coverage.

      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  Brasilia,  Goiania and Belem.  The Company
currently  provides  service via 24 wireless  analog cable channels in Brasilia,
Belem and Goiania,  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, 1997, 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, 1997, 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
Multicanal,  a hardwire cable operator and affiliate of the Globo  Organization.
There currently is no hardwire cable provider in the city of Belem.

      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 two DBS  providers  in  Brazil,  "Sky,"  an  affiliate  of the  Globo
Organization,  and Direct TV, an affiliate  of Tevecap.  A third DBS operator is
currently  launching  service  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."

                                       7
<PAGE>

Regulatory Environment

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

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

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

      OWNERSHIP OF LICENSES. The General  Telecommunications Law, 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.
Although the General Telecommunications Law 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.

      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
channels are permitted in markets with less than 300,000 inhabitants;  15, 16 or

                                       8
<PAGE>

31 analog  channels are permitted in markets with a population  between  300,000
and 700,000  inhabitants;  and 31 analog  channels are permitted in markets with
700,000  inhabitants or more.  However,  such limits may be changed by ANATEL in
its discretion.

      LICENSE  PROCEDURES.  In  accordance  with Decree No. 2196 and the Revised
MMDS Rule, a party  interested in providing  MMDS services must file with ANATEL
an "Application for  Telecommunications  Services," which specifies the modality
of the services intended to be provided,  the geographic area where the services
are to be  provided,  the  technical  specifications  for  the  proposed  system
(including the radio frequencies to be used) and the intended  operation and the
usage of such  services.  ANATEL may, in its  discretion or whenever it receives
such an application,  publish public notices  requesting  comments by interested
parties to determine, among other things, the geographic area where the services
are to be provided and the number of concessions  to be granted.  In both cases,
interested  parties are  required to present to or file with ANATEL its comments
or  application,  as the  case  may be,  containing,  among  other  things,  the
technical  feasibility  of the proposed MMDS system and a  demonstration  of the
market  potential for the targeted area.  ANATEL will  thereafter  ascertain the
public interest in granting the concession and may decide to open the public bid
process  for the  granting  of such  licenses.  The 1997 bid  processes  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 auction process,  ANATEL established  specific
criteria for evaluating the Applications for  Telecommunication  Services filed.
The  criteria  adoption  includes  a  combination  of  technical  and  financial
criteria.  The  following  technical  factors  will be  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, will be
rated according to certain criteria established in the Revised MMDS Rule and set
forth in the 1997 MMDS tender invitations, as follows: (a) for markets with less
than 300,000  inhabitants,  the technical aspects shall weight 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 will be weighed equally;
and, (c) in markets with more than  700,000  inhabitants,  the offer price shall
weigh more  heavily  than the  technical  aspects.  Once an MMDS  concession  is
granted by ANATEL,  the license  holder will be required to submit,  within four
months, an installation  proposal for its MMDS system's  headend.  Subsequent to
approval of such  proposal,  construction  will be required to be finalized  and
commercial  operations commenced within 12 months;  however,  this period may be
extended for an additional 12 months.

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

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

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

                                       9
<PAGE>

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  6,000  square  feet  of  office space in Sao Paulo for TV
FILME Programadora.  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.

      None.

EXECUTIVE OFFICERS OF THE REGISTRANT

      The following  table sets forth certain  information  as of March 20, 1998
with respect to each person who is an executive officer of the Company:

                NAME                                 POSITION
                ----                                 --------

Hermano Studart Lins de Albuquerque  Chief Executive Officer, Secretary and
                                     Director
Carlos Andre Studart Lins de
  Albuquerque.....................   President, Chief Operating Officer,
                                     Treasurer and Director
Alvaro J. Aguirre.................   Chief Financial Officer and Director

      HERMANO  STUDART  LINS  DE  ALBUQUERQUE,  one  of the  co-founders  of the
Company,  has served as Chief Executive Officer,  Secretary and a director of TV
Filme 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. Mr. Lins is 35 years old.

      CARLOS ANDRE STUDART LINS DE ALBUQUERQUE, one of the  co-founders  of  the
the Company, has served as President,  Chief Operating Officer and a director of
TV Filme  since its  incorporation.  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. Mr. Lins is 33 years old.

      ALVARO J. AGUIRRE has served as Chief Financial  Officer and a director of
TV Filme since June 1996. Prior to joining TV Filme, Mr. Aguirre was a member of
the Latin America Corporate  Finance Group of Morgan Stanley & Co.  Incorporated
from  1994 to 1996  and a  securities  attorney  at the law firm of  Sullivan  &
Cromwell from 1991 to 1994.  Mr. Aguirre is 31 years old.

                                       10
<PAGE>

                                  PART II

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

      The Company's common stock, $0.01 par value per share (the "Common Stock")
commenced  trading  on the  Nasdaq  National  Market on July 30,  1996 under the
symbol  ("PYTV").  The following table reflects the high and low sale prices for
the Common Stock,  as reported by the Nasdaq  National  Market,  for the periods
indicated:

                                                              HIGH        LOW
                                                              ----        ---
                                                                 (Per Share)
         11997
         -----
         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

         1996
         ----
         Fourth Quarter..................................   $16          $11-1/4
         Third Quarter (commencing July 30)..............    15-1/2       10


      On March 27, 1998,  there were  approximately 13 stockholders of record of
the Common Stock.  The Company  believes that it has in excess of 400 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.

 tem 6.     Selected Financial Data.

      The selected consolidated balance sheet data as of December 31, 1995, 1996
and 1997 and the selected consolidated  statement of operations data for each of
the years ended December 31, 1993,  1994,  1995, 1996 and 1997 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 selected  consolidated balance sheet data as of December 31, 1993
is derived from  unaudited  financial  statements  and include all  adjustments,
consisting of normal recurring  accruals,  which the Company considers necessary
for a  fair  presentation  of  the  financial  position  for  such  period.  The
Consolidated  Financial  Statements  have been prepared in accordance  with U.S.
GAAP in U.S. dollars.  For this purpose,  amounts in Brazilian  currency for all
periods  presented have been remeasured into U.S. dollars in accordance with the
methodology  set forth in  Statement of Financial  Accounting  Standards  No. 52

                                       11
<PAGE>

("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  are  remeasured  at  exchange  rates in effect  when the  assets  were
acquired or the liabilities were incurred.  All other assets and liabilities are
remeasured at fiscal year end exchange  rates,  and all other income and expense
items are  remeasured  at average  exchange  rates  prevailing  during the year.
Remeasuring  adjustments  are included in net income (loss) for the period.  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)
                                                  ---------------------------------------------------
                                                  1993          1994             1995              1996              1997
                                                  ----          ----             ----              ----              ----
<S>                                              <C>           <C>               <C>           <C>                <C>

                                                                (DOLLARS IN THOUSANDS, EXCEPT
                                                                     OTHER OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Revenues......................................  $   287         $ 2,438         $ 11,404       $   31,388         $  50,547
Operating costs and expenses:
  System operating............................      196             773            2,957            9,593            17,631

  Selling, general and administrative.........      558           2,394            8,975           16,737            27,965

  Depreciation and amortization....                  43             365            2,049            5,921            12,162
                                                --------         --------       ---------       ---------         ----------
    Total operating costs and
      expenses.....................                 797           3,532           13,981           32,251            57,758
                                                --------         --------       ---------       ---------         ----------
Operating loss.....................                (510)         (1,094)          (2,577)            (863)           (7,211)
Other (expense) income.............                  (6)          1,612              360           (1,147)          (12,045)
                                                --------        --------        ---------       ---------         ----------
Net (loss) income..................             $  (516)        $   518         $ (2,217)      $   (2,010)        $ (19,256)
                                                =========       =========       =========       ==========        ==========
Net (loss) income per share (2)....             $ (0.10)        $  0.08         $  (0.27)      $    (0.22)        $   (1.76)
                                                =========       =========       =========       ==========        ==========
Weighted average number of common
  stock and common stock
  equivalents (2)..................               5,295           6,885            8,086            9,256            10,940
                                                ========        =========       =========       ==========         =========
OTHER FINANCIAL DATA:
EBITDA(3)..........................             $  (467)        $  (729)        $   (216)      $    5,330         $   5,026
Capital expenditures...............                 852           3,637           16,621           25,225            37,082

OTHER OPERATING DATA:
Number of subscribers at end of
  year(4)..........................               1,864           7,641           36,594           79,176           111,244
Average monthly revenue per
  subscriber(5)....................             $ 30.43         $ 34.13         $  40.00       $    39.63         $   37.91

                                                                              AS OF DECEMBER 31,
                                                 ----------------------------------------------------------------------------------
                                                  1993          1994             1995              1996              1997
                                                  -----         -----            ----              -----             ----

                                                                            (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit)(6)......              $   279         $ 3,204         $ (6,430)      $  123,263         $  97,723
Pledged securities(7).............                   --                 --          --             33,512            17,324
Property, plant and equipment, net.                 895              4,182        18,870           38,333            63,405
Total assets......................                1,795             10,008        23,683          202,929           186,397
Total long-term debt...............                  --                600           400          140,200           140,000
Stockholders' equity(8).........                    982              6,500         7,895           37,748            22,330

</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").

                                       12
<PAGE>

(3)   EBITDA  is  defined  as  operating   income   (loss)  plus   depreciation,
      amortization  and non-cash  charges.  EBITDA is a commonly used measure of
      performance  in the pay  television  industry.  While EBITDA should not be
      construed as a substitute for operating  income (loss) or a better measure
      of liquidity  than cash flow from operating  activities,  each of which is
      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 any future debt
      service.  EBITDA,  however,  is not necessarily a measure of the Company's
      ability  to fund its cash  needs,  because  it does  not  include  capital
      expenditures, which the Company expects to continue to be significant. 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)   Working capital includes current portion of pledged securities.

(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
mid-sized  markets in Brazil.  The  Company is the sole  provider of MMDS in the
cities of  Brasilia,  Goiania  and  Belem.  Since  the  beginning  of 1994,  the
Company's  subscriber  base  has  grown  substantially,  increasing  from  1,864
subscribers to 111,244 subscribers as of December 31, 1997.

      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 system EBITDA positive in the third quarter of 1994  with
approximately 6,000 subscribers. The Company's Belem System became system EBITDA
positive in the fourth quarter of 1995 with approximately 5,000 subscribers.

      Each of the Company's  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 requires
an average incremental investment of approximately $470, 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 five years. Beginning in the first quarter of 1998,
the Company will  depreciate  these costs over a four 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 charges its subscribers an installation  fee typically  ranging from

                                       13
<PAGE>

$40 -  $105.  The  Company  defers  installation  fees,  net of  direct  selling
expenses, and recognizes these fees as revenues ratably over a five-year period.
Beginning in the first quarter of 1998, the Company will recognize these fees as
revenues ratably over a four-year period.

      The Company's substantial subscriber growth has resulted from the addition
of subscribers  in Brasilia and from the launch of operating  systems in Goiania
and Belem.  Revenues  primarily  consist of monthly fees paid by subscribers for
the programming  packages as well as installation fees recognized for the period
and  advertising  fees.  In the future,  the Company also  anticipates  deriving
revenue from the provision of internet access services. See "Item 1. Business --
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 may continue
to  have,  substantial  effects  on the  Company's  results  of  operations  and
financial  condition.  The Company does not seek to hedge  currency risks in the
financial  markets or  otherwise.  See "-- Certain  Factors Which May Affect the
Company  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 has had an impact on
many  emerging  markets,  including  Brazil.  As a result of these  events,  the
Brazilian  government  has taken  significant  measures to protect the country's
currency, the REAL, as well as the gains achieved over the last 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, on November 10, 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,  which are having a negative impact on Brazil's economic growth,
are designed to improve the country's  fiscal and current  account  deficits and
relieve pressure on the REAL. Shortly after the Brazilian government implemented
the austerity measures,  the Company began experiencing  increases in delinquent
payments and service  disconnections.  As a result, during November and December
of 1997 the Company  undertook a review of its past due accounts and  terminated
approximately  12,000  additional  subscribers  (over and  above  the  Company's
quarterly churn) prior to year-end, resulting in a slight decrease in the number
of subscribers  from September 30, 1997. In connection with this  termination of
subscribers,  the Company also wrote-off  approximately  $2.1 million of account
receivables.  During the  quarter,  the Company  also added  approximately  $1.9
million to its provision for doubtful accounts. In addition,  effective with the
first quarter of 1998, the Company is also changing its depreciation policy with
respect to installation costs,  including installation labor, decoders and other
direct costs from five to four years.  The Company intends to carefully  monitor
the  credit  worthiness  of its  existing  customer  base  and  that  of any new
subscriber  and  anticipates  that  there  will be  little  to no  growth in its
subscriber base during the first half of 1998.  While the Company  believes that
the negative  impact on Brazil's  economic growth should be temporary in nature,
there  can be no  assurance  that  the  measures  taken  by the  Company  or the
Brazilian government will be successful.

      TV Filme, as a holding  company,  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."

                                       14
<PAGE>

RESULTS OF OPERATIONS

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

                                                                          YEAR ENDED DECEMBER 31,
                                                ------------------------------------------------------------------------------------

                                                              % OF                            % OF                       % OF
                                               1995          REVENUE         1996           REVENUE          1997       REVENUE
                                               ----          -------         ----          --------          ----       -------
<S>                                            <C>             <C>            <C>            <C>             <C>        <C>

Revenues.................................    $11,404          100%         $31,388           100%           $ 50,547       100%
Operating costs and expenses:
System operating.........................      2,957           26%           9,593            31%             17,631        35%
Selling, general and administrative......      8,975           79%          16,737            53%             27,965        55%
Depreciation and amortization............      2,049           18%           5,921            19%             12,162        24%
                                            --------          ----         --------          ----            --------      -----
    Total operating costs and expenses...     13,981          123%          32,251           103%             57,758       114%
                                            --------          -----        --------         ------           --------      -----
    Operating loss.......................     (2,577)         (23%)           (863)           (3%)            (7,211)      (14%)
                                            --------          -----        ---------        ------           --------      -----
Other income (expense):
  Interest  and other  expense...........        (49)          (0%)         (1,049)           (3%)           (19,183)      (38%)
  Interest and other income..............        475            4%             664             2%              8,969        18%
  Exchange and translation gains (losses).       (66)          (1%)           (762)           (2%)            (1,863)       (4%)
                                             ---------        -----        ---------        -------         ---------     ------
        Total other income(expense).......       360            3%          (1,147)           (4%)           (12,045)      (24%)
                                             ---------        ------       ---------        -------         ---------     ------
Net income (loss)..........................  $(2,217)         (19%)        $(2,010)           (6%)          $(19,256)      (38%)
                                              --------        ------       ---------        -------         ---------     ------
Net income (loss) per share................  $ (0.27)                      $ (0.22)                         $  (1.76)
                                             =========                     =========                        =========
Weighted average number of
  shares of common stock and
  common stock equivalents.................    8,086                         9,256                            10,940
                                             =========                     =========                        =========
Other Data:
 EBITDA(a) ................................  $  (216)                      $ 5,330                          $  5,026
                                             =========                     =========                        =========
 Number of subscribers at end
    of  period ............................   36,594                        79,176                           111,244
                                             =========                     =========                        ==========

</TABLE>

(a) EBITDA is defined as operating income (loss) plus depreciation, amortization
and non-cash charges. EBITA is a commonly used measure of performance in the pay
television  industry.  While EBITDA should not be construed as a substitute  for
operating  income  (loss) or a better  measure of liquidity  than cash flow from
operating  activities,  which are  determined in  accordance  with United States
GAAP,  it is included  herein to provide  additional  information  regarding the
ability  of the  Company  to meet  its  capital  expenditures,  working  capital
requirements  and future debt service.  EBITDA,  however,  is not  necessarily a
measure of the  Company's  ability to fund its cash  needs,  because it does not
include  capital  expenditures,  which the  Company  expects to  continue  to be
significant.

      REVENUES. The Company's revenues primarily consist of monthly fees paid by
subscribers for the programming package, as well as installation fees recognized
for the  period,  net of sales  taxes.  For  1997  compared  to  1996,  revenues
increased by approximately $19.2 million, or approximately 61%, primarily due to
an  aggregate  increase of 36,342 in the average  number of  subscribers  in the
Company's  three  operating  systems.  This increase was offset,  in part, by an
increase  in taxes  on  revenues  from  approximately  2.7% to 7.7% in  Brasilia
(effective  January  1, 1997)  which  represented  a net  revenue  reduction  of
approximately  $1.6 million for 1997.  Average  monthly  revenue per  subscriber
decreased $1.72 to $37.91 in 1997,  primarily as a result of the depreciation of
the REAL to the U.S. dollar and increased soft disconnects resulting from higher
delinquency   rates.   For  1996  compared  to  1995,   revenues   increased  by
approximately  $20.0  million,  or  approximately  175%,  primarily  due  to  an
aggregate increase of approximately  39,000 in the average number of subscribers
in the Company's three operating systems. Average monthly revenue per subscriber
remained essentially constant from 1995 to 1996.

                                       15
<PAGE>

      SYSTEM  OPERATING   EXPENSES.   System   operating   expenses  consist  of
programming  costs  (including  costs  associated  with developing and producing
proprietary programming content), costs for the programming guide distributed to
subscribers,  a portion of costs of compensation  and benefits for the Company's
employees,   vehicle  rental  costs,   transmitter  site  rentals,  repairs  and
maintenance  expenditures  and service  call costs.  For 1997  compared to 1996,
system  operating  expenses   increased  by  approximately   $8.0  million,   or
approximately 84%, primarily due to additional  programming and production costs
directly associated with the increase in the Company's installed subscriber base
(approximately  $3.5  million),  costs  associated  with the  development of the
Company's  proprietary  programming  initiatives  (approximately  $1.5 million),
higher programming guide expenses (approximately $0.6 million) as a result of an
increase  in  circulation  as well as in the per issue  cost of the  programming
guide and  compensation  and benefits  (approximately  $2.5  million).  For 1996
compared to 1995,  system operating  expenses  increased by  approximately  $6.6
million, or 220%, primarily due to an increase in programming expense associated
with an increase in the  subscriber  base  (approximately  $6.0  million) and an
increase in compensation and benefits  (approximately  $0.4 million),  primarily
due to additional employees in the customer service and engineering departments.
During 1995,  programming  expenses were mitigated by volume discounts  obtained
from Tevecap during the first ten months of the year aggregating  $539,000.  The
Company  did not  receive  any such  discounts  in either  1996 or 1997 and such
discounts are not expected to recur.

      SELLING,  GENERAL AND ADMINISTRATIVE  EXPENSES. For 1997 compared to 1996,
selling, general and administrative ("SG&A") expenses increased by approximately
$11.2  million,  or  approximately  67%,  primarily due to growth in the average
number  of  installed   subscribers  which  was  supported  by  an  increase  in
advertising and promotion (approximately $2.0 million) and resulted in increases
in  compensation  and  benefits  (approximately  $2.0  million),  provision  for
doubtful accounts  (approximately  $3.7 million),  bank fees (approximately $0.5
million) and all other SG&A  expenses  (approximately  $3.0  million).  For 1996
compared to 1995,  SG&A expenses  increased by  approximately  $7.7 million,  or
approximately  85.6%,  primarily due to increases in  compensation  and benefits
(approximately $3.4 million) resulting from additions to management,  additional
employees in the sales  department and more commissions paid to sales employees,
provision  for  doubtful  accounts  (approximately  $1.0  million),  advertising
expenses  (approximately $0.8 million) and bank fees and property rental expense
(approximately $0.8 million).

      The  termination  of subscriber  accounts for  nonpayment  resulted in the
write-off of accounts receivables of approximately $3.9 million in 1997 compared
to $0.95  million in 1996.  See "--  Overview."  As of December  31,  1997,  the
Company's  accounts  receivable  totaled  approximately  $9.5 million  before an
allowance for doubtful accounts of $1.7 million.

      DEPRECIATION AND  AMORTIZATION.  Depreciation  and  amortization  expenses
consist  primarily of  depreciation  of decoder  boxes,  headend  facilities and
installation  costs.  Beginning with 1998,  these costs will be capitalized  and
depreciated  over a four year  period.  During 1997 and all prior  years,  these
costs  were  capitalized  and  depreciated  over a five  year  period.  For 1997
compared  to  1996,   depreciation  and  amortization   expenses   increased  by
approximately $6.2 million,  or approximately  105%,  primarily due to growth in
the number of installed  subscribers  in each of the Company's  three  operating
systems.  For 1996  compared  to 1995,  depreciation  and  amortization  expense
increased by approximately $3.9 million,  or approximately  195%, also primarily
due to increases in the number of installed subscribers in each of the Company's
three operating systems.

      OPERATING  LOSS.  Operating loss increased from 1995 to 1996 and from 1996
to  1997  primarily  due  to  increases  in  expenses  in  connection  with  the
development  of the  Company's  business,  as explained  below.  The Company may
continue to  generate  operating  losses as it expands its systems and  develops
additional systems.

      INTEREST EXPENSE. For 1997 compared to 1996, interest expense increased by
approximately  $18.1  million,   primarily  as  a  result  of  accrued  interest
associated with the Senior Notes.  For 1996 compared to 1995,  interest  expense
increased by $1.0 million,  primarily as a result of higher  average  short-term
borrowings  from  Abril and  certain  of its  affiliates  and  accrued  interest
associated with the Senior Notes.

      INTEREST INCOME.  Interest income increased by approximately  $8.3 million
for 1997 compared to 1996, primarily as a result of interest income derived from
investing  a portion  of the net  proceeds  from the  Company's  initial  public
offering of Common Stock in August 1996 (the "Initial Public  Offering") and the
Senior Notes offering.  Interest income increased by approximately  $0.3 million
for 1996 compared to 1995, primarily from earnings on additional investments.

                                       16
<PAGE>

      EXCHANGE AND TRANSLATION GAINS  (LOSSES).  Exchange and  translation gains
(losses) have arisen primarily as a result of converting short-term  investments
and  borrowings in REAIS to U.S.  dollars in accordance  with SFAS No. 52. These
amounts can fluctuate  significantly as a result of changes in the exchange rate
of the REAL  relative  to the  U.S.  dollar.  Exchange  and  translation  losses
increased  in 1997  compared  to  1996  as a  result  of  additional  short-term
investments in REAIS.

      INCOME TAXES.  At December 31, 1997, the Company had  approximately  $45.4
million of net operating loss carryforwards, of which approximately $1.2 million
were attributable to TV Filme Servicos.  As a result of the  restructuring  (the
"Restructuring"),  the net operating loss  carryforwards  of TV Filme  Servicos,
which is no longer a wholly-owned  subsidiary of the Company, are available only
to offset its own income and are not  available to offset any profits  generated
by TV  Filme  and  its  consolidated  subsidiaries.  Under  Brazilian  law,  the
carryforward period for net operating losses is unlimited.  Use of these losses,
however, is restricted to 30% of taxable income in a tax period. The Company has
not  recorded a tax  benefit for any  period.  The  Company  expects to generate
operating losses for the foreseeable  future.  Brazilian  marginal corporate tax
rates are approximately 33.0%.

      NET LOSSES.  As explained  above,  net losses in the years  presented,  is
primarily  attributable to the significant  expenses incurred in connection with
the future  development  of the  Company's  business and net  interest  expenses
associated with the Senior Notes.

LIQUIDITY AND CAPITAL RESOURCES

      The pay television  business is a capital intensive  business.   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,  (ii)  capital
markets  financings,  (iii) vendor  financing which generally  requires  payment
within 360 days of shipment,  some of which has 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,  1997,  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,  1997,  the  Company  had a payable  to Abril of  $200,000  in
connection  with the Company's  purchase of the Belem and Goiania  licenses from
Abril.  The $200,000 which remained  outstanding at December 31, 1997 was repaid
in February 1998.

      As of December 31, 1997,  approximately $7.7 million was outstanding under
letters of credit with  maturities  ranging from 270 days to 360 days,  of which
approximately  $0.1 million was  guaranteed  by  affiliates  of TV Filme.  As of
December  31,  1997,  the  Company had import  lines of credit in the  aggregate
amount of $23.6  million with three  commercial  banks,  of which  approximately
$15.9 million was available on such date.  The Company  currently  believes that
import lines of credit,  additional vendor financing and other credit facilities
are available on acceptable  terms.  As a result of the Initial Public  Offering
and the Senior  Notes  offering,  the Company had  positive  working  capital at
December 31, 1997 in the amount of $97.7 million. Net cash provided by operating
activities for the twelve months ended December 31, 1997 was approximately  $1.9
million.

      The Company made  capital  expenditures  of  approximately  $37.1  million
during 1997. Such capital  expenditures  were financed through the proceeds from
the  Initial  Public  Offering  and the  Senior  Notes  offering  and from  cash
generated from the Company's operations. In addition to expanding its subscriber
base in its  existing  systems,  the  Company is  seeking  to launch  additional
systems. In September 1997, the Ministry of Communications announced the bidding
process by which  additional  pay-TV  licenses  will be awarded  throughout  the
country.  This  award  process  commenced  in  October  1997.  However,  due  to
challenges made to the bidding process by several  bidders,  the bidding process
has been  postponed.  The Company  intends to actively  pursue  licenses as they
become available for bid; however,  there can be no assurance as to the grant of
any

                                       17
<PAGE>

such concessions and licenses and the timing of any such grants  generally.  See
"Item 1.  Business  - Company  Overview"  and "-  Regulatory  Environment."  The
Company  also  from  time to time may  selectively  pursue  the  acquisition  of
existing pay  television  systems,  although it currently has no  understanding,
commitment  or  agreement  with  respect to any such  acquisitions.  The Company
believes that its current cash and internally generated funds will be sufficient
to fund the cash  requirements  of its  existing  business for at least the next
twelve months and has invested its available cash  predominantly  in U.S. dollar
denominated  short-term marketable  securities.  As of December 31, 1997, of the
Company's  $98.3  million  in cash and  cash  equivalents,  approximately  $85.5
million  (approximately  87.0%) of which was invested in U.S. dollar denominated
securities.  The  Company  expects  that  the  percentage  of its  cash and cash
equivalents invested in U.S. dollar denominated  securities will decrease during
1998. In the longer term,  the Company's  funding needs are subject to a variety
of  factors,   including  the  number  and  size  of  new  system   launches  or
acquisitions,  the implementation of alternative  transmission  technologies and
the offering of additional the telecommunications services.  Accordingly,  there
can be no assurance  that the Company will be able to meet its funding  needs in
the longer term.

INFLATION AND EXCHANGE RATES

      Inflation and exchange rate variations have had, and may continue to have,
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  Brazilian  law  designed  to  reduce
inflation, the rates which the Company may charge to a particular subscriber may
not  be  increased  until  the  next  anniversary  of the  subscriber's  initial
subscription  date.  Thus, the Company is less able to offset expense  increases
with revenue increases. Accordingly,  inflation may have 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. Devaluation of the REAL may also
have an adverse effect on the Company. 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
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)  will  be  adversely
affected.  This  effect on the  Company's  revenues  may  negatively  impact the
Company's  ability  to  fund  U.S.   dollar-based   expenditures.   Accordingly,
devaluation  of the REAL may have a  material  adverse  effect on the  Company's
results of operations and financial condition.

      The recent  economic and  financial  turmoil in Southeast  Asia has had an
impact on many emerging markets,  including Brazil. As a result of these events,
the Brazilian  government has taken significant measures to protect the REAL, as
well as the gains  achieved over the last several years by the Real Plan.  Among
other actions, on October 27, 1997,  Brazil's Central Bank significantly  raised
short-term  interest rates, and, on November 10, 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,  which are having a negative impact on
Brazil's  economic  growth,  are  designed to improve the  country's  fiscal and
current  account  deficits  and relieve  pressure on the REAL.  During the first
quarter  of  1998,  short-term  interest  rates  declined  somewhat  but  remain
substantially   higher  than  the  rates  in  effect  prior  to  the   Brazilian
government's  October  and  November   initiatives.   The  Brazilian  government
continues to attempt to protect its currency through various  mechanisms.  These
include  maintaining high short-term  interest rates and maintaining high levels
of import  duties on  various  products,  including  many  products  used by the
Company.  The  short-term  effect of these  policies  has been a  tightening  of
consumer  credit and increased rates of  unemployment.  Soon after the austerity
measures were initiated, the Company began to experience an increase in the rate
of delinquent customers and service  disconnections.  While the Company believes
these  difficulties are temporary in nature,  there can be no assurance that the
measures  taken by the government  will be  successful,  or that the increase in
delinquent payments and service disconnections will abate.

                                       18
<PAGE>

YEAR 2000

      The  Company has  conducted  an  evaluation  of its  computer  systems and
network for Year 2000 compliance. Based on such evaluation, the Company believes
that a  substantial  portion of its software and hardware  systems are Year 2000
compliant.  The Company does not anticipate that it will be required to make any
significant  capital  expenditures  in order to make its remaining  systems Year
2000 compliant.


CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE RESULTS

FACTORS RELATING TO BRAZIL GENERALLY

      GENERAL.   Social,   economic  or  political   instability,   among  other
developments  in Brazil,  could  adversely  affect the  financial  condition and
results of operations of the Company. In the past, Brazil has suffered from high
levels of inflation, low real growth rates and political uncertainty.  Brazil is
generally considered by investors to be an "emerging market" and thus political,
economic,  social or other  developments  in other such  markets  may  adversely
affect the Company.  Recent events in Southeast Asia and the anticipated  impact
on the REAL have  caused  the  Brazilian  government  to  implement  a number of
significant  measures to protect the value of the REAL.  Through these austerity
measures,  the  Brazilian  government  has  been  able to  sustain  the  rate of
devaluation  of  the  REAL  at  levels  prior  to  the  Southeast  Asian  events
(approximate  devaluations  against  the U.S.  dollar of  0.6%-0.7%  per month).
However,  there can be no  assurance  that these  policies  will  continue to be
successful.

      ECONOMIC  UNCERTAINTY;  EFFECTS OF EXCHANGE RATE  FLUCTUATIONS.  Until the
past several years, Brazil has experienced extremely high rates of inflation for
many years.  Inflation,  as measured by the Getulio Vargas Foundation's  General
Index of Market  Prices  (the "IGPM  Index"),  was  approximately  458% in 1991,
1,175% in 1992,  2,567% in 1993,  870% in 1994,  15% in 1995,  9% in 1996 and 8%
1997.  Inflation,  government actions to combat inflation and public speculation
about future  actions have had  significant  negative  effects on the  Brazilian
economy in general and have also contributed  materially to economic uncertainty
in Brazil. 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 in its  expenses  and may set its  prices  without
government   regulation.   However,  under  Brazilian  law  designed  to  reduce
inflation, the rates which the Company may charge to a particular subscriber may
not  be  increased  until  the  next  anniversary  of the  subscriber's  initial
subscription  date.  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.

      Brazil's  rate  of  inflation  and  the  government's  actions  to  combat
inflation have also affected the relationship of the value of Brazil's  currency
to the value of the U.S. dollar. Historically,  Brazil's currency frequently had
been devalued in relation to the U.S. dollar.  However,  after its introduction,
the REAL initially  appreciated against the U.S. dollar. In an effort to address
concerns  about the  possible  overvaluation  of the REAL  relative  to the U.S.
dollar,  and in light of the economic  upheaval in Mexico that resulted from the
rapid  devaluation of the Mexican peso,  the Brazilian  government in March 1995
introduced new exchange rate policies  which  established a trading band for the
REAL against the U.S. dollar. This band has been adjusted frequently, and, as of
December 31, 1997,  was between  1.1149 REAIS and 1.1157 REAIS per U.S.  dollar.
From December 31, 1996 to December 31, 1997, the REAL declined in value relative
to the U.S. dollar by approximately  7%. There can be no assurance that the REAL
will not again be devalued  relative to the U.S.  dollar,  or that the REAL will
not fluctuate significantly relative to the U.S. dollar.

      Substantially  all of the Company's  revenues are  denominated in reais. A
substantial  portion of the  Company's  indebtedness  is, and may be expected to
continue  to be,  denominated  in U.S.  dollars.  In  addition,  certain  of the
Company's operating  expenses,  including a substantial portion of its equipment
costs and a portion of its programming  costs, are denominated in U.S.  dollars.
Any devaluation of the Brazilian  currency  relative to any foreign  currency in
which debt or other obligations of the Company are denominated could result in a
foreign exchange loss with respect to such indebtedness or obligations,  if such
devaluation were in excess of inflation and the rate at which the Company raises
prices.  Any  devaluation  could  also  force  the  Company  to seek  additional
financing  although  the  Company's  ability  to obtain  such  financing  may be
impaired by such event. As a result,  the  relationship of Brazil's  currency to
the value of the U.S. dollar and other currencies,  and the rates of devaluation
of  Brazil's  currency  relative  to the  prevailing  rates  of  inflation,  may

                                       19
<PAGE>

adversely  affect the  Company's  financial  condition  and reported  results of
operations,  as well as its  ability to meet its debt  service  obligations  and
operating expenses. Moreover, if the Company cannot increase its prices to match
the  rate of  inflation,  even if the  rate of  inflation  matches  the  rate of
devaluation,  the  Company's  ability to meet its debt service  obligations  and
operating expenses may be impaired.

      The Company does not  currently  seek to hedge  exchange rate risks in the
financial  markets or  otherwise,  as it believes that the costs of such hedging
outweigh the related risks.  As a result,  the Company may  experience  economic
loss with respect to its investments and fluctuations in its reported results of
operations  solely as a result of currency rate  fluctuations,  which may have a
material adverse effect on the Company's financial condition.

      FOREIGN EXCHANGE CONTROLS AND EXCHANGE RATES.  There are two legal foreign
exchange markets in Brazil: the commercial rate exchange market (the "Commercial
Market") and the floating rate exchange market (the "Floating Market"). Prior to
the implementation of the Real Plan, the Commercial Market Rate and the Floating
Market Rate differed  significantly.  There can be no assurance  that there will
not be significant differences between such rates in the future.

      RESTRICTIONS  ON CONVERSION  AND U.S.  REMITTANCES  ABROAD.  The Brazilian
Government has the authority under current legislation to impose restrictions on
the remittance  abroad of capital when a serious deficit in Brazil's  balance of
payments is seriously  threatened  or occurs,  as it did for  approximately  six
months in 1989 and early  1990,  and on the  conversion  of REAIS  into  foreign
currencies.  Such  restrictions  may hinder or prevent the  Company's  Brazilian
subsidiaries from purchasing  equipment  required to be paid for in U.S. dollars
and from  converting  dividends  or  distributions  or  scheduled  interest  and
principal  payments into U.S. dollars and remitting U.S. dollars to TV Filme and
from  making  payment  on  judgments  obtained  in  a  court  in  Brazil.   Such
restrictions  could  adversely  affect the  Company.  The Company  could also be
adversely  affected by delays in, or a refusal to grant, any required  Brazilian
governmental  approval for conversion of REAL payments and remittances abroad in
respect of such dividends, distributions, interest and principal payments.

      There can be no assurance  that the Brazilian  Government  will not in the
future impose more restrictive foreign exchange  regulations that would have the
effect of eliminating or  restricting  the Company's or any of its  subsidiaries
access to foreign  currency that would be required to meet its foreign  currency
obligations.  Although no such  regulations were imposed in 1997, the likelihood
of the  imposition  of such  restrictions  by the  Brazilian  Government  may be
affected  by,  among  other  factors,  the extent of Brazil's  foreign  currency
reserves,  the  availability of foreign currency in the foreign exchange markets
on the date a payment is due, the size of Brazil's debt service burden  relative
to the economy as a whole, and Brazil's policy toward the International Monetary
Fund and political constraints to which Brazil may be subject.

      POLITICAL  UNCERTAINTY.  Historically,  the Brazilian Government has often
changed monetary,  credit,  tariff and other policies to influence the course of
Brazil's economy.  Such government actions have included wage and price controls
as well as other  measures,  such as freezing bank  accounts,  imposing  capital
controls  and  inhibiting  imports  and  exports.  A  primary  objective  of the
Brazilian  Government in recent years has been to control  government  spending.
Some  progress has been made,  but fiscal  deficits  remain  high.  Reducing the
deficit is made more  difficult  by Brazil's  Constitution,  which  requires the
Brazilian   Government  to  make  substantial   funds  available  to  the  state
administrations,  while  limiting the  Brazilian  Government's  ability to raise
sufficient funds from taxes.  Changes in policy  involving,  among other things,
tariffs,  exchange controls,  regulatory policy and taxation,  as well as events
such as inflation,  devaluation, social instability or other political, economic
or diplomatic  developments,  could adversely  affect the Brazilian  economy and
have a  material  adverse  effect on the  Company's  results of  operations  and
financial  condition.  In 1997 and 1998,  the  Brazilian  government  instituted
additional austerity measures, including a 10% increase in income tax rates, the
proposed elimination of certain government positions,  and changes to retirement
benefits,  to attempt to reduce the fiscal deficit of the Brazilian  Government.
The success of these measures cannot be assured, however.

      The  Brazilian  political  environment  has been  marked by high levels of
uncertainty  since  Brazil  returned to civilian  rule in 1985 after 20 years of
military government.  The death of a President-elect in 1985 and the resignation
of another  President in 1992 in the midst of his impeachment  trial, as well as
frequent  turnover at and immediately  below the cabinet level, have contributed
to delays in the  adoption of coherent  and  sustained  policies to confront the
country's  economic  issues.  Mr. Fernando  Henrique  Cardoso,  Brazil's Finance
Minister  at the  time of the  implementation  of the  Real  Plan,  was  elected

                                       20
<PAGE>

President of Brazil in October 1994 and took office in January  1995.  President
Cardoso was elected by a coalition of political  parties,  and, as a result, his
administration  may be  required to accept  more  compromises  than if his party
controlled the Brazilian legislature.  A new election for President and Congress
will be held in the last quarter of 1998;  President  Cardoso has  announced his
intention to stand for  reelection.  President  Cardoso has  supported  the Real
Plan, the reduction of inflation, privatization measures and certain free-market
policies and has successfully implemented many of his desired policies. However,
many political  factions oppose certain of the  administration's  policies,  and
there can be no assurance that any of the administration's  policies,  including
the Real Plan, will continue to be supported by the legislature.

      FACTORS RELATING TO THE COMPANY

      SUBSTANTIAL  LEVERAGE.  In December  1996,  TV Filme  issued $140  million
aggregate  principal  amount of Senior Notes.  At December 31, 1997, the Company
had  total  long-term  debt  of  $140  million  and   stockholders'   equity  of
approximately  $22.3  million.  The  Company's  leverage  could:  (i) impair the
Company's  ability to obtain additional  financing for working capital,  capital
expenditures,  acquisitions, general corporate purposes or other purposes in the
future;  (ii) require that a substantial  portion of the  Company's  future cash
flow from  operations  be dedicated to the payment of principal  and interest on
its  indebtedness;  (iii)  hinder the  Company's  ability  to adjust  rapidly to
changing  market  conditions;  and (iv) make the Company more  vulnerable in the
event of a downturn in general  economic  conditions or its  business.  The long
term growth of the  Company  depends,  in part,  on its ability to expand by the
development  or  acquisition  of new operating  systems or expansion  into other
telecommunications  businesses  and,  therefore,  an  inability  to finance such
development or acquisitions through borrowed funds could have a material adverse
effect on the Company's operations.

      HOLDING COMPANY STRUCTURE;  DEPENDENCE ON SUBSIDIARIES.  TV Filme conducts
its operations through, and substantially all of TV Filme's assets are owned by,
TV  Filme's  direct  and  indirect  subsidiaries.  Because TV Filme is a holding
company,  its ability to distribute dividends and meet its debt obligations will
be  primarily   dependent  upon  the  earnings  of  its   subsidiaries  and  the
distribution  of those  earnings to, or upon loans or other  payment of funds by
the  subsidiaries  to, the Company.  The  subsidiaries are separate and distinct
legal  entities and have no  obligation,  contingent  or  otherwise,  to pay any
amounts to  creditors  of the Company or to make any funds  available  therefor,
whether by  dividends,  loans or other  payments.  In  addition,  the payment of
dividends  from such  subsidiaries  and the  payment of any  interest  on or the
repayment  of any  principal  of any loans or  advances  made to TV Filme by its
subsidiaries, or by TV Filme to its subsidiaries (i) may be subject to statutory
or  contractual  restriction,  (ii) are  contingent  upon the  earnings  of such
subsidiaries and (iii) are subject to various business considerations.

      LIMITED OPERATING HISTORY;  LACK OF PROFITABLE  OPERATIONS;  MANAGEMENT OF
GROWTH. The Company commenced operations in Brasilia in October 1990, in Goiania
in January 1995 and in Belem in February 1995. Since inception,  the Company has
sustained  substantial  operating  losses,  due primarily to start-up  costs and
charges for depreciation and amortization of capital expenditures to develop its
wireless  cable  systems.  The Company  expects to  experience  net losses as it
expands its existing systems and develops  additional  systems.  There can be no
assurance  that the Company will be profitable  or will  generate  positive cash
flow in future years.  The Company is  experiencing  rapid  growth,  which could
place a  significant  strain on its  operational  and personnel  resources.  The
Company's  growth will  require it to continue  to improve its  operational  and
financial systems and to train, motivate and manage its employees. If management
is unable to manage the Company's growth effectively,  or if the productivity of
its employees falls below expectations,  it could have a material adverse effect
on the Company's results of operations and financial condition.

      NEED FOR  ADDITIONAL  FINANCING  FOR GROWTH.  The growth of the  Company's
business  requires  substantial  investment on a continuing basis to finance (i)
capital  expenditures  and  expenses  related  to  subscriber  growth and system
development,  (ii) the acquisition of new pay television licenses and operations
and (iii) net losses. There can be no assurance that the Company will be able to
obtain  additional debt and equity capital on satisfactory  terms, or at all, to
meet its future financing needs. Furthermore, the Indenture restricts the amount
of additional  Indebtedness (as defined therein) the Company may incur,  subject
to  certain  qualifications  and  exceptions.  Failure  to obtain  any  required
additional  financing  could  adversely  affect the growth of the  Company  and,
ultimately, could have a material adverse effect on the Company.

      RISKS  ASSOCIATED WITH NEW MARKETS AND GROWTH AND EXPANSION  STRATEGY.  In
September 1997, the Ministry of Communications  announced the bidding process by

                                       21
<PAGE>

which  additional  pay-TV licenses will be awarded  throughout the country.  The
official  bidding process  commenced in October 1997 and, to date, seven license
tender  invitations,  for 92 markets  covering  approximately  8.2  million  LOS
households,  have been issued by the Brazilian  Ministry of  Communications  for
MMDS. However, due to challenges made to the bidding process by several bidders,
the date for  submission of proposals has been  postponed.  Although the Company
anticipates  that the bidding process will recommence in the first half of 1998,
there can be no assurance that the bidding  process will recommence in such time
frame.  The  Company  intends to actively  pursue  such  licenses as they became
available  for bid;  however,  there can be no  assurance as to the grant of any
such  concessions  and  licenses  and the timing of such grants  generally.  The
Company also may seek to enter into  operating  agreements  with pay  television
license holders or seek to acquire licenses granted to others,  but there can be
no  assurance  that the  Company  will be able to enter into any such  operating
agreements or consummate  any such license  acquisitions.  The Company  believes
that the cost of purchasing or acquiring licenses has increased substantially in
recent  years and will  continue  to  increase,  due to  increased  competition.
Similarly,  the cost of operating  wireless  cable  systems has increased due to
competition.  The Company's ability to expand successfully  through acquisitions
depends on many factors, including the successful identification and acquisition
of such systems and  management's  ability to integrate and operate the acquired
businesses  effectively.  The Company  may compete for new system  opportunities
with other companies that have  significantly  greater  financial and managerial
resources.  There can be no  assurance  that the Company will be  successful  in
obtaining new licenses or launching or acquiring any new pay television  systems
or that the Company will be able to integrate  successfully any acquired systems
into its current  business and operations.  The failure of the Company to obtain
new licenses or launch or acquire new pay  television  systems  could impede its
growth.  The failure of the Company to integrate  successfully  acquired systems
could have a material adverse effect on the Company's  results of operations and
financial condition.

      In order to finance further  subscriber growth,  capital  expenditures and
related expenses for additional system development and acquisitions, the Company
may  require  additional  funds in the  future.  The  amount  and  timing of the
Company's future capital requirements will depend upon a number of factors, many
of which  are not  within  the  Company's  control,  including  the grant of new
licenses, programming costs, capital costs, competitive conditions and the costs
of any necessary  implementation  of  technological  innovations  or alternative
technologies.  There  can be no  assurance  that the  Company's  future  capital
requirements   will  be  met  or  will  not  increase  as  a  result  of  future
acquisitions,  if any. Failure to obtain any required additional financing could
adversely  affect  the  growth of the  Company  and,  ultimately,  could  have a
material  adverse  effect on the Company's  results of operations  and financial
condition.

      In  the  future,   the  Company  may  expand  its  operations  into  other
telecommunications   businesses.   However,   the  ability  of  the  Company  to
successfully  expand its operations is subject to a number of factors  including
its ability to secure additional  financing and the current  inexperience of the
Company's management team in operating such  telecommunications  businesses.  In
addition,  competition in such businesses is likely to be fierce and many of the
actual and potential  competitors  in such  telecommunications  businesses  will
likely have greater  financial,  marketing and other resources than the Company.
No assurance can be given that the Company will be able to compete  successfully
in any new telecommunications business venture.

      COMPETITION.  Through  its  subsidiaries,  the  Company is the only entity
licensed to operate  wireless cable systems in Brasilia,  Goiania and Belem. The
Company's  principal  pay  television  competitor in the city of Brasilia is NET
Brasilia,  and in the city of Goiania is Multicanal,  both of which are hardwire
cable operators and are affiliates of the Globo Organization. There currently is
no hardwire or other wireless  cable provider in the city of Belem.  In addition
to other wireless cable and hardwire cable  operators,  wireless cable operators
in Brazil face or may face  competition  from several other sources,  DBS, local
off-air VHF/UHF channels, home videocassette recorders and out-of-home theaters.
Currently,  there are two DBS  providers  in Brazil,  "Sky," an affiliate of the
Globo Organization, and Direct TV, an affiliate of Tevecap. A third DBS operator
is  currently   launching  service  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 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.

      GOVERNMENT REGULATION.  The Company's business activities are regulated by
ANATEL. Such regulation relates to, among other things, licensing,  local access

                                       22
<PAGE>

to MMDS systems,  commercial advertising and foreign investment in MMDS systems.
Changes  in the  regulation  of the  Company's  business  activities,  including
decisions by regulators affecting the Company's operations (such as the granting
or renewal of licenses or decisions as to the subscription rates the Company may
charge its customers) or changes in interpretations  of existing  regulations by
courts or regulators,  could  adversely  affect the Company.  The Company's MMDS
licenses may not be transferred without regulatory approval,  although its three
licenses  were  successfully  transferred  in 1997 from TV Filme  Servicos to TV
Filme Brasilia,  TV Filme Goiania and TV Filme Belem. Any new regulations  could
have a material adverse effect on the pay television  industry,  as a whole, and
on the Company, in particular.

      DEPENDENCE ON SUPPLIERS.  The Company is dependent on certain suppliers of
its programming and equipment. The Company currently purchases substantially all
of its programming from Tevecap and its subsidiaries pursuant to the Programming
Agreement.  The  terms of the  Programming  Agreement  terminate  in July  2004.
Although  the  Company  has no reason to  believe  that such  agreement  will be
canceled  or will not be  renewed  upon its  expiration,  if such  agreement  is
canceled or not renewed,  the Company will have to seek  programming  from other
sources.  In addition,  there can be no assurance that other programming will be
available to the Company on acceptable terms or at all or, if so available, that
such programming will be acceptable to the Company's subscribers.  Additionally,
there can be no assurance that  programming  will be available to the Company in
its  application  markets on acceptable  terms,  although  Tevecap has agreed to
provide  programming on a non-exclusive  basis 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.  There also can be no assurance that
Tevecap's  and  its  subsidiaries'   contracts  with  their  individual  program
suppliers are or will remain exclusive,  will not be canceled or will be renewed
upon  expiration.  There can be no  assurance  that if Tevecap's  contracts  are
canceled or not  renewed,  other  programming  will be  available  to Tevecap on
acceptable terms or at all.

      The Company  currently  purchases  decoders  and  antennas  from a limited
number of sources.  The  inability to obtain  sufficient  components as required
from such 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 the results of  operations  and
financial condition of the Company.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

      Not currently applicable to the Company.

                                       23

<PAGE>

Item 8.  Financial Statements and Supplementary Data.

      The following  statements  are filed as part of this Annual Report on Form
10-K:
                                                                 FORM 10-K
                                                                  PAGE NO.
                                                                 ----------
FINANCIAL STATEMENTS:

  TV FILME, INC.:
      Report of Independent Auditors..........................       25

      Consolidated Balance Sheets as of December 31, 1996 and
      1997....................................................       26

      Consolidated Statements of Operations for the years
      ended December 31, 1995, 1996, and 1997.................       27

      Consolidated Statements of Changes in Stockholders'
        Equity for the years ended December 31, 1995,
        1996 and 1997.........................................       28

      Consolidated Statements of Cash Flows for the years
        ended December 31, 1995, 1996 and 1997................       29

      Notes to Consolidated Financial Statements..............       30




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







                                       24
<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,  1997 and  1996,  and the  related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for each of the three years  ended  December  31,  1997.  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,  1997 and  1996,  and the
consolidated  results of its  operations  and its cash flows for the three years
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles in the United States.




                                          ERNST & YOUNG
                                          AUDITORES INDEPENDENTES S.C.

Sao Paulo, Brazil
March 27, 1998


                                       25
<PAGE>


                         TV FILME, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                             DECEMBER 31,
                                                     ---------------------------
                                                      1996               1997
                                                     --------         --------
                                                     (IN THOUSANDS OF DOLLARS)

ASSETS
Current assets:
  Cash and cash equivalents.......................   $116,355         $ 80,975
  Accounts receivable, net........................      3,607            7,832
  Supplies........................................      2,721            5,303
  Prepaid expenses and other current assets.......      1,175            3,178
  Interest receivable.............................         --              679
  Pledged securities-current......................     16,159           16,645
                                                     --------         --------
      Total current assets........................    140,017          114,612
Property, plant and equipment, net................     38,333           63,405
Pledged securities................................     17,353               --
Debt issuance costs...............................      6,036            6,298
Other assets......................................      1,190            2,082
                                                     --------         --------
      Total assets................................   $202,929         $186,397
                                                     ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................   $ 11,106         $ 12,724
Short-term debt...................................      2,926               --
Payroll and other benefits payable................      1,538            2,103
Accrued interest payable..........................        572              751
Accrued liabilities and taxes payable.............        412            1,111
Payables to affiliates-current....................        200              200
                                                     --------         ---------
      Total current liabilities...................     16,754           16,889
Payables to affiliates-long term..................        200               --
Deferred installation fees........................      8,227            7,178
Senior Notes......................................    140,000          140,000
Stockholders' equity:
  Preferred stock, $.01 par value, 1,000,000
    shares authorized, no shares issued...........         --               --
  Common stock, $.01 par value, 50,000,000
    shares authorized, 10,166,176 and 10,825,139
    shares issued and outstanding ................        102              108
    Additional paid-in capital....................     41,825           45,657
    Accumulated deficit...........................     (4,179)         (23,435)
                                                      -------         --------
      Total stockholders' equity..................     37,748           22,330
      Total liabilities and stockholders' equity..   --------         --------
                                                     $202,929         $186,397
                                                     ========         ========




                             See accompanying notes.


                                       26

<PAGE>



                         TV FILME, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31,
                                                      -------------------------------------------
                                                           1995              1996          1997
                                                           ----              ----          ----
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>                <C>           <C>

Revenues.........................................       $ 11,404           $ 31,388      $ 50,547
                                                        --------           --------      --------
Operating costs and expenses:
  System operating-Note 3........................          2,957              9,593        17,631
  Selling, general and administrative............          8,975             16,737        27,965
  Depreciation and amortization..................          2,049              5,921        12,162
                                                         --------          --------       --------
      Total operating costs and expenses.........         13,981             32,251        57,758
                                                         --------          --------       --------
      Operating loss.............................         (2,577)              (863)       (7,211)

Other income (expense):
  Interest and other expense - Note 3............            (49)            (1,049)      (19,151)
  Interest and other income - Note 3.............            475                664         8,969
  Exchange and translation losses................            (66)              (762)       (1,863)
                                                         --------           --------      --------
      Total other income (expense)...............            360             (1,147)      (12,045)
                                                         --------           --------      --------
Net loss.........................................        $(2,217)           $(2,010)      (19,256)
                                                         ========           ========      ========

Net loss per share, basic and diluted............        $ (0.27)           $ (0.22)      $ (1.76)
                                                         ========           ========      ========
Weighted average number of shares of common stock
  and Common stock equivalents...................          8,086              9,256        10,940
                                                         ========           =========     ========
</TABLE>



                             See accompanying notes.


                                       27
<PAGE>

<TABLE>
<CAPTION>


                         TV FILME, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                   FOR THE THREE YEARS ENDED DECEMBER 31, 1997


                                                COMMON STOCK               ADDITIONAL
                                          ------------------------          PAID-IN          ACCUMULATED
                                           SHARES        PAR VALUE          CAPITAL            DEFICIT            TOTAL
                                           ------        ---------          ----------       -----------          -----
                                                         (IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
<S>                                         <C>           <C>               <C>              <C>                   <C>


BALANCE AT DECEMBER 31, 1994.........     4,997,240       $   50            $  6,470            $ (20)         $  6,500
Issuance of common stock.............     1,052,924           11               3,289               --             3,300
Non-cash compensation................            --           --                 312               --               312
Exercise of stock options............       143,832            1                  (1)              --                --
Net loss for the year................            --           --                  --           (2,217)           (2,217)
                                          -----------     ---------         ----------       --------          --------
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
                                        ============       ==========         ===========    =============     ========


</TABLE>






                             See accompanying notes.

                                       28

<PAGE>



                         TV FILME, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                      YEAR ENDED DECEMBER 31,
                                                  ------------------------------
                                                    1995      1996       1997
                                                    ----      ----       ----
                                                    (IN THOUSANDS OF DOLLARS)

      CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss.................................... $(2,217) $(2,010)   $(19,256)
      Adjustments to reconcile net loss to net
        cash provided by operating activities:
        Depreciation and amortization.............   2,049    5,921      12,162
        Provision for losses on accounts
          receivable..............................     315    1,296       4,989
        Non-cash compensation.....................     312      272          75
        Amortization of debt issuance costs.......      --       14         805
        Increase (decrease) in deferred
          installation fees.......................   3,884    3,222      (1,049)
      Changes in operating assets and liabilities:
        Increase in accounts receivable...........  (1,669)  (3,122)     (9,214)
        Increase in supplies......................    (980)  (1,089)     (2,582)
        Increase in prepaid expenses and other
        current assets............................    (419)    (678)     (2,003)
        Increase in accrued interest receivable...      --       --        (679)
        Increase in other assets..................     (77)    (421)     (1,292)
        Decease in pledged securities.............      --       --      16,867
        Increase in accounts payable..............   5,803    4,230       1,618
        Increase in payroll and other benefits
           payable................................     815      255         565
        Increase in accrued interest payable......      --      502         179
        Increase in accrued liabilities and taxes
           payable.................................    315       51         649
                                                    -------  -------    --------
      Net cash provided by operating activities...   8,131    8,443       1,884
                                                    -------  -------    --------

      CASH FLOWS FROM INVESTING ACTIVITIES
      Acquisitions:
        Property, plant and equipment............. (16,621) (25,225)    (37,082)
                                                    -------  -------    --------
      Net cash used in investing activities....... (16,621) (25,225)    (37,082)
                                                    -------  -------    --------

      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.......    3,300    7,151      3,763
      Increase (decrease) in payables from
        affiliates................................    1,463   (1,863)      (200)
      Decrease in receivables from affiliates.....    2,111       --         --
                                                    -------- --------   --------
      Net cash provided by financing activities...    6,874  133,094       (182)
                                                    -------- --------   -------

      Net change in cash and cash equivalents.....   (1,616) 116,312    (35,380)
      Cash and cash equivalents at beginning of
        year......................................    1,659       43     116,355
                                                    -------- -------    --------
      Cash and cash equivalents at end of year....  $    43 $116,355    $ 80,975
                                                    ======= ========    ========

                             See accompanying notes.


                                       29
<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  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 since May 1994 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
mid-sized  markets  in  Brazil.  The  Company  has  established  wireless  cable
operating  systems in the cities of  Brasilia,  Goiania and Belem.

      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.  Amounts in Brazilian  currency  have been  remeasured  into U.S.
dollars in accordance  with the  methodology set forth in Statement of Financial
Accounting  Standards  No. 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  are
remeasured  at exchange  rates in effect  when the assets  were  acquired or the
liabilities  were incurred.  All other assets and  liabilities are remeasured at

                                       30
<PAGE>

year end exchange  rates,  and all other income and expense items are remeasured
at average exchange rates prevailing during the year. Remeasurement  adjustments
are included in exchange and translation gains (losses).

      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.

      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  installation
costs.

      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,  1996  and 1997  was  $159,000  and
$449,000, 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 five year period.

      I. ALLOWANCE FOR DOUBTFUL ACCOUNTS

      The Company  had an  allowance  for  doubtful  accounts  of  $666,000  and
$1,710,000 at December 31, 1996 and 1997, respectively. Charges to the allowance
during 1996 and 1997 were $945,000 and $3,945,100, 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.

                                       31
<PAGE>

      K. INTEREST EXPENSE

      Interest expense approximates the amount of cash interest paid.

      L.  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.

      2. Property, Plant and Equipment

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

                                                             1996      1997
                                                             ----      ----
                                                            (IN THOUSANDS OF
                                                                 DOLLARS)

Land.....................................................   $  --       $1,033
Building and leasehold improvements......................     665          665

Machinery and equipment..................................  19,956       35,181
Furniture and fixtures...................................     610        1,096
Installation costs.......................................  25,136       45,473
                                                          ---------   ---------
                                                           46,367       83,448
Accumulated depreciation.................................  (8,034)     (20,043)
                                                          ---------   ---------
                                                          $38,333     $ 63,405
                                                          =========   ==========

      Depreciation expense of $1,933,000, $5,762,000 and $12,009,000 is included
in the statements of operations for the years ended December 31, 1995,  1996 and
1997, 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  1995,  1996  and  1997  were  $1,334,000,
$6,731,000,  and $10,394,000 respectively,  net of discounts in 1995 of $539,000
on programming fees compared to list prices.  No discounts were received in 1996
or 1997 and no such  discounts  are  expected in the future.  Through  September
1997, the Company purchased from Tevecap a program guide which it distributed to
its  subscribers  monthly.  Amounts paid to Tevecap for the program guide during
1995, 1996 and 1997 were the $113,000, $750,000 and $679,000, respectively.

      The Company  purchased two licenses to operate wireless cable systems from
Abril for $400,000 each, payable in four equal annual installments, which do not
bear interest.  Included in payables to affiliates at December 31, 1996 and 1997
is $400,000 and $200,000,  respectively,  related to this purchase. The $200,000
which remained  outstanding as of December 31, 1997 was repaid in February 1998.
Since  there was no  outstanding  borrowings  to  Tevecap,  interest  expense to
Tevecap was $0 for 1997 compared to $433,000 for 1996.

      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, 1996 and 1997 were  $7,296,000  and  $7,665,000,  respectively.  At
December 31, 1996 and 1997, issued and outstanding  letters of credit secured by
affiliates were $4,097,000 and $110,000, respectively. The maturity date of such
letters of credit range from 270 days to 360 days.

                                       32
<PAGE>

      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
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).

                                       33
<PAGE>

      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,  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 936,432, 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 are  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. Options
to purchase an additional 10,000 shares of Common Stock were granted in December
1996 and  February  1997 at an  exercise  price of $11.75,  options to  purchase
15,000 shares of Common Stock were granted in July 1997 at an exercise  price of
$10.125  per  share,  option to  purchase  308,500  shares of Common  Stock were
granted in October  1997 at an  exercise  price of $6.00 and options to purchase
150,000  shares of Common  stock were  granted in  December  1997 at an exercise
price of $5.625.

      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 1996 and 1997, respectively: risk-free interest
rate of 6.3% and 5.5%,  dividend  yield of 0% and 0%;  volatility  factor of the
expected market price of the Common Stock of .46 and .46; 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):

                                                       1996         1997
                                                    --------     ---------
                         Pro forma net loss         $(2,208)     $(19,812)
                         Pro forma loss per share      (.22)        (1.81)

      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  government   securities,
scheduled interest and principal payments on which is in an amount sufficient to
provide  for  payment  in full when due of the  first  four  scheduled  interest
payments on the Senior Notes.  In  connection  with the transfer of the proceeds
of the Senior Notes to ITSA and remittance of REAIS to U.S. dollars, the Company
incurred exchange losses of approximately $600,000. This amount was reflected in
exchange and  translation  gain  (losses) at December 31,  1996.  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, 1997, it is unable to make any dividend payments.

                                       34
<PAGE>

      The Company  believes the recorded value of the Senior Notes  approximates
the fair value at December 31, 1997.

      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:

                                               1995     1996    1997
                                               ----     ----    ----

                                             (IN THOUSANDS OF DOLLARS)
Income taxes (benefit) at effective
  Brazilian rate........................... $(1,064)$  (613)  $(6,354)
Effect of monetary adjustments under
  Brazilian tax law........................     765      --        --
Nondeductible compensation expense.........     150      78       215
Effect of change in tax rate...............     267    (232)      103
Other......................................     198      --        --
Increase (decrease) in valuation allowance.    (316)    767     6,036
                                            --------  ------  -------
Tax expense (benefit)......................  $   --   $  --    $   --
                                            ========  ======= =======

      The Company has not  recognized  any future income tax benefit for its net
operating loss  carryforwards in excess of net deferred tax liabilities as it is
not  assured  that it will be able to realize a benefit  for such  losses in the
future.  The net  operating  loss  carryforwards  amounted  to $45.4  million at
December 31, 1997, of which  approximately  $1.2 million was  attributable to TV
Filme  Servicos.  As a  result  of the  Restructuring,  the net  operating  loss
carryforwards of TV Filme Servicos, which is no longer a wholly-owned subsidiary
of the  Company,  are  available  only  to  offset  its own  income  and are not
available  to offset  any  profits  generated  by TV Filme and its  consolidated
subsidiaries.  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, 1996 and 1997 is as follows:

                                                        1996      1997
                                                      -------    -------
                                                       (IN THOUSANDS OF
                                                           DOLLARS)

Deferred tax assets
Net operating loss carryforwards..................... $ 4,155    $14,544
Deferred installation fees...........................   2,715      2,369
Other................................................     623        225
                                                      -------     ------
                                                        7,493     17,138
Valuation allowance..................................  (1,180)    (7,216)
                                                      --------    -------
                                                       $ 6,313    $9,922
                                                      =========  =======

Deferred tax liabilities
Fixed assets......................................... $ 6,313     $9,922
Other................................................      --         --
                                                      -------     -------
                                                      $ 6,313     $9,922
                                                      =========   =======

      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.

                                       35
<PAGE>

      8. Commitments

      The Company  leases office space and vehicles and has entered into various
transmission  tower rental  agreements.  Rent expense  amounted to approximately
$1,395,000,  $2,062,000  and  $2,091,080  for the years ended December 31, 1995,
1996 and 1997, 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, 1997 are as follows:


1998..........................................................  $1,758,000
1999..........................................................   1,097,000
2000..........................................................     135,000
2001..........................................................     132,000

      At December 31, 1997,  payables to affiliates  include $200,000 related to
the purchase by the Company of two licenses to operate  wireless  cable  systems
(see Note 3). The $200,000  which  remained  outstanding as of December 31, 1997
was repaid in February 1998.

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.

      Information with respect to executive officers of the Company is presented
in Item 4 of this Report under the caption "Executive Officers of the Company."

      The  information  appearing  under the captions  "Proposal 1 - Election of
Directors",  "Certain  Transactions"  and "Section  16(a)  Beneficial  Ownership
Reporting  Compliance"  in the  Company's  Proxy  Statement  for its 1998 Annual
Meeting of Stockholders (the "1998 Proxy  Statement") is incorporated  herein by
reference.

Item 11.  Executive Compensation.

      Information  appearing under the caption  "Executive  Compensation" in the
1998 Proxy Statement is incorporated herein by reference.

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

      Information  appearing under the caption "Security Ownership of Beneficial
Owners and  Management" in the 1998 Proxy  Statement is  incorporated  herein by
reference.

Item 13.  Certain Relationships and Related Transactions.

      Information appearing under the caption "Certain Transactions" in the 1998
Proxy Statement is incorporated herein by reference.

                                       36
<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.

      No Reports on Form 8-K were filed by the Company during the fourth quarter
of 1997.

(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).
  *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     1996  Stock   Option   Plan  (incorporated   herein by  reference  to
           Exhibit 10.1 to TV Filme's S-4).+
 *10.2     Form of Stock Option Agreement  (incorporated herein by reference  to
           Exhibit 10.2 to TV Filme's S-1).+

                                       37
<PAGE>

 *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     Employment Agreement,  dated  as  of  July  26, 1996, entered into by
           and  between  TV Filme and Mr.  Aguirre   (incorporated   herein  by
           reference to Exhibit 10.7 to TV Filme's S-4).+
  *10.8    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).
 *10.9     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).
 *10.10    Articles of Association of TV Filme Servicos  (incorporated herein by
           reference to Exhibit 10.14 to TV Filme's S-4).
 *10.11    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       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.

                                       38

<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 27th day of March, 1998.

                              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
Alvaro J.  Aguirre  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 27th day of March, 1998.

                   SIGNATURE                          TITLE(S)

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

       /s/ CARLOS ANDRE STUDART LINS DE               President, Chief
                 ALBUQUERQUE                          Operating Officer and
---------------------------------------------         Director
   Carlos Andre Studart Lins de Albuquerque

            /S/ ALVARO J. AGUIRRE                     Chief Financial Officer
--------------------------------------------          (Principal Financial
               Alvaro J. Aguirre                      and Accounting Officer)
                                                      and Director

             /S/ DOUGLAS M. KARP                      Chairman and Director
---------------------------------------------
                Douglas M. Karp

                                                      Director
---------------------------------------------
          Jose Augusto Pinto Moreira

             /S/ RAUL ROSENTHAL                       Director
----------------------------------------------
                Raul Rosenthal

            /S/ DAVID E. LIBOWITZ                     Director
----------------------------------------------
               David E. Libowitz


                                       39
<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      1996 Stock  Option  Plan   (incorporated   herein  by  reference  to
            Exhibit 10.1 to TV Filme's S-4).+
 *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      Employment Agreement, dated as of July 26, 1996 enteres into  by and
            between TV Filme and Mr. Aguirre (incorporated herein  by  reference
            to Exhibit 10.7 to TV Filme's S-4).+
 *10.8      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).
 *10.9      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).
 *10.10     Articles of Association of TV Filme Servicos (incorporated herein by
            reference  to  Exhibit  10.14 to TV Filme's S-4).
 *10.11     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        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.

</TABLE>

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

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







                                       40