==============================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 -------------
                                   FORM 10-Q
(Mark One)

|X|    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the quarterly period ended June 30, 1998

                              OR

|_|    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
       EXCHANGE ACT OF 1934

       For the transition period from             to 


                                TV FILME, INC.
            (Exact name of Registrant as Specified in its Charter)

                       Commission File Number : 0-28670

            Delaware                                    98-0160214
(State or Other Jurisdiction of          (I.R.S. Employer Identification Number)
 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, Including Zip Code, of Principal Executive Offices)

                              011-55-61-314-9908
             (Registrant's Telephone Number, Including Area Code)

      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 the number of shares  outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.

            CLASS                                          OUTSTANDING
            -----                                          -----------
      Common Stock, par value $0.01                   10,825,139 shares
      per share.                                      as of August 12, 1998.

==============================================================================

<PAGE>

                                TV FILME, INC.

                                    INDEX


PART I.  FINANCIAL INFORMATION                                        PAGE NO.

ITEM 1. Financial Statements

        Consolidated Balance Sheets as of December 31, 1997
        and June 30, 1998 (Unaudited)........................................2

        Unaudited  Consolidated  Statements of Operations for the Three
        and Six  Months  Ended  June  30,  1997 and the  Three  and Six
        Months Ended June 30, 1998...........................................3

        Unaudited  Consolidated  Statement of Changes in  Stockholders'
        Equity at June 30, 1998..............................................4

        Unaudited  Consolidated  Statements  of Cash  Flows for the Six
        Months Ended June 30, 1997 and the Six Months Ended June 30, 1998....5

        Notes to Unaudited Consolidated Financial Statements.................6

ITEM 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations............................................9

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..........15


PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings...................................................15

ITEM 2. Changes in Securities and Use of Proceeds...........................15

ITEM 3. Defaults Upon Senior Securities.....................................15

ITEM 4. Submission of Matters to a Vote of Security Holders.................15

ITEM 5. Other Information...................................................15

ITEM 6. Exhibits and Reports on Form 8-K....................................15

SIGNATURES

<PAGE>


                        PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
         --------------------

                       TV FILME, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                 DECEMBER 31,      JUNE 30,
                                                     1997            1998
                                                 -----------      ----------
                                                                  (UNAUDITED)
                                                        (IN THOUSANDS)
<S>                                               <C>              <C>     
ASSETS
Current assets:
  Cash and cash equivalents..................     $ 80,975         $ 72,676
  Accounts receivable, net...................        7,832            5,484
  Supplies...................................        5,303            5,126
  Prepaid expenses and other current assets..        3,178            3,765
  Interest receivable........................          679              459
  Pledged securities-current.................       16,645            8,323
                                                ----------      -----------
     Total current assets....................      114,612           95,833
Property, plant and equipment, net...........       63,405           58,236
Debt issuance costs, net.....................        6,298            6,050
Other assets.................................        2,082            2,338
                                                ----------      -----------
     Total assets............................     $186,397         $162,457
                                                ==========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
  Accounts payable...........................     $  12,724       $  10,614
  Payroll and other benefits payable.........         2,103           2,846
  Accrued interest payable...................           751             751
  Accrued liabilities and taxes payable......         1,111           1,196
  Payables to affiliates-current.............           200               0
                                                -----------     -----------
     Total current liabilities...............        16,889          15,407
Deferred installation fees...................         7,178           5,487
Senior Notes.................................       140,000         140,000
Stockholders' equity:
  Cumulative translation adjustment..........            --            (966)
  Preferred stock, $.01 par value, 1,000,000             
    shares authorized, no shares issued......            --              --
  Common stock, $.01 par value, 50,000,000
    shares authorized, 10,825,139 and
    10,825,139 shares issued and outstanding.           108             108
  Additional paid-in capital.................        45,657          45,657
  Accumulated deficit........................       (23,435)        (43,236)
                                                ------------    -----------
     Total stockholders' equity..............        22,330           1,563
                                                -----------     -----------
     Total liabilities and stockholders' 
       equity................................      $186,397        $162,457
                                                ===========     ===========
</TABLE>

                            See accompanying notes.


                                      -2-
<PAGE>





                       TV FILME, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (UNAUDITED)
<TABLE>
<CAPTION>


                                    THREE MONTHS ENDED      SIX MONTHS ENDED
                                         JUNE 30,               JUNE 30,
                                    ------------------    --------------------
                                      1997      1998         1997       1998
                                    -------   --------    ---------    -------

                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                               <C>         <C>         <C>         <C>
Revenues .......................  $ 12,237    $ 11,460    $ 23,417    $ 24,078
Operating costs and expenses:
  System operating - Note 2 ....     4,453       4,942       8,150      10,037
  Selling, general and
  administrative ...............     6,265       8,471      11,741      15,978
  Depreciation and amortization      2,823       5,349       5,127      10,650
                                  --------    --------    --------    --------
    Total operating costs and
    expenses ...................    13,541      18,762      25,018      36,665
                                  --------    --------    --------    --------
    Operating loss .............    (1,304)     (7,302)     (1,601)    (12,587)
Other income (expense):
  Interest and other expense --
  Note 2 .......................    (4,782)     (4,727)     (9,691)     (9,449)
  Interest income ..............     2,288       3,053       5,236       4,744
  Monetary loss ................        --      (1,420)         --      (2,509)
  Exchange and translation
  losses........................      (361)          0      (1,099)          0
                                  ---------   --------    ---------   --------
    Total other expense ........    (2,855)     (3,094)     (5,554)     (7,214)
                                  ---------   ---------   ---------   ---------
Net loss .......................   $(4,159)   $(10,396)    $(7,155)   $(19,801)
                                  =========   =========   =========   =========

Net loss per share, basic and
  diluted ......................   $ (0.38)    $ (0.96)    $ (0.65)    $ (1.83)
                                  =========   =========   =========   =========

Weighted average number of
  shares of common stock and
  common stock equivalents
  outstanding...................    10,984      10,825      10,984      10,825
                                  ========    ========    ========    ========


</TABLE>




                            See accompanying notes.

                                      -3-
<PAGE>

                                    TV FILME, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                      
                                              (UNAUDITED)
                      
                                 FOR THE SIX MONTHS ENDED JUNE 30, 1998
                      
<TABLE>
<CAPTION>

                                                        ADDITIONAL  CUMULATIVE
                                         COMMON STOCK     PAID-IN   TRANSLATION  ACCUMULATED
                                      SHARES   PAR VALUE  CAPITAL    ADJUSTMENT    DEFICIT     TOTAL
                                     --------  ---------  -------   -----------  -----------  -------
                                                    (IN THOUSANDS, EXCEPT SHARES)
<S>                                  <C>          <C>     <C>         <C>         <C>         <C>
BALANCE AT DECEMBER 31, 1997.......  10,825,139   $108    $45,657     $  --       $(23,435)   $22,330
Cumulative translation
   adjustment .....................          --     --         --      (966)            --       (966)
Net loss for the period ...........          --     --         --        --        (19,801)   (19,801)
                                    -----------   ----    -------     ------      ---------   -------
BALANCE AT JUNE 30, 1998...........  10,825,139   $108    $45,657     $(966)      $(43,236)   $ 1,563
                                    ===========   ====    =======     ======      =========   =======
</TABLE>

                            See accompanying notes.


                                      -4-
<PAGE>


                       TV FILME, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (UNAUDITED)
<TABLE>
<CAPTION>

                                                       SIX MONTHS ENDED JUNE 30,
                                                       -------------------------
                                                           1997          1998
                                                       -----------    ----------
                                                             (IN THOUSANDS)

<S>                                                      <C>          <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................... $  (7,155)   $ (19,801)
Adjustments to reconcile net loss to net cash provided
  by operating activities:
   Depreciation and amortization .......................     5,127       10,836
   Provision for losses on accounts receivable .........     1,223        4,662
   Amortization of debt issuance costs .................       390          386
   Decrease in deferred installation fees ..............      (206)      (1,471)
   Monetary loss .......................................        --        2,509
Changes in operating assets and liabilities:
   Increase in accounts receivable .....................    (4,433)      (2,588)
   Increase in supplies ................................      (816)          (9)
   Increase in prepaid expenses and other current assets      (646)        (698)
   Increase (decrease) in accrued interest receivable ..      (245)         220
   Decrease (increase) in other assets .................         1         (810)
   Decrease in pledged securities ......................     8,112        8,322
   Decrease in accounts payable ........................      (914)      (1,933)
   Increase in payroll and other benefits payable ......       620          817
   Increase in accrued interest payable ................       374            0
   Increase in accrued liabilities and taxes payable ...       123          131
                                                         ---------    ---------
Net cash provided by (used in) operating activities ....     1,555          573
                                                         ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment ..........................   (18,406)      (7,578)
                                                         ---------    ---------
Net cash used in investing activities ..................   (18,406)      (7,578)
                                                         ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs ....................................      (717)          --
Decrease in payables to affiliates .....................      (200)        (200)
                                                         ---------    ---------
Net cash provided by financing activities ..............      (917)        (200)
                                                         ---------    ---------
Effect of exchange rate changes on cash ................        --       (1,094)
                                                         ---------    ----------
Net change in cash and cash equivalents ................   (17,768)      (8,299)
Cash and cash equivalents at beginning of period .......   116,355       80,975
                                                         ---------    ---------
Cash and cash equivalents at end of period ............. $  98,587    $  72,676
                                                         =========    =========
</TABLE>

                            See accompanying notes.


                                      -5-
<PAGE>


                       TV FILME, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

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 are Brazilian nationals, with ITSA retaining 49% of the
voting stock and 83% of the  economic  interests  in TVFSA;  (ii) the  operating
assets of the wireless cable system of Brasilia were  transferred  from TVFSA to
TV Filme Brasilia  Servicos de  Telecomunicacoes  Ltda.  ("TV Filme  Brasilia"),
which is  substantially  owned by ITSA;  and (iii) TVFSA  entered  into  various
agreements with ITSA and its subsidiaries pursuant to which, among other things,
TVFSA has authorized  ITSA to operate the existing  wireless cable systems under
its current  licenses.  Subsequent to the  Restructuring  and the Initial Public
Offering, the Company owns 100% of ITSA, which holds 49% of the voting stock and
83% of the economic  interests of TVFSA and 100% of TV Filme Brasilia,  TV Filme
Goiania and TV Filme  Belem.  As of November  1997,  the licenses to operate the
existing  wireless cable systems were  transferred from TV Filme Servicos to the
respective operating companies, TV Filme Brasilia, TV Filme Goiania and TV Filme
Belem.

            Accordingly,  the consolidated  financial  statements of the Company
include ITSA and its subsidiaries on a historical basis 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  subscription  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.  Until  December 31, 1997,  amounts in Brazilian
currency were  remeasured  into U.S.  dollars in accordance with the methodology
set forth in Statement of Financial  Accounting  Standards No. 52 ("SFAS 52") as
its applies to entities operating in highly  inflationary  economies.  Supplies,
property,  plant and equipment,  intangibles and deferred  installation fees and
the related  income  statement  accounts were  remeasured  at exchange  rates in
effect when the assets were acquired or the liabilities were incurred. All other
assets and liabilities  were  remeasured at period end exchange  rates;  and all
other  income and  expense  items were  remeasured  at  average  exchange  rates
prevailing  during  the  period.  Remeasurement  adjustments  were  included  in
exchange and translation gains (losses).


                                      -6-
<PAGE>



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

            In management's opinion, all adjustments  (consisting only of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating  results  for the  first  six  months  are not  necessarily
indicative of the results that may be expected for a full year.

      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 earnings 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.    Allowance for Doubtful Accounts

            The Company had an allowance for doubtful  accounts of $1,710,000 at
December  31, 1997 and  $4,142,000  at June 30, 1998.  Charges to the  allowance
during the three months ended June 30, 1998 were $1,194,000.

2.    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  during the three and six months ended
June  30,  1997  and 1998  were  approximately  $2,700,000  and  $5,300,000  and
$2,748,000 and  $5,455,000,  respectively.  Through  September 1997, the Company
purchased from Tevecap a program guide which it  distributed to its  subscribers
monthly. In October 1997, the Company discontinued  purchasing the program guide
produced by Tevecap and began producing and  distributing its own program guide.
Amounts  paid to Tevecap for the program  guide  during the three and six months
ended  June  30,  1997  and  1998  were  $118,000  and  $303,000  and $0 and $0,
respectively.

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


                                      -7-
<PAGE>


3.    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  10,000 shares of Common Stock were granted in each of 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,  options to purchase  308,500  shares of Common  Stock were  granted in
October  1997 at an  exercise  price of $6.00 per share and  options to purchase
150,000  shares of Common  Stock were  granted in  December  1997 at an exercise
price of $5.625 per share.

4.    LONG-TERM DEBT

      On December 20, 1996, the Company issued $140 million  principal amount of
12-7/8% Senior Notes due December 15, 2004 (the "Senior Notes"). The proceeds of
the Senior  Notes were loaned to ITSA and  evidenced  by an  intercompany  note.
Interest is payable  semi-annually in arrears on June 15 and December 15 of each
year,  commencing  on June  15,  1997.  Of the  $140  million  loaned  to  ITSA,
approximately  $33.5  million was used to purchase U.S.  government  securities,
scheduled interest and principal payments on which is in an amount sufficient to
provide  for  payment  in full when due of the  first  four  scheduled  interest
payments on the Senior Notes.  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
June 30, 1998 it is unable to make any dividend payments.

      The  Company  believes  that  the  recorded  value  of  the  Senior  Notes
approximates the fair value at June 30, 1998.


                                      -8-
<PAGE>


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS
          -------------------------------------------------

      This Form 10-Q contains forward-looking statements which involve risks and
uncertainties.  The Company's actual results may differ  significantly  from the
results discussed in the forward-looking  statements.  The following  discussion
should  be read in  conjunction  with  the  Consolidated  Financial  Statements,
including the notes thereto, included elsewhere in this Form 10-Q.

RESULTS OF OPERATIONS

Although the Company's  financial  statements  are presented  pursuant to United
States generally accepted accounting  principles in U.S. dollars,  the Company's
transactions  are  consummated  in  both  reais  and  U.S.  dollars.  Inflation,
devaluation and general economic conditions in Brazil have had, and may continue
to  have,  substantial  effects  on the  Company's  results  of  operations  and
financial condition.  See"--Inflation and Exchange Rates" and "--Recent Economic
Events."



<TABLE>
<CAPTION>

                                              Three Months Ended June 30,
                                     -------------------------------------------
                                                    % of                 % of
                                          1997     Revenue      1998    Revenue
                                     -----------  ---------   --------  -------

                                         (In thousands, except subscriber, per
                                                 share and share data)
<S>                                    <C>         <C>       <C>         <C>
Revenues...........................     $12,237     100%      $11,460     100%
Operating costs and expenses:
    System operating...............       4,453      36%        4,942      43%
    Selling, general and administrative   6,265      51%        8,471      74%
    Depreciation and amortization..       2,823      23%        5,349      47%
                                        -------     ----       ------    -----
      Total operating costs and
      expenses.....................      13,541     111%       18,762     164%
                                        -------     ----       ------    -----
         Operating loss............      (1,304)    (11%)      (7,302)    (64%)
Other income (expense):
    Interest and other expense.....      (4,782)    (39%)      (4,727)    (41%)
    Interest and other income......       2,288      19%        3,053      27%
    Monetary loss..................          --      --        (1,420)    (12%)
    Exchange and translation losses        (361)     (3%)          --      --
                                        --------    -----      ------   -----
Net loss...........................     $(4,159)    (34%)    $(10,396)    (91%)
                                        ========    =====   ==========  =======
Net loss per share, basic and diluted    $(0.38)              $ (0.96)
                                        ========            =========
Weighted average number of common
  stock and common stock equivalents     10,984                10,825
                                        =======             =========
Other Data:
    EBITDA(a)......................      $1,519              $ (1,953)
                                        =======              =========
    Number of subscribers at
     end of period.................     103,770               111,090
                                        =======              ========
</TABLE>

                                      -9-
<PAGE>

<TABLE>
<CAPTION>
                                              Six Months Ended June 30,
                                   ---------------------------------------------
                                                  % of                    % of
                                      1997       Revenue      1998      Revenue
                                   ----------  ----------  ----------  ---------

                                    (In thousands, except subscriber, per share
                                                 and share data)
<S>                                  <C>          <C>       <C>           <C>
Revenues............................  $23,417      100%      $24,078       100%
Operating costs and expenses:
    System operating................    8,150       35%       10,037        42%
    Selling, general and
    administrative..................   11,741       50%       15,978        66%
    Depreciation and amortization...    5,127       22%       10,650        44%
                                     ---------  ---------   ---------   --------
      Total operating costs and
        expenses....................   25,018      107%       36,665       152%
                                     ---------  ---------   ---------   --------
      Operating loss................   (1,601)      (7%)     (12,587)      (52%)
Other Income (expense):
    Interest and other expense......   (9,691)     (41%)      (9,449)      (39%)
    Interest and other income.......    5,236       22%        4,744        20%
    Monetary loss...................       --       --        (2,509)      (10%)
    Exchange and translation
    (losses)........................   (1,099)      (5%)         --         --
                                     ---------   ---------  ---------   --------
Net loss............................  $(7,155)     (31%)    $(19,801)     (82%)
                                     =========   =========  =========   ========
Net loss per share, basic and
    diluted.........................  $ (0.65)               $ (1.83)
                                     =========              =========
Weighted average number of common
  stock and common stock equivalents   10,984                 10,825
                                     =========              =========
Other Data:
    EBITDA(a).......................  $ 3,526                $(1,937)
                                     =========              =========
    Number of subscribers at
    end of period...................  103,770                111,090
                                     =========              =========
</TABLE>

--------------------
(a) EBITDA is defined as  operating  loss plus  depreciation,  amortization  and
non-cash  charges.  While EBITDA  should not be  construed  as a substitute  for
operating  loss or a better  measure of liquidity  than cash flow from operating
activities,  which are  determined in accordance  with 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 debt
service.  EBITDA, however, is not necessarily a measure of the Company's ability
to fund its cash needs.

     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 the three  months ended June 30, 1998
compared to the same period in 1997,  revenues  decreased by approximately  $0.8
million, or approximately 6.3%,  primarily due to the loss of revenue associated
with higher levels of delinquency,  lower installation fees and the effects of a
7.4%  average  devaluation  of the real  against  the U.S.  dollar  between  the
respective  periods  paritally offset by revenues  associated with the Company's
proprietary premium channel. See "-- Recent Economic Events." For the six months
ended June 30, 1998 compared to the same period in 1997,  revenues  increased by
approximately $0.7 million, or approximately 2.8%,  primarily due to an increase
of 19,694 in average installed subscribers for the period and additional revenue
from the Company's  proprietary premium channel,  substantially offset by higher
levels of delinquency, lower installation fees and the effects of a 7.4% average
devaluation of the real against the dollar between the respective periods.


                                      -10-
<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,  transmitter  site rentals,  and other  miscellaneous  costs. For the
three months ended June 30, 1998 compared  with the same period in 1997,  system
operating expenses  increased by approximately  $0.5 million,  or 11%, primarily
due to operating  expenses  associated  with the Company's  proprietary  premium
channel   (approximately   $0.3  million)  and  higher   compensation   expenses
(approximately  $0.1 million)  associated with additional  customer  service and
collection  personnel.  For the six months  ended June 30, 1998  compared to the
same period in 1997, system operating  expenses  increased by approximately $1.9
million,  or approximately  23%, primarily due to higher  compensation  expenses
(approximately  $0.6 million)  associated with the addition of customer service,
collection  and  other  personnel,   additional   programming   costs  primarily
associated with the Company's  proprietary  premium channel  (approximately $0.2
million),  costs  associated with the development and on-going  operation of the
Company's  proprietary  premium  channel  (approximately  $0.6 million),  higher
programming guide expenses (approximately $0.3 million) reflecting the full cost
of the  programming  guide  compared  to the first  six  months of 1997 when the
Company received a one-time credit from the publisher, and higher other expenses
(approximately $0.2 million).

     SELLING,  GENERAL AND ADMINISTRATIVE  EXPENSES.  For the three months ended
June  30,  1998  compared  to the same  period  in 1997,  selling,  general  and
administrative  ("SG&A") expenses  increased by approximately  $2.2 million,  or
approximately  35%,  primarily due to a higher  provision for doubtful  accounts
(approximately $2.0 million) resulting from an increase in customer  delinquency
rates, and due to an increase in compensation and benefits  (approximately  $0.7
million)  incurred as a result of salary increases and costs associated with the
termination  of employement of a portion of the Company's work force pursuant to
the  Company's  cost  reduction  efforts  partially  offset  by  a  decrease  in
advertising  and promotion  expense  (approximately  $0.5 million).  For the six
months ended June 30, 1998  compared to the same period in 1997,  SG&A  expenses
increased by approximately $4.2 million,  or approximately 36%, primarily due to
a higher provision for doubtful accounts  (approximately $3.4 million) resulting
from an increase in customer  delinquency rates, an increase in compensation and
benefits  expenses  (approximately  $1.2 million) incurred as a result of salary
increases and costs  associated  with the termination of employment of a portion
of the Company's work force pursuant to the Company's cost reduction efforts and
higher  other  expenses  (approximately  $0.1  million),  partially  offset by a
decrease in advertising and promotion expense  (approximately $0.5 million).  In
each of the periods,  the higher  customer  delinquency  rates also  resulted in
significant increases in service disconnections. See "--Recent Economic Events."

     DEPRECIATION  AND  AMORTIZATION  EXPENSES.  Depreciation  and  amortization
expenses consist primarily of depreciation of decoder boxes,  headend facilities
and  installation  costs.  Beginning with the first quarter of 1998, these costs
are being  capitalized and depreciated  over a four-year  period.  For the three
months ended June 30, 1998 compared to the same period in 1997, depreciation and
amortization  expense increased by approximately $2.5 million,  or approximately
89%. For the six months ended June 30, 1998 compared to the same period in 1997,
depreciation and amortization  expense increased by approximately  $5.5 million,
or  approximately  108%.  In each case,  the  increase is  primarily  due to the
Company's change in its depreciation schedule for decoder boxes and installation
costs   from  a  five-year  to  a  four-year   period  and  to  new   subscriber
installations in each of the Company's three operating systems.

      OPERATING LOSS. For the three- and six-month  periods ended June 30, 1998,
the Company  generated a loss of  approximately  $7.3 million and $12.6 million,
respectively,  primarily due to expenses in connection  with the  development of
the Company's business, as explained above. The Company may continue to generate
operating  losses as it expands its  existing  systems and  develops  additional
systems.

      INTEREST  EXPENSE.  Interest expense was essentially  unchanged during the
three month period ended June 30, 1998  compared to the three month period ended
June 30, 1997.  Interest expense  decreased from the six-month period ended June
30, 1997 to the six-month  period ended June 30, 1998,  primarily as a result of
decreases in short-term borrowings of the Company.


                                      -11-
<PAGE>


     INTEREST  INCOME.  Interest income  increased from the  three-month  period
ended June 30, 1997 to the three-month period ended June 30, 1998,  primarily as
a result of a higher proportion of the Company's cash denominated in reais which
earn higher rates of interest.  Interest  income  decreased  from the  six-month
period  ended  June 30,  1997 to the  six-month  period  ended  June  30,  1998,
primarily as a result of overall  reductions in available cash partially  offset
by higher levels of reais denominated cash.

     MONETARY  LOSS.  Beginning on January 1, 1998, in accordance  with SFAS 52,
monetary  losses  resulted  from the  depreciation  of the real against the U.S.
dollar, given the Company's net dollar-denominated  monetary liability position.
See footnote 1b. "Method of Presentation" contained in the Notes to Consolidated
Financial Statements and " - Inflation and Exchange Rates."

      EXCHANGE AND TRANSLATION  LOSSES.  Exchange and  translation  losses arose
prior to January 1, 1998,  due to the  remeasurement  of  short-term  assets and
liabilities  from reais to U.S. dollars in accordance with SFAS 52 for companies
in highly inflationary economies. Unless Brazil returns to a highly inflationary
status,  the  Company  does not  believe  it will  record  future  exchange  and
translation gains or losses.

      INCOME TAXES. The Company did not have taxable income during the six-month
period  ended June 30, 1998 and expects to generate  losses for the  foreseeable
future. Brazilian marginal corporate tax rates are approximately 33.0%.

      NET LOSS.  As explained  above,  net losses in the periods  presented  are
primarily  attributable to the significant  expenses incurred in connection with
the 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 of its  affiliates.  As of June 30, 1998, the
Company had no  outstanding  borrowings  from Abril and its  affiliates  and the
Company does not expect to borrow from Abril or its affiliates in the future.

     As of June 30,  1998,  approximately  $7.5  million was  outstanding  under
letters of credit with maturities  ranging from 270 days to 360 days. As of June
30,  1998,  the Company had import  lines of credit in the  aggregate  amount of
$33.0 million with four commercial banks, of which  approximately  $25.5 million
was available on such date. The Company currently believes that 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 June 30, 1998 in the
amount of $78.2 million. Net cash provided by operating activities for the three
months ended June 30, 1998 was approximately $0.6 million.

                                      -12-
<PAGE>

     The Company made capital  expenditures of approximately $7.6 million during
the six months ended June 30, 1998. Such capital expenditures were financed with
the proceeds  from the Senior Notes  offering and from cash  generated  from the
Company's  operations.  For the  remaining  six  months  of  1998,  the  Company
anticipates that the aggregate  capital  expenditures in its existing  operating
markets  will be  approximately  $9.0  million.  In  addition to  expanding  its
subscriber  base in its  existing  systems,  the  Company  is  seeking to launch
additional  systems. In September 1997, the Brazilian 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.
Due to legal  challenges  made to the bidding  process by several  bidders,  the
bidding  process had been postponed for all markets.  However,  on May 13, 1998,
the Superior  Justice  Tribunal  issued a favorable  ruling allowing the bidding
process with respect to a number of the markets to go forward. The status of the
bidding process with respect to the remaining  markets requires further judicial
action.  The Company  cannot predict when such judicial  action will occur.  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 such  concessions and
licenses and the timing of any such grants generally. The Company also from time
to time  may  selectively  pursue  joint  ventures  or  acquisitions  in the pay
television industry,  although it currently has no understanding,  commitment or
agreement  with respect to any such joint venture or  acquisitions.  The Company
believes that its cash and internally generated funds will be sufficient to fund
the cash  requirements  for its current  operations for at least the next twelve
months.  As of June 30, 1998,  of the Company's  approximately  $81.5 million in
cash and cash  equivalents,  approximately  $36.7  million (45%) was invested in
U.S. dollar denominated  securities.  The Company expects that the percentage of
its cash and cash  equivalents  denominated in dollars will continue to decrease
during the  remainder of 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   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 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.


                                      -13-
<PAGE>


     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
rate greater than the rate at which the Company raises 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. Further, as of January 1, 1998, the Company's financial
statements  reflect foreign  exchange gains and losses  associated with monetary
assets and  liabilities  denominated  in  currencies  other  than the real.  See
footnote 1b.  "Method of  Presentation"  contained in the Notes to  Consolidated
Financial Statements.  As a result, the devaluation of the real against the U.S.
dollar will cause the Company to record a loss  associated  with its U.S. dollar
monetary liabilities and a gain associated with its U.S. dollar monetary assets.
Given that the Company has a net U.S. dollar monetary  liability  position,  the
net effect of the devaluation of the real against the U.S. dollar is to generate
losses in the Company's financial statements.

RECENT ECONOMIC EVENTS

     The economic and financial turmoil in Southeast Asia during 1997 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 second
quarter  of  1998,  short-term  interest  rates  began  declining  significantly
reaching  levels  that  are  near to those  in  effect  prior  to the  Brazilian
government's  October  and  November  initiatives.  Nonetheless,  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  a
significant  increase in customer  delinquency rates which,  among other things,
resulted in the Company  significantly  increasing  its  provisions for doubtful
accounts and increasing service disconnections.  This trend has continued during
the first half of 1998 and the Company anticipates that this trend will continue
for the foreseeable  future. The Company has undertaken several steps to address
the impact of the deterioration in its operating environment, such as performing
credit checks on potential new subscribers,  changing the way it compensates its
sales force to emphasize  high quality  sales and  implementing  cost  reduction
measures,  including  a headcount  reduction.  While the  Company  believes  its
current  difficulties  are  short-term in nature and the steps it has undertaken
are adequate to address these issues,  there can be no assurance  that the steps
taken by the Company or measures taken by the government will be successful,  or
that the increase in delinquent payments and service disconnections will abate.

                                      -14-
<PAGE>


YEAR 2000 COMPLIANCE

      The Company has conducted an evaluation of its computer system 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.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
            -----------------------------------------------------------

      This requirement is not currently applicable to the Company.

                         PART II - OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS.
         ------------------

         None.

Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.
         ------------------------------------------

         None.

Item 3.  DEFAULTS UPON SENIOR SECURITIES.
         --------------------------------

         None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         -----------------------------------------------------

         None.

Item 5.  OTHER INFORMATION.
         ------------------

     In accordance with the advance notice provisions contained in the Company's
By-laws,  the Company must receive  notice of a  stockholder's  intent to make a
nomination  for the election of directors or to propose  certain other  business
for  consideration  at an annual  meeting not less than 60 days nor more than 90
days prior to such meeting except in the event that less than 70 days' notice or
public  disclosure  of  the  date  of  the  meeting  is  given  or  made  to the
stockholders,  in which  event such  notice  must be  received no later than the
close of business on the tenth day following the day on which notice is given or
disclosure  is made,  whichever  first  occurs.  In order  for a  nomination  or
proposal  to be  presented  at the 1998  Annual  Meeting of  Stockholders,  such
proposal must be received by the Company by September 10, 1998.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
        ---------------------------------

        (a)  EXHIBITS
             --------

        27   Financial Data Schedule.

        (b)  REPORTS ON FORM 8-K
             -------------------

       No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1998.



                                      -15-
<PAGE>



                                  SIGNATURES
                                  ----------

   Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Dated:  August 12, 1998


                                  TV FILME, INC.
                                  ----------------------------------------------
                                  (Registrant)



                                  /s/ Hermano Studart Lins de Albuquerque
                                  ----------------------------------------------
                                  Hermano Studart Lins de Albuquerque
                                   Chief Executive Officer (Principal
                                  Executive Officer)



                                   /s/ Alvaro J. Aquirre
                                   ---------------------------------------------
                                   Alvaro J. Aquirre
                                   Chief Financial Officer  (Principal
                                   Financial and Accounting Officer)



<PAGE>


                                EXHIBIT INDEX
                                -------------



No.                        DESCRIPTION
---                        -----------
27                         Financial Data Schedule