
<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1997

                                       OR

[ ]      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 0-15445

                             THE BOX WORLDWIDE, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

           Florida                                            59-2605267
--------------------------------------------------------------------------------
(State or other jurisdiction of                         (I.R.S. Employer 
 incorporation or organization)                        Identification Number)

      1221 Collins Avenue, Miami Beach, Florida                  33139
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (305)-674-5000
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. 

                              Yes  X    No
                                 -----    -----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

                  Class                            Number of Shares Outstanding
                                                        on August 12, 1997

Common Stock, Par Value $.001 Per Share                     24,001,781

Transitional Small Business Disclosure Format:           Yes        No  X
                                                             ----     -----



<PAGE>   2



                             THE BOX WORLDWIDE, INC.

                                      INDEX

<TABLE>
<S>                                                                                           <C>
PART I              FINANCIAL INFORMATION                                      PAGE

         Item 1     Financial Statements


                    Consolidated Balance Sheet at June 30,
                    1997 (Unaudited)                                             3


                    Consolidated Statements of Operations for the
                    Three Months and Six Months ended June 30,
                    1997 and 1996 (Unaudited)                                    4


                    Consolidated Statements of Cash Flows for the
                    Six Months ended June 30, 1997 and 1996
                    (Unaudited)                                                  5


                    Notes to Financial Statements                                6


         Item 2     Management's Discussion and Analysis or
                    Plan of Operation                                           15


PART II             OTHER INFORMATION

         Item 1     Legal Proceedings                                           35

         Item 5     Other Information                                           36

         Item 6     Exhibits                                                    40


SIGNATURES                                                                      41


</TABLE>


                                       -2-


<PAGE>   3
                             THE BOX WORLDWIDE, INC.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                                         JUNE 30,
                                                                           1997
                                                                       ------------
<S>                                                                    <C>         
ASSETS:

CURRENT ASSETS
  Cash and cash equivalents                                            $  2,345,293
  Accounts receivable, less allowances for
     doubtful accounts of $332,000                                        3,065,001

  Prepaid expenses and other current assets                                 319,239
                                                                       ------------
                   TOTAL CURRENT ASSETS                                   5,729,533
                                                                                   
RECEIVABLE FROM OFFICER - LONG TERM                                         104,389

PROPERTY AND EQUIPMENT, NET                                               8,852,102

DEFERRED COSTS AND OTHER ASSETS, NET                                      1,644,619

INVESTMENT IN AND ADVANCES TO
  UNCONSOLIDATED COMPANY                                                    348,137
                                                                       ------------
                   TOTAL ASSETS                                        $ 16,678,780
                                                                       ============


LIABILITIES AND STOCKHOLDERS' EQUITY:

CURRENT LIABILITIES
  Accounts payable                                                     $  1,210,562
  Accrued expenses                                                        3,375,933
                                                                       ------------
                   TOTAL CURRENT LIABILITIES                              4,586,495
                                                                       ------------
COMMITMENTS AND CONTINGENCIES


6% CONVERTIBLE REDEEMABLE PREFERRED STOCK
      $0.15 par value, $1.50 stated value, 1,800,000 shares
      authorized, 1,666,667 issued and outstanding
      including $83,630 of cumulative dividend payable                    2,373,758
                                                                       ------------

STOCKHOLDERS' EQUITY
   8% Cumulative convertible preferred
      stock, $1.00 par value, 200,000 shares
      authorized, none issued                                                    --
   Common stock, $.001 par value,
      40,000,000 shares authorized, 24,001,781
      shares issued and outstanding at June 30, 1997                         24,002



    Additional paid in capital - Common Stock                            30,238,761

    Accumulated deficit                                                 (20,490,833)
    Cumulative foreign currency translation                                 (53,403)
                                                                       ------------
                   TOTAL STOCKHOLDERS' EQUITY                             9,718,527
                                                                       ------------
                   TOTAL LIABILITIES AND
                     STOCKHOLDERS' EQUITY                              $ 16,678,780
                                                                       ============

</TABLE>

See Notes to Financial Statements




                                      -3-
<PAGE>   4
                             THE BOX WORLDWIDE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                        FOR THE THREE MONTHS ENDED              FOR THE SIX MONTHS ENDED
                                                        JUNE 30,           JUNE 30,            JUNE 30,           JUNE 30,
                                                          1997               1996                1997               1996
                                                      ------------       ------------       ------------       ------------
<S>                                                   <C>                <C>                <C>                <C>         
REVENUES
    Advertising revenues                              $  2,619,218       $  2,855,244       $  4,968,935       $  4,850,819
    Net viewer revenues                                  2,321,527          2,677,276          4,368,208          5,456,361
    Other revenues                                         172,384             82,149            281,932            144,587
                                                      ------------       ------------       ------------       ------------

                                                         5,113,129          5,614,669          9,619,075         10,451,767
    Interest income                                         71,372             80,930            237,628            194,157
                                                      ------------       ------------       ------------       ------------

                                                         5,184,501          5,695,599          9,856,703         10,645,924
                                                      ------------       ------------       ------------       ------------



COSTS AND EXPENSES
    Affiliate fees, site costs and
      telephone service                                  1,367,733          1,623,119          2,859,605          3,033,170
    Distribution, general and
      administrative                                     4,320,008          4,254,320          8,075,938          8,185,741
    Satellite transponder and rent
      paid to related parties                              118,020            149,691            236,040            495,380
    Depreciation and amortization                          586,489            325,326          1,102,818            564,369
                                                      ------------       ------------       ------------       ------------

                                                         6,392,250          6,352,456         12,274,401         12,278,660
                                                      ------------       ------------       ------------       ------------

LOSS BEFORE INTEREST IN LOSSES OF
  UNCONSOLIDATED COMPANIES                              (1,207,749)          (656,857)        (2,417,698)        (1,632,736)

INTEREST IN LOSSES OF UNCONSOLIDATED
  COMPANIES                                               (145,473)          (207,320)          (316,737)          (454,335)
                                                      ------------       ------------       ------------       ------------


NET LOSS                                                (1,353,222)          (864,177)        (2,734,435)        (2,087,071)

Deduct required dividend on 6% convertible
   redeemable preferred stock                              (37,500)                 0            (75,000)                 0
                                                      ------------       ------------       ------------       ------------

Net loss attributable to common stock                 $ (1,390,722)      $   (864,177)      $ (2,809,435)      $ (2,087,071)
                                                      ============       ============       ============       ============


Net loss per common share after deduction for
  required dividend on 6% convertible redeemable
  preferred stock                                     $      (0.06)      $      (0.04)      $      (0.12)      $      (0.09)
                                                      ============       ============       ============       ============

Weighted average number of common shares
  outstanding                                           24,001,781         23,956,918         24,001,781         23,950,600
                                                      ============       ============       ============       ============


</TABLE>

See Notes to Financial Statements



                                      -4-




<PAGE>   5

                             THE BOX WORLDWIDE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                                             FOR THE SIX MONTHS ENDED
                                                                          -----------------------------
                                                                            JUNE 30,          JUNE 30,
                                                                              1997              1996
                                                                          -----------       -----------
<S>                                                                       <C>               <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                $(2,734,435)      $(2,087,071)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
     Depreciation and amortization                                          1,102,818           564,369
     Interest in losses of unconsolidated companies                           316,737           454,335
     Change in assets and liabilities:
       (Increase) decrease in accounts receivable                            (552,851)          736,492
       Increase in prepaid expenses and other current assets                   (4,369)         (736,830)
       (Decrease) increase in accounts payable and accrued expenses           (20,303)          328,444
                                                                          -----------       -----------

  NET CASH USED IN OPERATING ACTIVITIES                                    (1,892,403)         (740,261)
                                                                          -----------       -----------


CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                     (3,254,855)       (2,706,219)
  Increase in deferred costs                                                 (601,928)                0
  Disposal of equipment                                                        31,365            27,508
  Increase in investment in and advances to unconsolidated companies         (391,403)         (383,205)
                                                                          -----------       -----------

  NET CASH USED IN INVESTING ACTIVITIES                                    (4,216,821)       (3,061,916)
                                                                          -----------       -----------

  EFFECT OF EXCHANGE RATE CHANGES ON CASH                                       3,113           (50,316)
                                                                          -----------       -----------


NET DECREASE IN CASH AND CASH EQUIVALENTS                                  (6,106,111)       (3,852,493)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              8,451,404         6,712,402
                                                                          -----------       -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $ 2,345,293       $ 2,859,909
                                                                          ===========       ===========
</TABLE>


See Notes to Financial Statements






                                      -5-
<PAGE>   6


                             THE BOX WORLDWIDE, INC.

                          NOTES TO FINANCIAL STATEMENTS

1.   The financial information included herein is submitted pursuant to the
     requirements of Form 10-QSB and does not include all disclosures required
     by generally accepted accounting principles. It is suggested that these
     unaudited financial statements be read in conjunction with the financial
     statements and notes thereto included in the Company's Annual Report on
     Form 10-KSB for the fiscal year ended December 31, 1996. The accompanying
     interim financial statements reflect all normal recurring adjustments which
     are, in the opinion of management, necessary for a fair statement of the
     results for the interim periods presented. The results of operations for
     interim periods are not necessarily indicative of the results to be
     obtained for the entire year.

2.   Net loss per share computations are based on the weighted average shares of
     common stock outstanding during the quarter. Common stock equivalents were
     not considered in the computation of net income or loss per share as their
     effect would be to decrease net loss per share.

3.   The consolidated financial statements include the balance sheet and
     operating results of the Company's wholly-owned subsidiaries, VJN LPTV
     Corp. (incorporated in February, 1994), The Box Worldwide Europe, B.V.,
     (incorporated in August, 1995), Video Jukebox Network Europe,
     Ltd.(incorporated in January, 1996), The Box Worldwide-Latin America, Inc.
     (incorporated in January, 1996), The Box Argentina (incorporated in
     December 1996), and The Box Italy, srl (incorporated in January 1997); and
     include on the equity method the operating results of Video Jukebox Network
     International, Limited ("VJNIL") for the first six months of 1996. The
     Company also accounts for its 50% owned subsidiary, The Box Holland
     (incorporated in October, 1995), on the equity method of accounting. All
     significant consolidating and eliminating entries have been included.

     UNCONSOLIDATED SUBSIDIARIES:

     THE BOX HOLLAND --- The following is a summary of the balance sheet as of
     June 30, 1997 and operating results for the three months and six months
     ended June 30, 1997 and 1996, respectively, of The Box Holland:

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED                 SIX MONTHS ENDED
                                       JUNE 30, 1997  JUNE 30, 1996     JUNE 30, 1997   JUNE 30, 1996
                                       -------------  -------------     -------------   -------------
<S>                                       <C>             <C>             <C>             <C>      
          Current assets                                                  $ 231,015       $ 156,414
          Non-current assets                                                727,510         804,101
                                                                          ---------       ---------
                                                                          $ 958,525       $ 960,515
                                                                          =========       =========

          Current liabilities                                             $ 205,531       $ 270,295
          Equity, advances and notes
            payable to shareholders                                         752,994         690,220
                                                                          ---------       ---------
                                                                          $ 958,525       $ 960,515
                                                                          =========       =========

          Net revenues                    $  13,874       $  74,750       $ 212,285       $  91,424
                                          =========       =========       =========       =========

          Net operating loss              $(290,944)      $(147,115)      $(633,472)      $(368,198)
                                          =========       =========       =========       =========
</TABLE>


                                       -6-

<PAGE>   7



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3.   (CONTINUED)

     The Company recorded interest income of approximately $28,000 and $112,000
     during the quarter and six months ended June 30, 1997, related to a
     $994,000 loan outstanding with The Box Holland, Inc. during these periods.
     Interest from inception of the loan in 1995 to the end of 1996 had not been
     previously recognized, and was included in the first quarter of 1997.

     VJNIL --- In September 1991, VJNIL, which began operations in 1992, was
     founded in the United Kingdom to develop and launch a United Kingdom
     version of the Company's music video television programming. The Company
     had beneficially owned 91% of the outstanding common stock of VJNIL from
     inception. On June 30, 1995, the Company purchased the remaining nine
     percent of VJNIL from its minority shareholder in exchange for 225,000
     shares of the Company's common stock, which were valued at $267,187 on that
     day. Also on June 30, 1995, the Company completed the sale of a 50 percent
     equity interest in VJNIL to a wholly-owned subsidiary of Ticketmaster
     Corporation ("Ticketmaster") for $2,225,000 in cash. The Company's
     remaining investment in VJNIL had been accounted for on the equity method
     of accounting effective June 30, 1995. Prior to June 30, 1995, the
     subsidiary's assets, liabilities and operations had been consolidated with
     the Company.

     On October 30, 1996, the Company completed the sale of its remaining 50%
     equity interest in VJNIL to EMAP plc, a United Kingdom media and
     entertainment company. EMAP paid VJN $4,550,000 in cash for VJN's 50%
     remaining investment, plus reimbursed VJN $1,500,000 for the Company's
     outstanding loan to VJNIL plus approximately $200,000 in accrued interest
     related to the loan. The Company also received a one-time $100,000
     licensing payment for trademark and other intellectual property rights in
     the United Kingdom and Ireland. The Company paid approximately $400,000 in
     investment fees and legal fees related to this transaction.

     The following is a summary of VJNIL's balance sheet as of June 30, 1996 and
     operating results for the quarter and six months ended June 30, 1996,
     respectively, during which period the Company's share of these results were
     accounted for on the equity method by the Company:







                                       -7-

<PAGE>   8



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3.   (CONTINUED)

<TABLE>
<CAPTION>

                                              Three Months Ended   Six Months Ended
                                                 June 30, 1996      June 30, 1996
                                              -----------------    ----------------
<S>                                           <C>                  <C>         
          Current assets                                              $ 1,979,308
          Noncurrent assets                                               993,151
                                                                      -----------
                                                                      $ 2,972,459
                                                                      ===========  

          Current liabilities                                         $ 1,118,289
          Non-current liabilities                                           2,213
          Equity, advances and notes
            payable to shareholders                                     1,851,957
                                                                      -----------
                                                                      $ 2,972,459
                                                                      ===========

          Net revenues                             $   575,799        $ 1,067,913
                                                   ===========        ===========

          Net operating loss                       $ ( 316,162)       $  (635,975)
                                                   ===========        ===========

</TABLE>


     The difference between the Company's recorded net investment in and
     advances to VJNIL at June 30, 1996 and the underlying equity in VJNIL's net
     assets relates primarily to previously recognized net losses prior to the
     sale of 50% of its interest in VJNIL. The Company recorded interest income
     of approximately $37,000 and $75,000 during the three and six months ended
     June 30, 1996, respectively, related to a $1,500,000 loan outstanding with
     VJNIL during the period.

4.   LEGAL PROCEEDINGS:

     In May 1997, the Company settled the litigation against Donald L. Barone
     ("Barone"), Kenneth Trzecki ("Trzecki") and Healthcare Communications, Inc.
     ("HCI") in the Circuit Court of the Seventeenth Judicial Circuit in and for
     Broward County, Florida. Pursuant to the terms of the settlement, the
     Company paid an aggregate of approximately $165,000 to Barone, Trzecki and
     HCI, and all of the parties to the litigation exchanged releases and
     dismissed their respective claims with prejudice.

5.   SUBSEQUENT EVENTS:

     As of August 12, 1997, the Company entered into an Agreement and Plan of
     Merger (the "Merger Agreement") with TCI Music, Inc. ("TCI Music") and TCI
     Music Acquisition Sub, Inc. ("Acquisition Sub"), a wholly-owned subsidiary
     of TCI Music, pursuant to which Acquisition Sub will be merged (the
     "Merger") with and into the Company, with the Company as the surviving
     corporation.

                                       -8-

<PAGE>   9



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.   (CONTINUED)

     The aggregate consideration deliverable by TCI Music in the Merger (the
     "Merger Consideration") will be equal to (a) the sum of (i) $38,502,672 and
     (ii) $1.50 times the number of shares of the Company's common stock, par
     value $.001 per share ("Company Common Stock"), issued prior to the closing
     of the Merger upon the exercise or conversion of options, warrants,
     convertible securities or other rights to acquire Company Common Stock that
     are outstanding as of the date of the Merger Agreement MINUS (b) the sum of
     (i) $1.50 times the number of shares of Company Common Stock that are held
     by holders of such shares who have not voted in favor of the Merger or
     consented to the Merger in writing and who have demanded appraisal rights
     with respect to such shares in accordance with the Florida Business
     Corporation Act (the "Dissenting Shares"), (ii) $1.50 times the number of
     shares of the Company's 6% convertible redeemable preferred stock, par
     value $.15 per share and stated value of $1.50 per share (the "Company
     Preferred Stock"), outstanding at the closing of the Merger that are not
     Dissenting Shares and (iii) all accrued and unpaid dividends on shares of
     Company Preferred Stock at the time of the closing of the Merger, whether
     or not such shares are Dissenting Shares.

     Pursuant to the Merger Agreement, among other things, each share of Company
     Common Stock outstanding immediately prior to the closing of the Merger
     (except Dissenting Shares) will be converted into the right to receive (a)
     a fraction (the "Exchange Rate") of one share of TCI Music Series A
     Convertible Preferred Stock, par value $.01 per share ("TCI Music Preferred
     Stock"), and (b) as to any holder of shares of Company Common Stock, if the
     total number of shares of Company Common Stock of such holder is not
     convertible into a whole number of shares of TCI Music Preferred Stock, the
     right to receive cash in lieu of any fractional share of TCI Music
     Preferred Stock. Under the Merger Agreement, the Exchange Rate is defined
     as the quotient of (a) the quotient of the Merger Consideration divided by
     three times the average of the average daily closing bid and asked prices
     of one share of TCI Music Series A Common Stock, par value $.01 per share
     ("TCI Music Series A Common Stock"), for a period of 20 consecutive trading
     days ending on the third trading day prior to the closing of the Merger (as
     reported on the NASDAQ SmallCap Market), divided by (b) the number of
     shares of Company Common Stock outstanding immediately prior to the closing
     of the Merger, less the number of shares of Company Common Stock that are
     Dissenting Shares.

     The holders of the TCI Music Preferred Stock will have the right, at any
     time, to convert each share of TCI Music Preferred Stock into three shares
     of TCI Music Series A Common Stock, subject to certain adjustments set
     forth in the Certificate of Designations (the "Certificate of
     Designations") for the TCI Music Preferred Stock.

                                       -9-

<PAGE>   10



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.   (CONTINUED)

     Holders of the TCI Music Preferred Stock will be entitled to vote on all
     matters submitted to a vote of the holders of the TCI Music Series A Common
     Stock. Each share of TCI Music Preferred Stock will entitle the registered
     holder thereof to a number of votes equal to the number of shares of TCI
     Music Series A Common Stock into which each such share is convertible as of
     the record date for the matter to be voted upon. Holders of the TCI Music
     Preferred Stock will vote together with holders of the TCI Music Series A
     Common Stock and will not be entitled to vote as a class except as
     otherwise required by TCI Music's Certificate of Incorporation or the
     General Corporation Law of the State of Delaware, the jurisdiction in which
     TCI Music is incorporated.

     Holders of the TCI Music Preferred Stock will be entitled to receive cash
     dividends from time to time on each share of TCI Music Preferred Stock,
     payable out of funds legally available therefore, in an amount equal to the
     product of (a) the amount of the cash dividend declared on one share of TCI
     Music Series A Common Stock or any other security into which the TCI Music
     Preferred Stock is then convertible and (b) the number of shares of TCI
     Music Series A Common Stock or other security into which one share of TCI
     Music Preferred Stock may be converted as of the date such dividend is
     declared. Such dividends will be payable to holders of the TCI Music
     Preferred Stock only if, as and when the Board of Directors of TCI Music
     declares cash dividends (and not dividends payable in other property) on
     the TCI Music Series A Common Stock.

     At the option of TCI Music, all or any portion of the TCI Music Preferred
     Stock may be redeemed out of funds legally available therefor (a) during
     the 30-day periods immediately following the fourth, sixth and eighth
     anniversaries of the date on which the TCI Music Preferred Stock is first
     issued or first deemed to have been issued as a result of the Merger (the
     "Issue Date"), (b) at any time after the Closing Price (as defined in the
     Certificate of Designations) of the TCI Music Series A Common Stock equals
     or exceeds 125% of the average of the averages of the closing bid and asked
     prices of one share of TCI Music Series A Common Stock for a period of 20
     consecutive business days ending on the third business day prior to the
     Issue Date (as adjusted to reflect the effects of any stock dividend, stock
     split, reclassification or combination affecting the TCI Music Series A
     Common Stock) for a period of at least 30 consecutive business days, and
     (c) at any time after the tenth anniversary of the Issue Date, in each case
     at the Liquidation Value per share of TCI Music Preferred Stock.
     Liquidation Value is defined in the Certificate of Designations as the sum
     of three times the average of the averages of the closing bid and asked
     prices of one share of TCI Music Series A Common Stock for a period of 20

                                      -10-

<PAGE>   11



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.   (CONTINUED)

     consecutive business days ending on the third business day prior to the
     Issue Date, as increased on each anniversary of the Issue Date by an amount
     equal to the product of that sum and the greater of (a) the percentage
     increase, if any in the Consumer Price Index, All Urban Consumers, U.S.
     City Average, All Items, as published by the U.S. Department of Labor,
     Bureau of Labor Statistics (in an amount not to exceed 5% in any year), and
     (b) 3%.

     Subject to (a) the rights of holders of any class or series of stock
     ("Senior Securities") of TCI Music authorized after the Issue Date ranking
     senior to the TCI Music Preferred Stock in respect of the right to receive
     payment of dividends prior to the TCI Music Preferred Stock or the right to
     receive assets upon liquidation, dissolution or winding up of the affairs
     of TCI Music prior to the TCI Music Preferred Stock and (b) any prohibition
     or restriction set forth in any security or bond, debenture, note,
     indenture, guarantee or other instrument or agreement evidencing any
     indebtedness of TCI Music, each holder of TCI Music Preferred Stock will
     have the right to require TCI Music, at any time, to redeem, out of funds
     legally available therefore, all or any portion of the outstanding shares
     of TCI Music Preferred Stock held by each holder at any time after the
     tenth anniversary of the Issue Date at the Liquidation Value per share of
     TCI Music Preferred Stock.

     Upon any liquidation, dissolution or winding up of TCI Music, subject to
     the prior payment in full of amounts to which any Senior Securities are
     entitled, the holders of TCI Music Preferred Stock will be entitled to be
     paid an amount in cash equal to the aggregate Liquidation Value at the date
     fixed for liquidation of all shares of TCI Music Preferred Stock
     outstanding before any distribution or payment is made upon all shares of
     TCI Music Series B Common Stock, par value $.01 per share ("TCI Music
     Series B Common Stock"), and any other class or series of stock of TCI
     Music authorized after the Issue Date except Senior Securities and any
     class or series of stock of TCI Music that is entitled to receive payment
     of dividends on parity with the TCI Music Preferred Stock or is entitled to
     receive assets upon liquidation, dissolution or winding up of the affairs
     of TCI Music on parity with the TCI Music Preferred Stock.

     Assuming (a) no shareholder of the Company has demanded appraisal rights in
     accordance with the Florida Business Corporation Act, (b) all of the
     outstanding shares of Company Preferred Stock are converted into Company
     Common Stock prior to the completion of the Merger and (c) the Exchange
     Rate is $7.00, immediately following the Merger (a) the outstanding shares
     of TCI Music Preferred Stock into which the Company Common Stock will be
     converted will represent

                                      -11-

<PAGE>   12



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.   (CONTINUED)

     approximately 6.64% of, and .85% of the voting power relating to, the total
     outstanding shares of TCI Music Series A Common Stock and TCI Music Series
     B Common Stock (collectively, the "TCI Music Stock"); and (b) the
     outstanding shares of TCI Music Series B Common Stock will represent
     approximately 75.39% of, and 96.84% of the voting power related to, the
     total outstanding shares of TCI Music Stock and TCI Music Preferred Stock.
     Liberty VJN, Inc., an affiliate of TeleCommunications, Inc. ("TCI"),
     beneficially owns approximately 5% of the outstanding shares of Company
     Common Stock. Assuming the same facts as set forth in the immediately
     preceding sentence, immediately following the Merger, TCI will beneficially
     own approximately 4.69% of the outstanding shares of TCI Music Preferred
     Stock, 45.73% of the TCI Music Series A Common Stock prior to any Preferred
     Stock conversion, and 100% of the outstanding TCI Music Series B Common
     Stock, which will collectively represent approximately 83.92% of the
     outstanding shares of TCI Music Stock and 97.94% of the voting power of the
     outstanding shares of TCI Music Stock and TCI Music Preferred Stock. The
     TCI Music Series B Common Stock entitles the holder to ten votes on each
     matter to be voted upon by the holders of TCI Music Series A Common Stock
     and TCI Music Series B Common Stock.

     The respective obligations to TCI Music and Acquisition Sub to effect the
     Merger are subject to the satisfaction of certain conditions, including (a)
     the Merger Agreement and the transactions contemplated by the Merger
     Agreement will have been duly approved by holders of 75% of the outstanding
     shares of Company Common Stock and Company Preferred Stock entitled to
     vote, voting as a single class; (b) the number of Dissenting Shares do not
     exceed 15% of the issued and outstanding shares of Company Common Stock and
     Company Preferred Stock; (c) the waiting period applicable to the
     consummation of the Merger under the Hart-Scott-Rodino Act will have
     expired, or have been earlier terminated and any other notices or approvals
     or consents required by or of governmental entities, to the extent required
     to be obtained under the Merger Agreement, will have either been filed or
     obtained; and (d) the registration statement (the "Registration Statement")
     of TCI Music covering the TCI Music Preferred Stock and the TCI Music
     Series A Common Stock (into which the TCI Music Preferred Stock will be
     convertible) will have become effective in accordance with the provisions
     of the Securities Act of 1933 and any necessary securities law approvals
     will have been obtained and no stop orders suspending the effectiveness of
     the Registration Statement will have been issued by the Securities and
     Exchange Commission.

     The obligations of the Company to consummate the transactions contemplated
     by

                                      -12-

<PAGE>   13



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.   (CONTINUED)

     the Merger Agreement are subject to the satisfaction of certain matters,
     including (a) the performance by TCI Music and Acquisition Sub, in all
     material respects, of their respective agreements in the Merger Agreement
     to be performed prior to the closing of the Merger and the accuracy of the
     representations and warranties of each of them in all material respects;
     and (b) the fiduciary obligations of the Board of Directors of the Company
     to the Company and its shareholders.

     The respective obligations of TCI Music and Acquisition Sub to consummate
     the transactions contemplated by the Merger Agreement are also subject to
     the satisfaction or waiver of the following conditions: (a) the performance
     by the Company in all material respects, of the agreements of it in the
     Merger Agreement to be performed by it by the closing of the Merger and the
     accuracy of the Company's representations and warranties in all material
     respects; (b) receipt of all consents, orders and approvals of governmental
     entities and third parties, to the extent required to be obtained under the
     Merger Agreement; and (c) the number of shares of the shareholders of the
     Company exercising dissenter's rights does not exceed 15% of the
     outstanding Company Common Stock and the Company Preferred Stock as of the
     date of the closing of the Merger.

     Contemporaneously with the signing of the Merger Agreement, three
     shareholders of the Company, H.F. Lenfest, J. Patrick Michaels, Jr. and
     StarNet/CEA II Partners, who beneficially own 14,210,419 shares of Company
     Common Stock (representing approximately 55% of the outstanding shares of
     Company Common Stock) entered into a voting agreement with TCI Music,
     pursuant to which, among other things, each of such shareholders agreed to
     vote all of the shares of voting stock of the Company beneficially owned by
     each such shareholder in favor of the Merger and to vote all of such shares
     against any proposal that would compete or interfere with, or that would in
     any way delay or otherwise inhibit the timely consummation of the Merger.
     Such voting agreement will terminate (a) upon the mutual consent of all
     parties thereto, (b) at the closing of the Merger or (c) upon termination
     of the Merger Agreement.

     The foregoing description of the Merger Agreement and the Certificate of
     Designations is qualified in its entirety by reference to the complete text
     of the Merger Agreement and the Certificate of Designations, which are
     incorporated by reference herein and copies of which (exclusive of exhibits
     and schedules) are filed as Exhibits 2.1 and 2.2, respectively, to this 
     Report.

6.   On August 7, 1997, the Federal Communications Commission (the "FCC")


                                      -13-

<PAGE>   14



NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6.   (CONTINUED)

     adopted order FCC 97-279 (the "Order"). The Order establishes rules to
     implement the closed captioning requirements of the Telecommunications Act
     of 1996 (the "1996 Act"). The 1996 Act required the FCC to adopt, by August
     8, 1997, rules and implementation schedules for the captioning of video
     programming ensuring access to video programming by persons with hearing
     disabilities. The Company estimates that it may cost approximately $430,000
     to retrofit boxes that are currently in operation, in order to comply with
     the Order.


                                      -14-

<PAGE>   15



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996.

OVERVIEW:

Due to the wide brand recognition of THE BOX, the Company changed its corporate
name to The Box Worldwide, Inc. effective February 20, 1997. A corporate
restructuring has segregated domestic operations from the international
operations and from the purely corporate functions. This restructuring allows
the Company to organize its investments, operating structures and branding of
its trademarks and technology in a more efficient and economical manner.
Domestic operations are reflected through a new wholly-owned subsidiary, The Box
Worldwide - USA, Inc., formed as a Delaware corporation in March 1997.
Previously established subsidiaries, The Box Worldwide - Europe, B.V. and The
Box Worldwide - Latin America, Inc., contain the operating results and
development costs (through allocation from the parent company) for those
respective regions. Results from these two subsidiaries, along with all other
international regions and the general international development costs together
constitute "international operations and development", as referred to throughout
this document.

Costs of international development and general corporate charges, to the extent
they are not allocable to a reporting unit, are reported through the corporate
division of the Company. For the results for the quarter ended June 30, 1996,
however, no such expense allocations from the parent company to domestic and
international operations were made. For comparability with the current period's
results, all direct international and corporate expenses for the prior year
period have been segregated.

For the quarter ended June 30, 1997, the Company realized a consolidated net
loss of $1,353,222 as compared to a net loss of $864,177 for the quarter ended
June 30, 1996. This consolidated loss is composed of the following items:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED
                                                  ------------------------------
                                                  JUNE 30, 1997    JUNE 30, 1996
                                                  -------------    -------------
<S>                                                <C>               <C>        
          Income from domestic operations          $   108,891       $   221,029
          Loss from international operations
             and development                        (1,267,114)         (711,711)
          Net corporate expenses                      (194,999)         (373,495)
                                                   -----------       -----------

          Consolidated net loss                    $(1,353,222)      $  (864,177)
                                                   ===========       ===========
</TABLE>


As noted above, the 1997 results reflect allocations of certain corporate
charges to

                                      -15-

<PAGE>   16



RESULTS OF OPERATIONS (CONT'D)

domestic and international operations, whereas no such allocations were made in
1996.

Management believes that these allocations more accurately reflect the true cost
to the domestic and international operating units for services provided by the
parent company, as these items generally represent costs which these divisions
would incur directly had such services not been provided by the parent. Prior to
giving effect to these allocations, the second quarter 1997 income from domestic
operations would have been $378,734 higher, and the same period loss from
international development and operations would have been $110,962 lower.

Please refer to the following Supplemental Schedule of Revenue and Expenses by
Segment for further detail:


                            THE BOX WORLDWIDE, INC.
            SUPPLEMENTAL SCHEDULE OF REVENUE AND EXPENSES BY SEGMENT
                   FOR QUARTERS ENDED JUNE 30, 1997 AND 1996
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       INTERNATIONAL
                                                                                       DEVELOPMENT &
                                        CONSOLIDATED              DOMESTIC              OPERATIONS             CORPORATE         
                                  -----------------------  ----------------------  ----------------------  --------------------
                                      1997        1996        1997        1996        1997        1996       1997       1996
                                  -----------  ----------  ----------  ----------  ----------   ---------  ---------  --------- 
<S>                               <C>          <C>         <C>         <C>         <C>          <C>        <C>        <C>
REVENUES
  Advertising revenues            $ 2,619,218  $2,855,244  $2,604,370  $2,855,244  $    14,848  $       0  $       0  $       0
  Net viewer revenues               2,321,523   2,677,276   2,035,586   2,651,730      285,937     25,546          0          0
  Other revenues                      172,383      82,149      42,544      67,860      113,866      6,801     15,973      7,488   
                                  -----------  ----------  ----------  ----------  -----------  ---------  ---------  ---------
                                    5,113,124   5,614,669   4,682,500   5,574,834      414,651     32,347     15,973      7,488
  Interest income                      71,372      80,930           0           0            0          0     71,372     80,930
                                  -----------  ----------  ----------  ----------  -----------  ---------  ---------  ---------
                                    5,184,496   5,695,599   4,682,500   5,574,834      414,651     32,347     87,345     88,418
COSTS AND EXPENSES
  Affiliate fees, site costs
    and telephone service           1,367,717   1,623,119   1,138,019   1,607,310      229,698     15,809          0          0
  Distribution, general and
    administrative                  4,320,020   4,254,320   2,857,890   3,296,870    1,231,696    495,537    230,434    461,913 
  Satellite transponder and
    rent paid to related parties      118,020     149,691     118,020     149,691            0          0          0          0
  Depreciation and amortization       586,488     325,326     459,680     299,934       74,898     25,392     51,910          0
                                  -----------  ----------  ----------  ----------  -----------  ---------  ---------  ---------
                                    6,392,245   6,352,456   4,573,609   5,353,805    1,536,292    536,738    282,344    461,913
                                  -----------  ----------  ----------  ----------  -----------  ---------  ---------  ---------
INCOME (LOSS) BEFORE INTEREST
  IN LOSS OF UNCONSOLIDATED 
  COMPANIES                        (1,207,749)   (656,857)    108,891     221,029   (1,121,641)  (504,391)  (194,999)  (373,495)
                                  -----------  ----------  ----------  ----------  -----------  ---------  ---------  ---------
INTEREST IN LOSS OF 
  UNCONSOLIDATED COMPANIES           (145,473)   (207,320)          0           0     (145,473)  (207,320)         0          0
                                  -----------  ----------  ----------  ----------  -----------  ---------  ---------  ---------
NET INCOME (LOSS)                 $(1,353,222) $ (864,177) $  108,891  $  221,029  $(1,267,114) $(711,711) $(194,999) $(373,495)
                                  -----------  ----------  ----------  ----------  -----------  ---------  ---------  ---------
</TABLE>




                                      -16-

<PAGE>   17



RESULTS OF OPERATIONS (CONT'D)

REVENUES:

ADVERTISING REVENUES:

Consolidated advertising revenue decreased by approximately $236,000 for the
quarter ended June 30, 1997 as compared with the same 1996 period. Domestic
advertising revenues decreased by approximately $251,000 for the quarter ended
June 30, 1997 as compared with the same 1996 period. National advertising
decreased 3.5%, or approximately $72,000, for the quarter ended June 30, 1997
from the comparable period in 1996. Proctor and Gamble, Coca Cola, MCI, Nike,
Nordic Trak, Reebok and various other national consumer goods and services all
advertised on THE BOX during the second quarter of 1997.

Record advertising decreased approximately $179,000 in the second quarter of
1997 as compared to the same quarter of 1996. Part of this decrease occurred due
to the change in music mixes throughout the Company's localized interactive
boxes. In the past, the Company had relied almost exclusively on record
advertising of urban and rap artists which is no longer compatible with the
programming offered on all boxes. Minimal new music product was released during
the second quarter of 1997, also resulting in lower advertising levels. During
the second quarter 1997, the Company's top management and record advertising
sales team have participated in presentations to eighty five percent of all the
major record labels. With these presentations, management informed the record
labels of the Company's music mix changes, digital technology changes and
overall localized programming strategy that will enable the labels to promote
all their music product on THE BOX rather than the exclusive niche of urban and
rap music. Management believes that the presentations were well received and,
while it cannot be assured, record label advertising is expected to improve
throughout 1997. International advertising revenue was $15,000 for the second
quarter of 1997, with no comparable amount in the second quarter of 1996.

Nearly $8.6 million in domestic advertising has already been booked for the
year. International advertising is anticipated to begin to contribute positively
to consolidated operations in 1997, due to subscriber increases in existing
international operations and the March 1997 broadcast launch of The Box Italy.
However, there can be no assurance that all booked revenue will actually be
aired and earned or that the international growth will result in increased
advertising.

NET VIEWER REVENUES:

The decrease in net viewer revenues of $356,000 results from the net effect of
reduced domestic gross viewer revenues (negative effect of $782,000), as offset
by


                                      -17-

<PAGE>   18



RESULTS OF OPERATIONS (CONT'D)

the related reduction in the telephone service provider's billing and collection
charges (positive effect of $100,000), the reduction in chargebacks experienced
when consumers failed to pay for their requested videos (positive effect of
$66,000) and the increase in international viewer revenues (positive effect of
$260,000).

Gross domestic viewer revenues, which resulted from the interactive telephone
calls to THE BOX for video selections, decreased from $3,273,000 to $2,491,000,
a difference of approximately $782,000 or 23.9% from the second quarter of 1996
to the second quarter of 1997. Approximately $159,000 related to the loss of
carriage on a Detroit cable system in June 1996. The remaining decrease resulted
from a lower average performance per box during the second quarter of 1997. This
decrease in average performance may be attributed to factors involving both the
Company and the music industry. THE BOX removed certain violent or sexually
explicit videos from its playlists, which historically generated a significant
number of viewer requests. The Company also has introduced request emulation
when no viewer requests were in the queue in order to improve the on-air look of
its programming. Finally, the transactional revenue has been negatively affected
by airtime required for increased advertising and for additional programming
elements such as Box Big Break (on-air spots featuring local artists) and other
elements designed to strengthen viewing of THE BOX.

As the Company moves forward to improve its product, the interests of various
constituencies must be balanced. This involves attracting and maintaining
viewers while remaining cognizant of the concerns of cable operators and
advertisers. While many requests on THE BOX were directed towards controversial
videos, their frequent play resulted in the loss of cable distribution. To
address this issue, THE BOX has implemented a more stringent standard for video
content while at the same time maintaining its reputation for innovative
programming.

THE BOX also is taking additional steps to balance its appeal to both the
passive and the transacting audiences. Request emulation and pre-programmed
segments are increasing the attractiveness of the service to non-transacting
viewers which make up the bulk of THE BOX audience. These viewers are looking
for engaging and continuous programming, prefer less emphasis on a static
request menu and want fewer repetitive plays of the same music video selection.
The needs of advertisers and cable operators are generally more closely aligned
with these non-transacting viewers. However, some form of available video menu
with a call to action is important to prompt requests from transactional
viewers. The Company continues to make enhancements to serve both audience
groups.

In addition to taking viewer requests via 900 service, the Company introduced a
new program in 1996 to allow customers who would like to exceed the Company's
900 service credit limit to establish a prepaid account for the selection of
videos. In addition to generating additional viewer revenue, this program has
been designed to eliminate customer chargebacks and billing charges from service
providers, as well as reduce transport costs. Initiated as a test, this program
slowly expanded during 1996 so that, by the end of that year, it was available
to all customers. This new prepaid video program provided 30.9% of consolidated
gross viewer revenue in the current period,




                                      -18-

<PAGE>   19



RESULTS OF OPERATIONS (CONT'D)

as compared with 11.3% in the second quarter of 1996. Revenue from this program
is recognized only as videos are selected, while prepaid account balances are
included in current liabilities.

With lower domestic viewer revenues, the billing and collection charges imposed
by the Company's telephone service provider were reduced proportionately.
Therefore, an offset to the decrease in domestic gross revenue is the reduction
in billing charges of approximately $100,000. Besides the lower revenue level,
the Company has been successful in renegotiating with the telco providers to
reduce billing and collection charges from eight percent during the second
quarter of 1996 to seven percent during the second quarter of 1997. Further,
revenue from the prepaid video program is not subject to billing and collection
charges, and therefore the increase in revenue from this program as a percentage
of total gross viewer revenue has also contributed to the reduction in these
charges.

An additional component of net viewer revenues relates to the adverse effect of
domestic customers who deny having made music video requests on THE BOX. In the
Company's current international markets, consumers are not allowed to refute
these charges, so the chargebacks are only occurring domestically. In an effort
to reduce chargebacks from telephone companies, the Company is in its third year
of call blocking for previous non-paying customers and applying credit
limitations for all its interactive viewers. After nearly three years of these
procedures, the Company has seen the chargeback rate reduced from over 16.7% in
1994, to approximately 13.5% currently. Chargebacks for the quarter ended June
30, 1997 totaled approximately $324,000 as compared to $390,000 for the same
prior year period. Revenue from the prepaid video program is not subject to
customer chargebacks since all money is collected before the videos air, and
therefore the increase in revenue from this program as a percentage of total
gross viewer revenue has also contributed to the reduction in these charges.

Net viewer revenue from international boxes increased by a net of $260,000 due
to the late 1996 international launches in Chile, Peru and Venezuela, none of
which were in operation during second quarter 1996, and the 1997 launches in New
Zealand and Italy.

OTHER REVENUE:

Miscellaneous revenues of $172,000 for the second quarter 1997 included $83,000
in domestic and international cable carriage fees, $36,000 for production
services provided to our unconsolidated Holland affiliate, $17,000 in gains on
the sale of some minor equipment, $23,000 from the sale of one of the Company's
low power television stations, and miscellaneous other revenue of approximately
$13,000. Interest income totaled approximately $71,000 in the second quarter of
1997, which included $28,000 related to an outstanding loan to the Company's
Holland affiliate.


                                      -19-

<PAGE>   20



RESULTS OF OPERATIONS (CONT'D)

COSTS AND EXPENSES:

AFFILIATE FEES, SITE COSTS AND TELEPHONE SERVICES:

Expenses for affiliate fees, site costs and telephone services were 58.9% and
60.6% of net viewer revenues for the quarters ended June 30, 1997 and 1996,
respectively. The percentage for the second quarter of 1997 increased to 68.3%
after adjusting for a non-recurring credit of $218,000 due to a reversal of a
reserve relating to affiliate fees for discontinued systems. Recurring expenses
in this category as a percentage of net viewer revenues are up significantly for
1997 since a large portion of the affiliation fees, site costs and
telecommunications charges are fixed per location. With the reduced level of
domestic viewer transactional revenues, these expenses as a percentage of
revenues increased in the second quarter of 1997.

Expenses for affiliate fees, site costs and telephone services totaled $255,000
less for second quarter 1997 as compared with the same prior year period. The
total decrease resulted from decreased expenditures for domestic operations of
$469,000 offset by increased expenditures in international operations of
$214,000.

The domestic decrease in expenses of approximately $469,000 between the quarters
ended June 30, 1997 and 1996 was due to the net effect of the following:

-    A decrease of $312,000 in domestic transport costs due to a combination of
     reduced levels of viewer transactional revenues and rerouting of certain
     viewer calls in-house that were previously handled by outside service
     bureaus (completed by end of current period). In the future, the Company
     expects to continue to realize savings from the movement of these calls to
     an in-house operation.

-    A decrease in the cable affiliation fees of approximately $213,000 resulted
     from a non-recurring credit recognized in the quarter ended June 30, 1997
     related to the reversal of a reserve for discontinued cable systems, with
     no comparable item in the same prior year period.

-    A decrease in low power television affiliation fees of approximately
     $18,000. Of this decrease, $107,000 relates to the discontinued affiliation
     with a New York City low power station broadcasting from Queens. This
     affiliation was terminated on January 31, 1997 to reduce carriage fee
     expenditures since the other two low power affiliates in New York City had
     improved their signals and were covering a majority of the market at lower
     affiliation fees. This is offset by an increase in low power affiliation
     fees related to newly launched low power stations and to improved
     performance of certain existing low power boxes.



                                      -20-

<PAGE>   21



RESULTS OF OPERATIONS (CONT'D)

-    A $9,000 decrease in the low power television site costs due to reductions
     in the number of LPTV sites requiring such expenditures.

-    An increase in telecommunications expense of $44,000 due mainly to the
     fixed VSAT transmission charges associated with the new digital box
     operations. While these expenses will provide for higher telecommunications
     expenses in 1997, the net cost savings of updating each Box location by
     VSAT satellite as opposed to the development, production and distribution
     of 3/4-inch tapes and laser discs required under the old analog technology
     are expected to total at least $70,000 per month.

-    An increase in satellite transponder and uplink fees of $39,000 paid for
     satellite service of THE BOX. In prior years and through the end of March
     1996, the fees for satellite transponder and uplink services were paid to a
     related party and were included in the related party expenditure category
     in the financial statements. Beginning in April 1996, the Company entered
     into an agreement for such service with an unrelated third party. The rates
     for the transponder uplink increased from $42,500 per month to $55,300 per
     month beginning in January 1997. The Company is negotiating a long-term
     agreement with WTCI for these services, which are now provided on a
     month-to-month basis.

International expenses for affiliate fees, site costs and telephone services
increased by $214,000 due to the start-up of new international operations in the
second half of 1996 and the first quarter of 1997 that were not in existence
during the second quarter of 1996.

DISTRIBUTION, GENERAL AND ADMINISTRATIVE:

Consolidated distribution, general and administrative expenses for the quarter
ended June 30, 1997 increased by approximately $66,000, from $4,254,000 in 1996
to $4,320,000 in 1997. This increase can be divided into the net effect of the
following components: a decrease in domestic expenditures of approximately
$439,000; an increase of approximately $736,000 related to international
development and operating expenses; and a decrease in corporate expenses of
$231,000 (after allocation to domestic and international units).

As part of the Company's corporate restructuring, corporate expenses have been
segregated from expenses relating to domestic and international development and
operations. These corporate costs primarily consist of parent company personnel,
administrative expenses, legal fees and the continuing development cost of the
digital box and related technology. All charges which relate to domestic and
international expenditures, which are essentially all charges except for the
corporate costs of a public company, have been allocated to the operating units
beginning with the first quarter of 1997. For the three month periods ended June
30, 1997 and 1996, the net corporate charges were as follows:




                                      -21-

<PAGE>   22



RESULTS OF OPERATIONS (CONT'D)

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                                             JUNE 30,1997     JUNE 30, 1996
                                                                             ------------     -------------
<S>                                                                             <C>             <C>      
          Total corporate charges                                               $ 720,131       $ 461,913
          Allocated to The Box Worldwide-USA, Inc.                               (378,734)             --
          Allocated to international development and operations                  (110,962)             --
                                                                                ---------       ---------

          Net corporate charges                                                 $ 230,435       $ 461,913
                                                                                =========       =========
</TABLE>


The increase in total corporate charges from $462,000 in 1996 to $720,000 for
second quarter 1997 ($258,000) consisted of the following items:

-    The Company elected to settle a long standing claim for the amount of
     $160,000 in cash, $5,000 in surrender of a replevin bond previously written
     off plus related legal costs of $19,000. While the Company believed the
     action was without merit, it appeared that the costs associated with going
     to trial would be greater than the agreed settlement amount, therefore the
     claim was settled.

-    An increase in compensation of $51,000 relating mostly to the transfer of
     certain digital box development and engineering functions to the parent
     company in 1997.

-    Cost of producing the 1997 Corporate Annual Report of $20,000 with no
     comparable expenditures in the second quarter of 1996. The costs of the
     1996 Annual Report were incurred in the third quarter of 1996.

-    An increase in various administrative expenses of $8,000.

Distribution, general and administrative expenses for domestic operations
decreased by $439,000 for the second quarter of 1997 as compared with the same
prior year period. The majority of the savings ($257,000) related to lower
salaries and benefits realized primarily due to three factors: (i) the departure
of the Executive Vice President, Programming in 1996 ($85,000); (ii) the
transfer of certain staff from domestic operations to corporate and
international operations ($20,000); and (iii) a general reduction of domestic
staff due to the elimination of a number of positions ($152,000).

Further decreases were experienced in trade advertising, consumer marketing,
research, industry events and travel and entertainment expenses of approximately
$325,000 as a result of the Company deferring the development of its new
marketing campaign until the latter part of 1997. Participation in several
industry trade events also were reduced in order to control costs. While trade
advertising will likely increase in 1997, the costs for trade events should
remain low and possibly even decrease given the reduction of cable industry
state association shows.

A decrease of $143,000 in production, discs and shipping costs resulted from
more in-house production and the use of VSAT technology to update the Digital
Box programming and advertising. Music costs associated with the Company's
revenues


                                      -22-

<PAGE>   23



RESULTS OF OPERATIONS (CONT'D)

decreased approximately $10,000 for the second quarter of 1997 as compared with
the second quarter of 1996 due to the lower overall revenue levels.

Cost of sales associated with merchandise sold through the Company's retail
operation was approximately $17,000 lower for the quarter ended June 30, 1997,
as compared with the same prior year period. The Company closed the store at the
end of the first quarter of 1997, because it was unprofitable. This deletion of
operations is expected to save the Company over $100,000 in operating
expenditures for 1997.

Operational costs decreased $104,000 as a result of the full implementation of
the digital box rollout. The savings were related to lower telecommunication
costs ($47,000), lower repair and maintenance costs ($54,000), and other expense
reductions ($3,000).

Decreased national and direct response advertising sales revenues in the second
quarter of 1997, as compared with the same period in 1996, resulted in lower
agency commissions of approximately $10,000.

The Company also expended approximately $48,000 more in office and
administrative costs during the quarter ended June 30, 1997 than the same prior
year period. These increased charges related to increased use of consultants for
internet development, marketing and public relations ($37,000), and higher
property taxes relating to new digital box equipment ($19,000) offset by lower
costs of office administration ($8,000). As discussed above, corporate overhead
of approximately $379,000 was allocated to domestic operations in the second
quarter of 1997, with no comparable amount allocated in the second quarter of
1996. These expenses included, for example, charges for management salaries,
office space, telecommunications, travel and related expenses.

Distribution, general and administrative expenses for our international
development and consolidated operations increased by approximately $736,000 for
the quarter ended June 30, 1997, as compared to the same prior year period.
These expenses related to operations in Argentina, Chile, Peru and Venezuela,
which launched in 1996 and incurred minimal expenses in 1996, and start-up
operations in New Zealand and Italy in 1997. The increased expenditures involved
were: operations, office and administration ($173,000); salaries and benefits
($131,000); legal ($36,000); production, discs, tapes and shipping ($102,000);
corporate allocations ($111,000); and marketing, research, trade advertising,
travel and events ($183,000).

SATELLITE TRANSPONDER AND RENT PAID TO RELATED PARTIES:

Related party expenditures decreased from $150,000 for the second quarter of
1996 to $118,000 for the same current year period. Satellite transponder and
service fees for the Company's satellite distributed programming resulted in
related party expenditures of

                                      -23-

<PAGE>   24



RESULTS OF OPERATIONS (CONT'D)

$25,000 for the quarter ended June 30, 1996 with no comparable expense in 1997.
WTCI, a subsidiary of Tele-Communications, Inc., is now providing the satellite
transponder and uplink services via the Hughes' satellite Galaxy 7, transponder
13. Beginning in January 1997, the fee charged by WTCI was $55,300 per month and
such expense was included in the financial statements under "Affiliate fees,
site costs and telephone service."

In the second quarter of 1997 and 1996, the Company incurred rental expense of
approximately $118,000 and $125,000, respectively, payable to Island Trading
Company, Inc. for its corporate headquarters location.

DEPRECIATION AND AMORTIZATION:

Depreciation and amortization expenses for the quarter ended June 30, 1997,
increased by approximately $261,000 due to capital expenditures for the
development, equipment and installation costs associated with the new digital
boxes launched in 1996 and 1997, as well as certain capital expenditures
relating to international operations.



                                      -24-

<PAGE>   25



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996.

OVERVIEW:

Due to the wide brand recognition of THE BOX, the Company changed its corporate
name to The Box Worldwide, Inc. effective February 20, 1997. A corporate
restructuring has segregated domestic operations from the international
operations and from the purely corporate functions.

Costs of international development and general corporate charges, to the extent
they are not allocable to a reporting unit, are reported through the corporate
division of the Company. For the results for the six months ended June 30, 1996,
however, no such expense allocations from the parent company to domestic and
international operations were made. For comparability with the current period's
results, all direct international and corporate expenses for the prior year
period have been segregated.

For the six months ended June 30, 1997, the Company realized a consolidated net
loss of $2,734,435 as compared to a net loss of $2,087,071 for the six months
ended June 30, 1996. This consolidated loss is composed of the following items:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                       ------------------------------
                                                       JUNE 30, 1997    JUNE 30, 1996
                                                       -------------    -------------
<S>                                                     <C>               <C>         
          Loss from domestic operations                 $  (360,935)      $   (16,650)
          Loss from international operations
             and development                             (2,137,356)       (1,418,230)
          Net corporate expenses                           (236,144)         (652,191)
                                                        -----------       -----------

          Consolidated net loss                         $(2,734,435)      $(2,087,071)
                                                        ===========       ===========
</TABLE>


As noted above, the 1997 results reflect allocations of certain corporate
charges to domestic and international operations, whereas no such allocations
were made in 1996.

Management believes that these allocations more accurately reflect the true cost
to the domestic and international operating units for services provided by the
parent company, as these items generally represent costs which these divisions
would incur directly had such services not been provided by the parent. Prior to
giving effect to these allocations, the losses for the first six months of 1997
from domestic operations and international development and operations would have
been $643,952 and $226,718 lower, respectively.

Please refer to the following Supplemental Schedule of Revenue and Expenses by
Segment for further detail:




                                      -25-

<PAGE>   26

                            THE BOX WORLDWIDE, INC.
            SUPPLEMENTAL SCHEDULE OF REVENUE AND EXPENSES BY SEGMENT
                FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         INTERNATIONAL
                                                                                         DEVELOPMENT &
                                    CONSOLIDATED                DOMESTIC                  OPERATIONS                 CORPORATE
                             -------------------------  -------------------------  ------------------------  -----------------------
                                   1997        1996         1997         1996         1997         1996          1997        1996
                             -------------------------  -------------------------  ------------------------  -----------------------
<S>                          <C>           <C>          <C>          <C>           <C>          <C>          <C>          <C>
REVENUES
 Advertising revenues        $  4,968,935  $ 4,850,819  $ 4,954,087  $  4,850,819  $    14,848  $          0  $        0  $       0
 Net viewer revenues            4,368,204    5,456,361    4,007,965     5,430,815      360,239        25,546           0          0
 Other revenues                   281,931      144,587       59,387       100,844      195,484        14,300      27,060     29,443
                             ------------  -----------  -----------  ------------  -----------  ------------  ----------  ---------

                                9,619,070   10,451,767    9,021,439    10,382,478      570,571        39,846      27,060     29,443
 Interest income                  237,628      194,157            0             0            0             0     237,628    194,157
                             ------------  -----------  -----------  ------------  -----------  ------------  ----------  ---------
                                9,856,698   10,645,924    9,021,439    10,382,478      570,571        39,846     264,688    223,600
COSTS AND EXPENSES
 Affiliate fees, site costs   
  and telephone service         2,859,589    3,033,170    2,569,443     3,005,642      290,146        27,528           0          0
 Distribution, general          
  and administrative            8,075,950    8,185,741    5,701,317     6,367,864    1,983,308       942,086     391,325    875,791
 Satellite transponder and   
  rent paid to related
  parties                         236,040      495,380      236,040       495,380            0             0           0          0
 Depreciation and 
  amortization                  1,102,817      564,369      875,574       530,242      117,736        34,127     109,507          0
                             ------------  -----------  -----------  ------------  -----------  ------------  ----------  ---------
                               12,274,396   12,278,660    9,382,374    10,399,128    2,391,190     1,003,741     500,832    875,791
                             ------------  -----------  -----------  ------------  -----------  ------------  ----------  ---------
LOSS BEFORE INTEREST IN LOSS    
 OF UNCONSOLIDATED COMPANIES   (2,417,698)  (1,632,736)    (360,935)      (16,650)  (1,820,619)     (963,895)   (236,144)  (652,191)
                             ------------  -----------  -----------  ------------  -----------  ------------  ----------  ---------
INTEREST IN LOSS OF
 UNCONSOLIDATED COMPANIES        (316,737)    (454,335)           0             0     (316,737)     (454,335)          0          0
                             ------------  -----------  -----------  ------------  -----------  ------------  ----------  ---------
NET LOSS                     $ (2,734,435) $(2,087,071) $  (360,935)  $   (16,650) $(2,137,356)  $(1,418,230) $ (236,144) $(652,191)
                             ------------  -----------  -----------  ------------  -----------  ------------  ----------  ---------
</TABLE>






                                      -26-

<PAGE>   27



RESULTS OF OPERATIONS (CONT'D)

REVENUES:

ADVERTISING REVENUES:

Consolidated advertising revenue increased by approximately $118,000 for the six
months ended June 30, 1997 as compared with the same 1996 period. Domestic
advertising revenues increased by approximately $103,000 for the six months
ended June 30, 1997 as compared with the same 1996 period. National advertising
improved 12%, or approximately $427,000, for the six months ended June 30, 1997
from the comparable period in 1996. Proctor and Gamble, Coca Cola, MCI,
Nintendo, Nike, Nordic Trak, AT&T, Reebok and various other national consumer
goods and services all advertised on THE BOX during the first six months of
1997.

Record advertising decreased approximately $324,000 in the first six months of
1997 as compared to the same period of 1996. Part of this decrease occurred due
to the change in music mixes throughout the Company's localized interactive
boxes. In the past, the Company had relied almost exclusively on record
advertising of urban and rap artists which is no longer compatible with the
programming offered on all boxes. Minimal new music product was released during
the first half of 1997, also resulting in lower advertising levels. Management
believes that the presentations made by the Company's top management and record
label advertising sales team were well received and, while it cannot be assured,
record label advertising is expected to improve throughout 1997. International
advertising was $15,000 for the first six months of 1997, with no comparable
amount for the same period in 1996.

NET VIEWER REVENUES:

The decrease in net viewer revenues of $1,088,000 results from the net effect of
reduced domestic gross viewer revenues (negative effect of $1,915,000), as
offset by the related reduction in the telephone service provider's billing and
collection charges (positive effect of $242,000), the reduction in chargebacks
experienced when consumers failed to pay for their requested videos (positive
effect of $250,000); the increase in international viewer revenues (positive
effect of $335,000).

Gross domestic viewer revenues, which resulted from the interactive telephone
calls to THE BOX for video selections, decreased from $6,777,000 to $4,862,000,
a difference of approximately $1,915,000 or 28.3% from the first six months of
1996 to the first six months of 1997. Approximately $394,000 related to the loss
of carriage on a Detroit cable system in June 1996. The remaining decrease
resulted from a lower average performance per box during the first six months of
1997. This decrease in average performance may be attributed to factors
involving both the Company and the music industry. THE BOX removed certain
violent or sexually explicit videos from its playlists, which historically
generated a significant number of viewer requests. The Company also has
introduced request emulation when no viewer requests were in the queue. Finally,
the transactional revenue has been negatively affected by airtime required for
increased advertising and for additional programming elements such as Box

                                      -27-

<PAGE>   28



RESULTS OF OPERATIONS (CONT'D)

Big Break (on-air spots featuring local artists) and other elements designed to
strengthen viewing of THE BOX.

In addition to taking viewer requests via 900 service, the Company introduced a
new program in 1996 to allow customers who would like to exceed the Company's
900 service credit limit to establish a prepaid account for the selection of
videos. In addition to generating additional viewer revenue, this program has
been designed to eliminate customer chargebacks and billing charges from service
providers, as well as reduce transport costs. Initiated as a test, this program
slowly expanded during 1996 so that, by the end of that year, it was available
to all customers. This new prepaid video program provided 27.3% of consolidated
gross viewer revenue in the current period, as compared with 8.7% in the first
six months of 1996. Revenue from this program is recognized only as videos are
selected, while prepaid account balances are included in current liabilities.

With lower domestic viewer revenues, the billing and collection charges imposed
by the Company's telephone service provider were reduced proportionately.
Therefore, an offset to the decrease in domestic gross revenue is the reduction
in billing charges of approximately $242,000. Besides the lower revenue level,
the Company has been successful in renegotiating with the telco providers to
reduce billing and collection charges from eight percent during the first six
months of 1996 to seven percent during the first six months of 1997. Further,
revenue from the prepaid video program is not subject to billing and collection
charges, and therefore the increase in revenue from this program as a percentage
of total gross viewer revenue has also contributed to the reduction in these
charges.

An additional component of net viewer revenues relates to the adverse effect of
domestic customers who deny having made music video requests on THE BOX. In the
Company's current international markets, consumers are not allowed to refute
these charges, so the chargebacks are only occurring domestically. In an effort
to reduce chargebacks from telephone companies, the Company is in its third year
of call blocking for previous non-paying customers and applying credit
limitations for all its interactive viewers. After nearly three years of these
procedures, the Company has seen the chargeback rate reduced from over 16.7% in
1994, to approximately 13.5% currently. Chargebacks for the six months ended
June 30, 1997 totaled approximately $601,000 as compared to $851,000 for the
same prior year period. Revenue from the prepaid video program is not subject to
customer chargebacks since all money is collected before the videos air, and
therefore the increase in revenue from this program as a percentage of total
gross viewer revenue has also contributed to the reduction in these charges.

Net viewer revenue from international boxes increased by a net of $335,000 due
to the late 1996 international launches in Chile, Peru and Venezuela, none of
which were in operation during first half of 1996, and the 1997 launches in New
Zealand and Italy.



                                      -28-

<PAGE>   29



RESULTS OF OPERATIONS (CONT'D)

OTHER REVENUE:

Miscellaneous revenues of $282,000 for the first six months of 1997 included
$154,000 in domestic and international cable carriage fees, $53,000 for
production services provided to the Company's unconsolidated Holland affiliate,
$28,000 in gains on the sale of some minor equipment, $23,000 for the sale of a
low power television station, revenue totaling $5,000 from the music
compilations marketed under the Company's BOXtunes label and miscellaneous other
revenue of approximately $19,000. Interest income totaled approximately $238,000
in the first six months of 1997, which included $112,000 related to an
outstanding loan to the Company's Holland affiliate. Interest from inception of
the loan in 1995 to the end of 1996 had not been previously recognized, and was
included in the first quarter of 1997.

COSTS AND EXPENSES:

AFFILIATE FEES, SITE COSTS AND TELEPHONE SERVICES:

Expenses were 65.5% and 55.6% of net viewer revenues for the six months ended
June 30, 1997 and 1996, respectively. The percentage for the first six months of
1997 increased to 70.5% after adjusting for a non-recurring credit of $218,000
due to a reversal of a reserve for affiliate fees related to discontinued
systems. Recurring expenses in this category as a percentage of net viewer
revenues are up significantly for 1997 since a large portion of the affiliation
fees, site costs and telecommunications charges are fixed per location. With the
reduced level of domestic viewer transactional revenues, these expenses as a
percentage of revenues increased in the first six months of 1997. However,
expenses for affiliate fees, site costs and telephone services totaled $174,000
less for first six months 1997 as compared with the same prior year period. The
total decrease resulted from decreased expenditures for domestic operations of
$436,000, offset by increased expenditures in international operations of
$262,000.

The domestic decrease in expenses of approximately $436,000 for the six months
ended June 30, 1997 as compared to 1996 was due to the net effect of the
following:

-    A decrease of $550,000 in domestic transport costs due to a combination of
     reduced levels of viewer transactional revenues and rerouting of certain
     viewer calls in-house that were previously handled by outside service
     bureaus (completed by end of current period). In the future, the Company
     expects to continue to realize savings from the movement of these calls to
     an in-house operation.

-    A decrease in the cable affiliation fees of approximately $115,000 resulted
     from a non-recurring credit recognized in the second quarter of 1997
     related to a

                                      -29-

<PAGE>   30



RESULTS OF OPERATIONS (CONT'D)

     reversal of a reserve for discontinued cable systems, offset by credits
     recognized in the quarter ended March 31, 1996 related to the removal of
     the Company's programming from the New York City system in 1996.

-    A decrease in low power television affiliation fees of approximately
     $117,000. Of this decrease, $143,000 relates to the discontinued
     affiliation with a New York City low power station broadcasting from
     Queens. This affiliation was terminated on January 31, 1997 to reduce
     carriage fee expenditures since the other two low power affiliates in New
     York City had improved their signals and were covering a majority of the
     market at lower affiliation fees. This is offset by an increase in low
     power affiliation fees related to newly launched low power stations and to
     improved performance of certain existing low power boxes.

-    An increase in telecommunications expense of $141,000 due mainly to the
     fixed VSAT transmission charges associated with the new digital box
     operations. While these expenses will provide for higher telecommunications
     expenses in 1997, the net cost savings of updating each Box location by
     VSAT satellite as opposed to the development, production and distribution
     of 3/4-inch tapes and laser discs required under the old analog technology
     are expected to total a minimum of $70,000 per month.

-    An increase in satellite transponder and uplink fees of $205,000 paid for
     satellite service of THE BOX. Beginning in April 1996, the Company entered
     into an agreement for such service with an unrelated third party. In prior
     years and through the end of March 1996, the fees for satellite transponder
     and uplink services were paid to a related party and were included in the
     related party expenditure category in the financial statements.

International expenses for affiliate fees, site costs and telephone services
increased by $262,000 due to the start-up of new international operations in the
second half of 1996 and the first six months of 1997 that were not in existence
during the first six months of 1996.

DISTRIBUTION, GENERAL AND ADMINISTRATIVE:

Consolidated distribution, general and administrative expenses for the six
months ended June 30, 1997 decreased by approximately $110,000, from $8,186,000
in 1996 to $8,076,000 in 1997. This decrease can be divided into the net effect
of the following components: a decrease in domestic expenditures of
approximately $666,000; an increase of approximately $1,041,000 related to
international development and operating expenses; and a decrease in corporate
expenses of $485,000 (after allocation to domestic and international units).

                                      -30-

<PAGE>   31



RESULTS OF OPERATIONS (CONT'D)

As part of the Company's corporate restructuring, corporate expenses have been
segregated from expenses relating to domestic and international development and
operations. These corporate costs primarily consist of parent company personnel,
administrative expenses, legal fees and the continuing development cost of the
digital box and related technology. All charges which relate to domestic and
international expenditures, which are essentially all charges except for the
corporate costs of a public company, have been allocated to the operating units
beginning with the first quarter of 1997. For the six month periods ended June
30, 1997 and 1996, the net corporate charges were as follows:

<TABLE>
<CAPTION>
                                                                                  Six Months Ended
                                                                         -------------      -------------
                                                                         June 30, 1997      June 30, 1996
                                                                         -------------      -------------
<S>                                                                       <C>               <C>        
          Total corporate charges                                         $ 1,261,996       $   875,791
          Allocated to The Box Worldwide-USA, Inc.                           (643,952)               --
          Allocated to international development and operations              (226,718)               --
                                                                          -----------       -----------

          Net corporate charges                                           $   391,326       $   875,791
                                                                          ===========       ===========
</TABLE>

The increase in total corporate charges from $876,000 in 1996 to $1,262,000 for
first six months 1997 ($386,000) consisted of the following items:

-    The Company decided to settle a long standing claim for the amount of
     $160,000 in cash, $5,000 in surrender of a replevin bond previously written
     off plus related legal costs of $19,000. While the Company felt that the
     claims asserted were without merit, costs associated with going to trial
     would be greater than the agreed settlement amount, therefore the claim was
     settled.

-    An increase in compensation of $90,000 relating mostly to the transfer of
     certain digital box development and engineering functions to the parent
     company in 1997.

-    Higher legal costs of $68,000 relating to the corporate legal expense for
     regular SEC filings, a business controls study and costs associated with
     the corporate reorganization.

-    Cost of producing the 1997 Corporate Annual Report of $20,000 with no
     comparable expenditures in the same period in 1996. The cost of the 1996
     Annual Report was incurred in the third quarter of 1996.

-    Increased travel and industry event participation of $15,000.

-    Increased telecommunications cost of $19,000.

-    A decrease in various administrative expenses of $5,000.

Distribution, general and administrative expenses for domestic operations
decreased by $666,000 for the first six months of 1997 as compared with the same
prior year period. The majority of the savings ($431,000) related to lower
salaries and benefits

                                      -31-

<PAGE>   32



RESULTS OF OPERATIONS (CONT'D)

realized primarily due to three factors: (i) the departure of the Executive Vice
President, Programming in 1996 ($170,000); (ii) the transfer of certain staff
from domestic operations to corporate and international operations ($40,000);
and (iii) a general reduction of domestic staff due to the elimination of a
number of positions ($221,000).

Further decreases were experienced in trade advertising, consumer marketing,
research, industry events and travel and entertainment expenses of approximately
$614,000 as a result of the Company deferring the development of its new
marketing campaign until the latter part of 1997. Participation in several
industry trade events also were reduced in order to control costs. While trade
advertising will likely increase in the last half of 1997, the costs for trade
events should remain low and possibly even decrease given the reduction of cable
industry state association shows.

Domestic legal expenses decreased by approximately $8,000 in the last half of
1997 as compared with 1996. A decrease of $261,000 in production, discs and
shipping costs resulted from more in-house production and the use of VSAT
technology to update the Digital Box programming and advertising. Music costs
associated with the Company's revenues decreased approximately $31,000 for the
first six months of 1997 as compared with the first six months of 1996 due to
the lower overall revenue levels.

Cost of sales associated with merchandise sold through the Company's retail
operation was approximately $35,000 lower for the six months ended June 30,
1997, as compared with the same prior year period. The Company closed the store
at the end of the first quarter of 1997, because it was unprofitable. This
deletion of operations is expected to save the Company over $100,000 in
operating expenditures for 1997.

Operational costs decreased $91,000 as a result of the full implementation of
the digital box rollout. The savings were related to lower telecommunications
costs of $43,000 and lower repair and maintenance costs of $48,000.

Offsetting these domestic decreases, increased national and direct response
advertising sales revenues in the first six months of 1997, as compared with the
same period in 1996, resulted in higher agency commissions of approximately
$62,000. The Company also expended approximately $99,000 more in office and
administrative costs during the six months ended June 30, 1997 than to the same
prior year period. These increased charges related to increased use of
consultants for internet development, marketing and public relations ($97,000),
and higher property taxes relating to new digital box equipment ($31,000) offset
by lower costs of office administration ($29,000). As discussed above, corporate
overhead of approximately $644,000 was allocated to domestic operations in the
first six months of 1997, with no comparable amount allocated in the first six
months of 1996. These expenses included, for example, charges for management
salaries, office space, telecommunications, travel and related expenses.



                                      -32-

<PAGE>   33



RESULTS OF OPERATIONS (CONT'D)

Distribution, general and administrative expenses for our international
development and consolidated operations increased by approximately $1,041,000
for the six months ended June 30, 1997, as compared to the same prior year
period. These expenses related to operations in Argentina, Chile, Peru and
Venezuela, which launched in late 1996 and incurred minimal expenses in 1996,
and start-up operations in New Zealand and Italy in 1997. The increased
expenditures involved were: operations, office and administration ($288,000);
salaries and benefits ($139,000); legal ($73,000); production, discs, tapes and
shipping ($146,000); corporate allocations ($227,000); and marketing, research,
trade advertising, travel and events ($168,000).

SATELLITE TRANSPONDER AND RENT PAID TO RELATED PARTIES:

Related party expenditures decreased from $495,000 for the first six months of
1996 to $236,000 for the same current year period. Satellite transponder and
service fees for the Company's satellite distributed programming resulted in
related party expenditures of $245,000 for the six months ended June 30, 1996
with no comparable expense in 1997. WTCI, a subsidiary of Tele-Communications,
Inc., is now providing the satellite transponder and uplink services via the
Hughes' satellite Galaxy 7, transponder 13. Beginning in January 1997, the fee
charged by WTCI was $55,300 per month and such expense was included in the
financial statements under "Affiliate fees, site costs and telephone service."
The Company is negotiating a long-term agreement with WTCI for these services,
which are now provided on a month-to-month basis.

In 1997 and 1996, the Company incurred rental expense of approximately $236,000
and $250,000, respectively, payable to Island Trading Company, Inc. for its
corporate headquarters location.

DEPRECIATION AND AMORTIZATION:

Depreciation and amortization expenses for the six months ended June 30, 1997,
increased by approximately $538,000 due to capital expenditures for the
development, equipment and installation costs associated with the new digital
boxes launched in 1996 and 1997, as well as certain capital expenditures
relating to international operations.


LIQUIDITY AND CAPITAL RESOURCES:

The Company's current ratio (current assets to current liabilities) was 1.25 to
1.00 at June 30, 1997 as compared to 1.59 to 1.00 at June 30, 1996. At June 30,
1997, the Company's current assets exceeded its current liabilities by
approximately $1,143,000.


                                      -33-

<PAGE>   34



LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Company has used funds received from the 1995 and 1996 sales of its former
United Kingdom subsidiary to: (i) fully implement the Digital Box, replacing all
domestic analog boxes in the field with a Digital Box or a conversion to
satellite service; (ii) expand the distribution of the Company's programming by
constructing and installing additional box units with the new digital
technology; (iii) advertise, market and promote the Company's programming
including the staffing of a larger marketing and sales effort; (iv) research,
develop, maintain and improve the Company's software and equipment including the
continued development of the Digital Box; (v) fund working capital; and (vi)
fund certain international programming ventures.

The Company utilized approximately $8.2 million in cash during 1996 and first
half of 1997 for digital box equipment and related support equipment, software
development, production equipment and leasehold improvements. These expenditures
related mainly to the initial wave of development and installation of the
Company's digital box technology, including base digital support equipment and
enhancement to its in-house computer system during the past eighteen months,
plus costs associated with expanding the Company's office space in New York and
Miami Beach. The Company believes that the newly developed technology, known as
the Digital Box, is a critical element of the Company's future. The marketing
advantages provided by the Digital Box will allow enhanced localized programming
and advertising plus programming improvements through enhanced audio and video
quality, superior graphic quality, consumer friendly responsiveness (such as
nearly immediate video play), and operational efficiencies, such as reduction of
expenses associated with the manual process of tapes, discs, weekly change outs
of music product and limited availability for advertising. The Company now has
replaced all domestic analog boxes in the field with the Digital Box except for
certain low performing boxes, which were switched to the Company's satellite box
feed. There can be no assurance that this new technology will result in
additional distribution, additional advertising sales or higher viewership.
Analog box equipment taken out of domestic service has been or will be deployed
internationally, reducing the Company's cash requirements for expansion in new
and existing international markets.

Approximately $2,097,000 was spent during first six months 1997 in advances of
operating expenses for the Company's international operations, specifically
Holland, Argentina, Venezuela, Chile, Peru, New Zealand and Italy. Another
$410,000 was spent for corporate international development expenses. It is
anticipated that at least $2.3 million in cash will be required to support the
Company's international operations through the end of 1997. No expansion into
new international markets will be possible unless the Company is able to obtain
the necessary financing.

In February 1996, the Company entered into a five-year agreement with an
unaffiliated party to purchase satellite receiving equipment and satellite
transponder time for sending digitized video segments from the Company's
headquarters to the various box unit locations at cable head end and broadcast
station sites. The minimum cash commitment of the Company under this agreement
is approximately $1.9 million, of

                                      -34-

<PAGE>   35



LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

which approximately $1,350,000 has already been paid through July 1997. The
remaining minimum commitment relates mainly to the monthly VSAT satellite
transponder and uplink fees for the period of August 1997 through February 1999.

Management has and will continue to undertake several operational measures in an
effort to continue to improve the Company's liquidity and cash flow position.
With full implementation of the Digital Box, the Company will save approximately
$70,000 in operating costs per month, or annual savings of $840,000. In 1995,
the Company completed the renegotiation of affiliation agreements with the two
largest multiple system operators. While considerable savings have resulted from
the renegotiation of these agreements and all new agreements are signed at these
similar reduced monthly guaranteed affiliation payments, it is not known if the
Company may be required to incur additional costs in order to gain distribution
in certain key markets.

On August 7, 1997, the Federal Communications Commission (the "FCC") adopted
order FCC 97-279 (the "Order"). The Order establishes rules to implement the
closed captioning requirements of the Telecommunications Act of 1996 (the "1996
Act"). The 1996 Act required the FCC to adopt, by August 8, 1997, rules and
implementation schedules for the captioning of video programming ensuring access
to video programming by persons with hearing disabilities. The Company estimates
that it may cost approximately $430,000 to retrofit boxes that are currently in
operation, in order to comply with the Order.

While domestically, the Company has been in a positive cash flow position,
additional funding will be required to expand upon domestic and international
distribution. The cost of a digital box installation totals $40,000 per box and
launch incentive payments are also often required to gain cable carriage
domestically. Internationally, the start-up costs of entering new countries is
prohibited by the Company's financial position at this time. The Company
anticipates that the closing of the merger transaction as discussed in Item 5
below, "Other Information", will provide the Company with the ability to gain
financing for distribution. There is however, no assurance that this transaction
will be completed, nor that such completion would result in the profitability of
the Company.



PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS:

In May 1997, the Company settled the litigation against Donald L. Barone
("Barone"), Kenneth Trzecki ("Trzecki") and Healthcare Communications, Inc.
("HCI") in the Circuit Court of the Seventeenth Judicial Circuit in and for
Broward County, Florida. Pursuant to the terms of the settlement, the Company
paid an aggregate of approximately $165,000 to Barone, Trzecki and HCI, and all
of the parties to the litigation exchanged releases and dismissed their
respective claims with prejudice.

                                      -35-

<PAGE>   36



ITEM 5.  OTHER INFORMATION:

As of August 12, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with TCI Music, Inc. ("TCI Music") and TCI Music
Acquisition Sub, Inc. ("Acquisition Sub"), a wholly-owned subsidiary of TCI
Music, pursuant to which Acquisition Sub will be merged (the "Merger") with and
into the Company, with the Company as the surviving corporation.

The aggregate consideration deliverable by TCI Music in the Merger (the "Merger
Consideration") will be equal to (a) the sum of (i) $38,502,672 and (ii) $1.50
times the number of shares of the Company's common stock, par value $.001 per
share ("Company Common Stock"), issued prior to the closing of the Merger upon
the exercise or conversion of options, warrants, convertible securities or other
rights to acquire Company Common Stock that are outstanding as of the date of
the Merger Agreement MINUS (b) the sum of (i) $1.50 times the number of shares
of Company Common Stock that are held by holders of such shares who have not
voted in favor of the Merger or consented to the Merger in writing and who have
demanded appraisal rights with respect to such shares in accordance with the
Florida Business Corporation Act (the "Dissenting Shares"), (ii) $1.50 times the
number of shares of the Company's 6% convertible redeemable preferred stock, par
value $.15 per share and stated value of $1.50 per share (the "Company Preferred
Stock"), outstanding at the closing of the Merger that are not Dissenting Shares
and (iii) all accrued and unpaid dividends on shares of Company Preferred Stock
at the time of the closing of the Merger, whether or not such shares are
Dissenting Shares.

Pursuant to the Merger Agreement, among other things, each share of Company
Common Stock outstanding immediately prior to the closing of the Merger (except
Dissenting Shares) will be converted into the right to receive (a) a fraction
(the "Exchange Rate") of one share of TCI Music Series A Convertible Preferred
Stock, par value $.01 per share ("TCI Music Preferred Stock"), and (b) as to any
holder of shares of Company Common Stock, if the total number of shares of
Company Common Stock of such holder is not convertible into a whole number of
shares of TCI Music Preferred Stock, the right to receive cash in lieu of any
fractional share of TCI Music Preferred Stock. Under the Merger Agreement, the
Exchange Rate is defined as the quotient of (a) the quotient of the Merger
Consideration divided by three times the average of the average daily closing
bid and asked prices of one share of TCI Music Series A Common Stock, par value
$.01 per share ("TCI Music Series A Common Stock"), for a period of 20
consecutive trading days ending on the third trading day prior to the closing of
the Merger (as reported on the NASDAQ SmallCap Market), divided by (b) the
number of shares of Company Common Stock outstanding immediately prior to the
closing of the Merger, less the number of shares of Company Common Stock that
are Dissenting Shares.

The holders of the TCI Music Preferred Stock will have the right, at any time,
to convert each share of TCI Music Preferred Stock into three shares of TCI
Music Series A Common Stock, subject to certain adjustments set forth in the
Certificate of Designations (the "Certificate of Designations") for the TCI
Music Preferred Stock. Holders of the TCI Music Preferred Stock will be entitled
to vote on all matters submitted to a vote of the holders of the TCI Music
Series A Common Stock. Each share of TCI Music Preferred Stock will

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OTHER INFORMATION (CONT'D):

entitle the registered holder thereof to a number of votes equal to the number
of shares of TCI Music Series A Common Stock into which each such share is
convertible as of the record date for the matter to be voted upon. Holders of
the TCI Music Preferred Stock will vote together with holders of the TCI Music
Series A Common Stock and will not be entitled to vote as a class except as
otherwise required by TCI Music's Certificate of Incorporation or the General
Corporation Law of the State of Delaware, the jurisdiction in which TCI Music is
incorporated.

Holders of the TCI Music Preferred Stock will be entitled to receive cash
dividends from time to time on each share of TCI Music Preferred Stock, payable
out of funds legally available therefore, in an amount equal to the product of
(a) the amount of the cash dividend declared on one share of TCI Music Series A
Common Stock or any other security into which the TCI Music Preferred Stock is
then convertible and (b) the number of shares of TCI Music Series A Common Stock
or other security into which one share of TCI Music Preferred Stock may be
converted as of the date such dividend is declared. Such dividends will be
payable to holders of the TCI Music Preferred Stock only if, as and when the
Board of Directors of TCI Music declares cash dividends (and not dividends
payable in other property) on the TCI Music Series A Common Stock.

At the option of TCI Music, all or any portion of the TCI Music Preferred Stock
may be redeemed out of funds legally available therefor (a) during the 30-day
periods immediately following the fourth, sixth and eighth anniversaries of the
date on which the TCI Music Preferred Stock is first issued or first deemed to
have been issued as a result of the Merger (the "Issue Date"), (b) at any time
after the Closing Price (as defined in the Certificate of Designations) of the
TCI Music Series A Common Stock equals or exceeds 125% of the average of the
averages of the closing bid and asked prices of one share of TCI Music Series A
Common Stock for a period of 20 consecutive business days ending on the third
business day prior to the Issue Date (as adjusted to reflect the effects of any
stock dividend, stock split, reclassification or combination affecting the TCI
Music Series A Common Stock) for a period of at least 30 consecutive business
days, and (c) at any time after the tenth anniversary of the Issue Date, in each
case at the Liquidation Value per share of TCI Music Preferred Stock.
Liquidation Value is defined in the Certificate of Designations as the sum of
three times the average of the averages of the closing bid and asked prices of
one share of TCI Music Series A Common Stock for a period of 20 consecutive
business days ending on the third business day prior to the Issue Date, as
increased on each anniversary of the Issue Date by an amount equal to the
product of that sum and the greater of (a) the percentage increase, if any in
the Consumer Price Index, All Urban Consumers, U.S. City Average, All Items, as
published by the U.S. Department of Labor, Bureau of Labor Statistics (in an
amount not to exceed 5% in any year), and (b) 3%.

Subject to (a) the rights of holders of any class or series of stock ("Senior
Securities") of TCI Music authorized after the Issue Date ranking senior to the
TCI Music Preferred Stock in respect of the right to receive payment of
dividends prior to the TCI Music Preferred Stock or the right to receive assets
upon liquidation, dissolution or winding up of the affairs of TCI Music prior to
the TCI Music Preferred Stock and (b) any prohibition or restriction set forth

                                      -37-

<PAGE>   38



OTHER INFORMATION (CONT'D):

in any security or bond, debenture, note, indenture, guarantee or other
instrument or agreement evidencing any indebtedness of TCI Music, each holder of
TCI Music Preferred Stock will have the right to require TCI Music, at any time,
to redeem, out of funds legally available therefore, all or any portion of the
outstanding shares of TCI Music Preferred Stock held by each holder at any time
after the tenth anniversary of the Issue Date at the Liquidation Value per share
of TCI Music Preferred Stock.

Upon any liquidation, dissolution or winding up of TCI Music, subject to the
prior payment in full of amounts to which any Senior Securities are entitled,
the holders of TCI Music Preferred Stock will be entitled to be paid an amount
in cash equal to the aggregate Liquidation Value at the date fixed for
liquidation of all shares of TCI Music Preferred Stock outstanding before any
distribution or payment is made upon all shares of TCI Music Series B Common
Stock, par value $.01 per share ("TCI Music Series B Common Stock"), and any
other class or series of stock of TCI Music authorized after the Issue Date
except Senior Securities and any class or series of stock of TCI Music that is
entitled to receive payment of dividends on parity with the TCI Music Preferred
Stock or is entitled to receive assets upon liquidation, dissolution or winding
up of the affairs of TCI Music on parity with the TCI Music Preferred Stock.

Assuming (a) no shareholder of the Company has demanded appraisal rights in
accordance with the Florida Business Corporation Act, (b) all of the outstanding
shares of Company Preferred Stock are converted into Company Common Stock prior
to the completion of the Merger and (c) the Exchange Rate is $7.00, immediately
following the Merger (a) the outstanding shares of TCI Music Preferred Stock
into which the Company Common Stock will be converted will represent
approximately 6.64% of, and .85% of the voting power relating to, the total
outstanding shares of TCI Music Series A Common Stock and TCI Music Series B
Common Stock (collectively, the "TCI Music Stock"); and (b) the outstanding
shares of TCI Music Series B Common Stock will represent approximately 75.39%
of, and 96.84% of the voting power related to, the total outstanding shares of
TCI Music Stock and TCI Music Preferred Stock. Liberty VJN, Inc., an affiliate
of Tele-Communications, Inc. ("TCI"), beneficially owns approximately 5% of the
outstanding shares of Company Common Stock. Assuming the same facts as set forth
in the immediately preceding sentence, immediately following the Merger, TCI
will beneficially own approximately 4.69% of the outstanding shares of TCI Music
Preferred Stock, 45.73% of the TCI Music Series A Common Stock prior to any
Preferred Stock conversion, and 100% of the outstanding TCI Music Series B
Common Stock, which will collectively represent approximately 83.92% of the
outstanding shares of TCI Music Stock and 97.94% of the voting power of the
outstanding shares of TCI Music Stock and TCI Music Preferred Stock. The TCI
Music Series B Common Stock entitles the holder to ten votes on each matter to
be voted upon by the holders of TCI Music Series A Common Stock and TCI Music
Series B Common Stock.

The respective obligations to TCI Music and Acquisition Sub to effect the Merger
are subject to the satisfaction of certain conditions, including (a) the Merger
Agreement and the transactions contemplated by the Merger Agreement will have
been duly approved by

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<PAGE>   39



OTHER INFORMATION (CONT'D):

holders of 75% of the outstanding shares of Company Common Stock and Company
Preferred Stock entitled to vote, voting as a single class; (b) the number of
Dissenting Shares do not exceed 15% of the issued and outstanding shares of
Company Common Stock and Company Preferred Stock; (c) the waiting period
applicable to the consummation of the Merger under the Hart-Scott-Rodino Act
will have expired, or have been earlier terminated and any other notices or
approvals or consents required by or of governmental entities, to the extent
required to be obtained under the Merger Agreement, will have either been filed
or obtained; and (d) the registration statement (the "Registration Statement")
of TCI Music covering the TCI Music Preferred Stock and the TCI Music Series A
Common Stock (into which the TCI Music Preferred Stock will be convertible) will
have become effective in accordance with the provisions of the Securities Act of
1933 and any necessary securities law approvals will have been obtained and no
stop orders suspending the effectiveness of the Registration Statement will have
been issued by the Securities and Exchange Commission.

The obligations of the Company to consummate the transactions contemplated by
the Merger Agreement are subject to the satisfaction of certain matters,
including (a) the performance by TCI Music and Acquisition Sub, in all material
respects, of their respective agreements in the Merger Agreement to be performed
prior to the closing of the Merger and the accuracy of the representations and
warranties of each of them in all material respects; and (b) the fiduciary
obligations of the Board of Directors of the Company to the Company and its
shareholders.

The respective obligations of TCI Music and Acquisition Sub to consummate the
transactions contemplated by the Merger Agreement are also subject to the
satisfaction or waiver of the following conditions: (a) the performance by the
Company in all material respects, of the agreements of it in the Merger
Agreement to be performed by it by the closing of the Merger and the accuracy of
the Company's representations and warranties in all material respects; (b)
receipt of all consents, orders and approvals of governmental entities and third
parties, to the extent required to be obtained under the Merger Agreement; and
(c) the number of shares of the shareholders of the Company exercising
dissenter's rights does not exceed 15% of the outstanding Company Common Stock
and the Company Preferred Stock as of the date of the closing of the Merger.

Contemporaneously with the signing of the Merger Agreement, three shareholders
of the Company, H.F. Lenfest, J. Patrick Michaels, Jr. and StarNet/CEA II
Partners, who beneficially own 14,210,419 shares of Company Common Stock
(representing approximately 55% of the outstanding shares of Company Common
Stock) entered into a voting agreement with TCI Music, pursuant to which, among
other things, each of such shareholders agreed to vote all of the shares of
voting stock of the Company beneficially owned by each such shareholder in favor
of the Merger and to vote all of such shares against any proposal that would
compete or interfere with, or that would in any way delay or otherwise inhibit
the timely consummation of the Merger. Such voting agreement will terminate (a)
upon the mutual consent of all parties thereto, (b) at the closing of the Merger
or (c) upon termination of the Merger Agreement.

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<PAGE>   40




OTHER INFORMATION (CONT'D):

The foregoing description of the Merger Agreement and the Certificate of
Designations is qualified in its entirety by reference to the complete text of
the Merger Agreement and the Certificate of Designations, which are incorporated
by reference herein and copies of which (exclusive of exhibits and schedules)
are filed as Exhibits 2.1 and 2.2, respectively, to this Report.



ITEM 6.  EXHIBITS

 2.1    Agreement and Plan of Merger dated as of August 12, 1997 among TCI 
        Music, Inc., TCI Music Acquisition Sub, Inc. and the Company.

 2.2    Form of Certificate of Designations of TCI Music, Inc. Series A 
        Convertible Preferred Stock.

10.33   Domestic Financing Agreement dated October 3, 1997 between 
        Communications Equity Associates, Inc. ("CEA") and the Company.

10.34   Letter Agreement date August 7, 1997 between CEA and the Company.

10.35   Form of Indemnification Agreement between the Company and each of H.F.
        Lenfest, Alan McGlade, Stanley Greene and David Burns, four of the
        directors of the Company.

27      Financial Data Schedule (for SEC use only).








                                      -40-

<PAGE>   41






                                   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.



                                       THE BOX WORLDWIDE, INC.
                                       -----------------------
                                       (REGISTRANT)




Date:     August 12, 1997              By: /s/ Alan McGlade
                                           -------------------------------
                                           Alan McGlade
                                           President and Chief Executive Officer





Date:     August 12, 1997              By: /s/ Luann M. Hoffman
                                           -------------------------------
                                           Luann M. Hoffman
                                           Chief Financial and
                                             Administrative Officer











                                      -41-



