##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 20-F



---



ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES AND EXCHANGE ACT OF 1934



Commission File number: 333-11014



For the fiscal year ended December 31, 2004



---



i-CABLE COMMUNICATIONS LIMITED

(Exact name of Registrant as specified in its charter)



N/A

(Translation of Registrants name into English)



---



HONG KONG

(Jurisdiction of incorporation or organization)



Cable TV Tower

9 Hoi Shing Road

Tsuen Wan, Hong Kong

(Address of principal executive offices)



---



Securities registered or to be registered pursuant to Section 12(b) of the
Act.



|                                                                                              |  |                                             
|--------------------------------------------------------------------------------------------- |  | --------------------------------------------
|Title of each class                                                                           |  | Name of quotation system on which registered
|American Depositary Shares, each representing 20 Ordinary Shares, par value HK$1.00 per share |  | Nasdaq - National Market System             
|                                                                                              | 
|Ordinary Shares, par value HK$1.00 per share                                                  |  | Nasdaq - National Market System*            



Securities
registered or to be registered pursuant to Section 12(g) of the Act.

None



Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act.

None



---



Indicate the number of outstanding
shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report. Ordinary Shares 2,019,234,400



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark which financial statement item the registrant has elected to follow.    Item
17 ̈Item 18  x



|* | Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



---

##### Table of Contents

TABLE OF CONTENTS



|                           |  |                                                       |  |   
|-------------------------- |  | ----------------------------------------------------- |  | --
|CERTAIN DEFINED TERMS      |  | 1                                                    
|                           | 
|FORWARD-LOOKING STATEMENTS |  | 1                                                    
|                           | 
|PART I                     |  | 2                                                    
|                           |  |                                                      
|ITEM 1.                    |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |  | 2 
|                           |  |                                                      
|ITEM 2.                    |  | OFFER STATISTICS AND EXPECTED TIMETABLE               |  | 2 
|                           |  |                                                      
|ITEM 3.                    |  | KEY INFORMATION                                       |  | 2 
|                           |  |                                                      
|A.                         |  | Selected Financial Data                               |  | 2 
|                           |  |                                                      
|B.                         |  | Capitalization and Indebtedness                       |  | 5 
|                           |  |                                                      
|C.                         |  | Reasons for the Offer and Use of Proceeds             |  | 6 
|                           |  |                                                      
|D.                         |  | Risk Factors                                          |  | 6 
|                           |  |                                                      
|ITEM 4.                    |  | INFORMATION ON THE COMPANY                            |  | 12
|                           |  |                                                      
|A.                         |  | History and Development of the Company                |  | 12
|                           |  |                                                      
|B.                         |  | Business Overview                                     |  | 13
|                           |  |                                                      
|C                          |  | Organizational Structure                              |  | 23
|                           |  |                                                      
|D.                         |  | Property, Plant and Equipment                         |  | 25
|                           |  |                                                      
|ITEM 5.                    |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS          |  | 25
|                           |  |                                                      
|A.                         |  | Operating Results                                     |  | 25
|                           |  |                                                      
|B.                         |  | Liquidity and Capital Resources                       |  | 33
|                           |  |                                                      
|C.                         |  | Research and Development, Patents and Licenses, etc.  |  | 35
|                           |  |                                                      
|D.                         |  | Trend Information                                     |  | 35
|                           |  |                                                      
|E.                         |  | Off-balance Sheet Arrangements                        |  | 37
|                           |  |                                                      
|F.                         |  | Tabular Disclosure of Contractual Obligations         |  | 37
|                           |  |                                                      
|G.                         |  | Recent Hong Kong Accounting Pronouncements            |  | 37
|                           |  |                                                      
|H.                         |  | Recent U.S. GAAP Pronouncements                       |  | 38
|                           |  |                                                      
|ITEM 6.                    |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES            |  | 39
|                           |  |                                                      
|A.                         |  | Directors and Senior Management                       |  | 39
|                           |  |                                                      
|B.                         |  | Compensation                                          |  | 43
|                           |  |                                                      
|C.                         |  | Board Practices                                       |  | 44
|                           |  |                                                      
|D.                         |  | Employees                                             |  | 45
|                           |  |                                                      
|E.                         |  | Share ownership                                       |  | 45
|                           |  |                                                      
|ITEM 7.                    |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     |  | 46
|                           |  |                                                      
|A.                         |  | Major Shareholders                                    |  | 46
|                           |  |                                                      
|B.                         |  | Related Party Transactions                            |  | 47
|                           |  |                                                      
|C.                         |  | Interests of Experts and Counsel                      |  | 50



i



---

##### Table of Contents

|          |  |                                                                              |  |   
|--------- |  | ---------------------------------------------------------------------------- |  | --
|ITEM 8.   |  | FINANCIAL INFORMATION                                                        |  | 50
|          |  |                                                                             
|A.        |  | Consolidated Statements and Other Financial Information                      |  | 50
|          |  |                                                                             
|B.        |  | Significant Changes                                                          |  | 51
|          |  |                                                                             
|ITEM 9.   |  | THE OFFER AND LISTING                                                        |  | 51
|          |  |                                                                             
|A.        |  | Offer and Listing Details                                                    |  | 51
|          |  |                                                                             
|B.        |  | Plan of Distribution                                                         |  | 52
|          |  |                                                                             
|C.        |  | Markets                                                                      |  | 52
|          |  |                                                                             
|D.        |  | Selling Shareholders                                                         |  | 52
|          |  |                                                                             
|E.        |  | Dilution                                                                     |  | 52
|          |  |                                                                             
|F.        |  | Expense of the Issue                                                         |  | 52
|          |  |                                                                             
|ITEM 10.  |  | ADDITIONAL INFORMATION                                                       |  | 52
|          |  |                                                                             
|A.        |  | Share Capital                                                                |  | 52
|          |  |                                                                             
|B.        |  | Memorandum and Articles of Association                                       |  | 52
|          |  |                                                                             
|C.        |  | Material Contracts                                                           |  | 57
|          |  |                                                                             
|D.        |  | Exchange Controls                                                            |  | 57
|          |  |                                                                             
|E.        |  | Taxation                                                                     |  | 57
|          |  |                                                                             
|F.        |  | Dividends and paying agents                                                  |  | 62
|          |  |                                                                             
|G.        |  | Statement by experts                                                         |  | 62
|          |  |                                                                             
|H.        |  | Documents on display                                                         |  | 63
|          |  |                                                                             
|I.        |  | Subsidiary Information                                                       |  | 63
|          |  |                                                                             
|ITEM 11.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 63
|          |  |                                                                             
|ITEM 12.  |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 63
|          |  |                                                                             
|PART II   |  |                                                                              |  | 64
|          |  |                                                                             
|ITEM 13.  |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 64
|          |  |                                                                             
|ITEM 14.  |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 64
|          |  |                                                                             
|ITEM 15.  |  | CONTROLS AND PROCEDURES                                                      |  | 64
|          |  |                                                                             
|ITEM 16A. |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 64
|          |  |                                                                             
|ITEM 16B. |  | CODE OF ETHICS                                                               |  | 64
|          |  |                                                                             
|ITEM 16C. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 64
|          |  |                                                                             
|ITEM 16D. |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 65
|          |  |                                                                             
|ITEM 16E. |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.      |  | 65
|          |  |                                                                             
|PART III  |  |                                                                              |  | 65
|          |  |                                                                             
|ITEM 17.  |  | FINANCIAL STATEMENTS                                                         |  | 65
|          |  |                                                                             
|ITEM 18.  |  | FINANCIAL STATEMENTS                                                         |  | 66
|          |  |                                                                             
|ITEM 19.  |  | EXHIBITS                                                                     |  | 66



ii



---

##### Table of Contents

CERTAIN DEFINED TERMS



References
to China or PRC or Mainland China herein are references to the Peoples Republic of China and references to Hong Kong are references to The Hong Kong Special Administrative Region of the PRC.
References to United States or U.S. are to the United States of America. All references to the Government herein are references to the government of Hong Kong.



All references herein to we, us, our,
i-CABLE and the Company are references to i-CABLE Communications Limited and, unless the context otherwise requires, all such references include our subsidiaries.



References in this annual report to HK dollars and HK$ are to Hong Kong dollars, the lawful currency
of Hong Kong; and references to U.S. dollars, $ and US$ are to United States dollars, the lawful currency of the United States. Certain figures (including percentages) have been rounded for convenience, and
therefore indicated and actual sums, quotients, percentages and ratios may differ. Unless otherwise indicated, our financial information has been presented in Hong Kong dollars in accordance with Hong Kong GAAP, and is presented on a consolidated
basis.



Solely for the convenience of the reader, certain Hong
Kong dollar amounts have been translated into U.S. dollars at specified rates. Unless otherwise indicated, any amounts translated from Hong Kong dollars to U.S. dollars in this annual report have been translated at the rate of US$1.00 = HK$7.7723,
the noon buying rate in The City of New York for cable transfers of Hong Kong dollars per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York (Hong Kong Dollar Noon Buying Rate) at December 31, 2004. As of
June 23, 2005, the Hong Kong Dollar Noon Buying Rate was US$1.00 = HK$7.7703. Based on an agreement between the Hong Kong Government and Hong Kong banknote issuing banks, the Hong Kong dollar to U.S. dollar exchange rate is stabilized at
approximately US$1.00 = HK$7.80. No representation is made that the Hong Kong dollar or U.S. dollar amounts shown herein could have been or could be converted into U.S. dollars or Hong Kong dollars, as the case may be, at any particular rate or at
all. See Item 3 - Key Information - Exchange Rate Information for further information regarding rates of exchange between Hong Kong dollars and U.S. dollars.



FORWARD-LOOKING STATEMENTS



Certain
statements contained in this Form 20-F, including those statements contained under the captions Item 4 - Information on the Company and Item 5 - Operating and Financial Review and Prospects that are not statements of
historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act) and within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be generally identified by the use of terms such as believes, expects, may,
will, would, could, plans, projects or anticipates, the negatives of such terms, or comparable terms. In addition to the statements contained in this Form 20-F, we (or our
directors or executive officers authorized to speak on our behalf) from time to time may make forward-looking statements, orally or in writing, regarding i-CABLE (including its subsidiaries) and its business, including in press releases, oral
presentations, filings under the Securities Act, the Exchange Act or securities laws of other countries, and filings with Nasdaq, The Stock Exchange of Hong Kong Limited (the HKSE) or other stock exchanges.



Such forward-looking statements represent our judgment or expectations
regarding the future, and are subject to risks and uncertainties that may cause actual events and our future results to be materially different than expected by us or indicated by such statements. Such risks and uncertainties include in particular
(but are not limited to) the risks and uncertainties related to: economic and political circumstances in Hong Kong; international net settlement rates; the regulatory structure in Hong Kong, including without limitation Government policies with
respect to exclusivity, competition, interconnection and tariffs and license fees; the development and implementation of new technologies; the availability of suitable programming content; and competition affecting our services and products. No
assurance can be given that the results anticipated by us, or indicated by any such forward-looking statements, will be achieved.





1



---

##### Table of Contents

PART I



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not applicable.



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



ITEM 3. KEY INFORMATION



A. Selected Financial Data



We
provide you with selected financial and operating data of i-CABLE in the tables below.



The following table contains selected historical consolidated financial data as of and for the years ended December 31, 2000, 2001, 2002, 2003 and 2004. The statement of operations data for the years ended December
31, 2002, 2003 and 2004 and balance sheet data as of December 31, 2003 and 2004 have been derived from our historical consolidated financial statements audited by KPMG, and are included in this annual report. The statement of operations data for the
year ended December 31, 2000 and 2001, and balance sheet data as of December 31, 2000, 2001 and 2002 have been derived from our historical consolidated financial statements audited by KPMG, but are not included in this annual report.



Our consolidated financial statements have been prepared in accordance with
Hong Kong generally accepted accounting principles (Hong Kong GAAP). For a detailed discussion of the significant differences between Hong Kong GAAP and United States generally accepted accounting principles (U.S. GAAP) as
they relate to i-CABLE, see note 30 to our consolidated financial statements included in this annual report.



When you read the selected historical consolidated financial data, it is important that you read along with it the historical consolidated financial
statements and related notes, as well as Item 5 - Operating and Financial Review and Prospects also included in this annual report.



Solely for the convenience of the reader, the December 31, 2004 figures have been translated into U.S. dollars at the rate of exchange of US$1 =
HK$7.7723, the Hong Kong Dollar Noon Buying Rate at December 31, 2004.



2



---

##### Table of Contents

STATEMENT OF OPERATIONS DATA



|                                            |  |                                                     |   |  |        |   |  |        |   |  |        |   |  |        |   |  |       |  
|------------------------------------------- |  | --------------------------------------------------- | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ----- | -
|                                            |  | Year ended December 31,                             |  
|                                            |  | 2000                                                |   |  | 2001   |   |  | 2002   |   |  | 2003   |   |  | 2004   |   |  | 2004  |  
|                                            |  | HK$                                                 |   |  | HK$    |   |  | HK$    |   |  | HK$    |   |  | HK$    |   |  | US$   |  
|                                            |  | (in millions except for per share and per ADS data) |  
|Statement of Operations Data:               |  |                                                     |   |  |        |   |  |        |   |  |        |   |  |        |   |  |       |  
|Hong Kong GAAP                              |  |                                                     |   |  |        |   |  |        |   |  |        |   |  |        |   |  |       |  
|Revenues                                    |  | 1,649                                               |   |  | 1,931  |   |  | 2,161  |   |  | 2,143  |   |  | 2,372  |   |  | 305   |  
|Operating expenses                          |  | (1,656                                              | ) |  | (1,751 | ) |  | (1,935 | ) |  | (1,892 | ) |  | (2,076 | ) |  | (267  | )
|                                            |  |                                                     |   |  |        |   |  |        |   |  |        |   |  |        |   |  |       |  
|Profit /(loss) from operations              |  | (7                                                  | ) |  | 180    |   |  | 226    |   |  | 251    |   |  | 296    |   |  | 38    |  
|Interest income                             |  | 101                                                 |   |  | 58     |   |  | 26     |   |  | 8      |   |  |       |   |  |      |  
|Finance costs                               |  | (72                                                 | ) |  | (72    | ) |  | (62    | ) |  | (16    | ) |  |       |   |  |      |  
|Non-operating income/(expense)              |  | (2                                                  | ) |  | 1      |   |  |       |   |  | (10    | ) |  | 1      |   |  |      |  
|Impairment loss on investments              |  |                                                    |   |  |       |   |  | (73    | ) |  |       |   |  |       |   |  |      |  
|Provision for income tax                    |  |                                                    |   |  |       |   |  |       |   |  | (13    | ) |  | 43     |   |  | 5     |  
|                                            |  |                                                     |   |  |        |   |  |        |   |  |        |   |  |        |   |  |       |  
|Net profit                                  |  | 20                                                  |   |  | 167    |   |  | 117    |   |  | 220    |   |  | 340    |   |  | 44    |  
|                                            |  |                                                     |   |  |        |   |  |        |   |  |        |   |  |        |   |  |       |  
|Basic and diluted earnings per share        |  | 0.01                                                |   |  | 0.08   |   |  | 0.06   |   |  | 0.11   |   |  | 0.17   |   |  | 0.02  |  
|Basic and diluted earnings per ADS          |  | 0.20                                                |   |  | 1.66   |   |  | 1.16   |   |  | 2.18   |   |  | 3.36   |   |  | 0.43  |  
|Dividend per share (cents)                  |  |                                                    |   |  | 2.50   |   |  | 3.00   |   |  | 5.50   |   |  | 7.50   |   |  | 0.96  |  
|                                            |  |                                                     |   |  |        |  
|U.S. GAAP                                   |  |                                                     |   |  |        |   |  |        |   |  |        |   |  |        |   |  |       |  
|Net profit/(loss)                           |  | (110                                                | ) |  | (6     | ) |  | 100    |   |  | 128    |   |  | 248    |   |  | 32    |  
|Basic and diluted earnings/(loss) per share |  | (0.05                                               | ) |  | (0.003 | ) |  | 0.05   |   |  | 0.063  |   |  | 0.123  |   |  | 0.016 |  
|Basic and diluted earnings/(loss) per ADS   |  | (1.10                                               | ) |  | (0.057 | ) |  | 0.99   |   |  | 1.27   |   |  | 2.46   |   |  | 0.32  |  
|Dividend per share (cents)                  |  |                                                    |   |  | 2.50   |   |  | 3.00   |   |  | 5.50   |   |  | 7.50   |   |  | 0.96  |  

---



FINANCIAL DATA



|                                        |  |                    |   |  |        |   |  |        |   |  |       |   |  |       |   |  |      |  
|--------------------------------------- |  | ------------------ | - |  | ------ | - |  | ------ | - |  | ----- | - |  | ----- | - |  | ---- | -
|                                        |  | As of December 31, |  
|                                        |  | 2000               |   |  | 2001   |   |  | 2002   |   |  | 2003  |   |  | 2004  |   |  | 2004 |  
|                                        |  | HK$                |   |  | HK$    |   |  | HK$    |   |  | HK$   |   |  | HK$   |   |  | US$  |  
|                                        |  | (in millions)      |  
|Balance Sheet Data:                     |  |                    |   |  |        |   |  |        |   |  |       |   |  |       |   |  |      |  
|Hong Kong GAAP                          |  |                    |   |  |        |   |  |        |   |  |       |   |  |       |   |  |      |  
|Cash and cash equivalents(1) (4)        |  | 1,541              |   |  | 1,212  |   |  | 7      |   |  | 29    |   |  | 115   |   |  | 15   |  
|Property, plant and equipment, net      |  | 2,072              |   |  | 2,257  |   |  | 2,302  |   |  | 2,170 |   |  | 2,051 |   |  | 264  |  
|Total assets(4)                         |  | 4,208              |   |  | 4,358  |   |  | 3,224  |   |  | 2,681 |   |  | 2,758 |   |  | 355  |  
|Amount due to immediate holding company |  | 36                 |   |  | 1      |   |  | 1      |   |  |      |   |  |      |   |  |     |  
|Total liabilities(4)                    |  | 2,905              |   |  | 2,902  |   |  | 1,699  |   |  | 996   |   |  | 875   |   |  | 113  |  
|Total shareholders equity              |  | 1,303              |   |  | 1,456  |   |  | 1,525  |   |  | 1,685 |   |  | 1,883 |   |  | 242  |  
|                                        |  |                    |   |  |        |  
|U.S. GAAP                               |  |                    |   |  |        |   |  |        |   |  |       |   |  |       |   |  |      |  
|Cash and cash equivalents               |  | 1,541              |   |  | 1,212  |   |  | 7      |   |  | 29    |   |  | 115   |   |  | 15   |  
|Total assets                            |  | 5,312              |   |  | 5,246  |   |  | 4,031  |   |  | 2,834 |   |  | 2,819 |   |  | 363  |  
|Shareholders equity                    |  | 1,694              |   |  | 1,705  |   |  | 1,754  |   |  | 1,824 |   |  | 1,931 |   |  | 248  |  
|                                        |  |                    |   |  |        |  
|Other Financial Data:                   |  |                    |   |  |        |   |  |        |   |  |       |   |  |       |   |  |      |  
|Hong Kong GAAP                          |  |                    |   |  |        |   |  |        |   |  |       |   |  |       |   |  |      |  
|Adjusted EBITDA(2)                      |  | 442                |   |  | 615    |   |  | 730    |   |  | 789   |   |  | 828   |   |  | 107  |  
|Depreciation                            |  | 449                |   |  | 435    |   |  | 504    |   |  | 539   |   |  | 532   |   |  | 68   |  
|Capital expenditures(3)                 |  | 507                |   |  | 641    |   |  | 608    |   |  | 363   |   |  | 459   |   |  | 59   |  
|Cash flows from operating activities    |  | 680                |   |  | 734    |   |  | 863    |   |  | 720   |   |  | 777   |   |  | 100  |  
|Cash flows from investing activities    |  | (736               | ) |  | (1,063 | ) |  | (884   | ) |  | 49    |   |  | (549  | ) |  | (71  | )
|Cash flows from financing activities    |  | (8                 | ) |  |       |   |  | (1,177 | ) |  | (747  | ) |  | (141  | ) |  | (18  | )
|                                        |  |                    |   |  |        |  
|U.S. GAAP                               |  |                    |   |  |        |   |  |        |   |  |       |   |  |       |   |  |      |  
|Cash flows from operating activities    |  | 680                |   |  | 734    |   |  | 863    |   |  | 720   |   |  | 777   |   |  | 100  |  
|Cash flows from investing activities    |  | (669               | ) |  | (990   | ) |  | (802   | ) |  | 49    |   |  | (549  | ) |  | (71  | )
|Cash flows from financing activities    |  | (73                | ) |  | (73    | ) |  | (1,266 | ) |  | (747  | ) |  | (141  | ) |  | (18  | )

---

|(1) | Under Hong Kong GAAP, cash and cash equivalents in the balance sheet are defined as:
|--- | ------------------------------------------------------------------------------------

| |  |  | CashCash at bank and on hand and deposits with any bank or other financial institution. Cash includes cash on hand and deposits denominated in foreign currencies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Cash equivalentsShort-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in
value, having been within three months of maturity at acquisition. For the purposes of the cash flow statement, cash equivalents would also include bank overdrafts that are repayable on demand and form an integral part of our cash management.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We have defined adjusted EBITDA to mean earnings before interest income, finance costs, non-operating income/expenses, provision for income tax, depreciation of
property, plant and equipment but after amortization of programming rights as computed under Hong Kong GAAP. Adjusted EBITDA is not a standard measure under either Hong Kong GAAP or U.S. GAAP. You should not consider our definition of adjusted
EBITDA in isolation or as an indicator of operating performance, liquidity or any other standard measure under either Hong Kong GAAP or U.S. GAAP. We believe net income provided by operating activities is the most directly comparable financial
measure for adjusted EBITDA as an indicator of our operating performance. For our managements explanation of how we define EBITDA and why we use it, see Item 5Operating and Financial Review and ProspectsOperating
ResultsNon-GAAP Financial Measures.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Capital expenditures relate to acquisitions of property, plant and equipment only.
|--- | ----------------------------------------------------------------------------------

|(4) | Under Hong Kong GAAP, prior to 2003, certain bank deposits and bank loans were offset against each other and were not included above, as described in note 30(h) of
our consolidated financial statements. Such bank deposits and bank loans matured or were repaid during 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





3



---

##### Table of Contents

SELECTED OPERATING DATA



In the following table, we provide you with our selected operating data as of and for the years ended December 31, 2000, 2001, 2002, 2003 and 2004.



|                                                     |  |                         |   |  |           |   |  |           |   |  |           |   |  |           |  
|---------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | --------- | - |  | --------- | - |  | --------- | -
|                                                     |  | Year Ended December 31, |  
|                                                     |  | 2000                    |   |  | 2001      |   |  | 2002      |   |  | 2003      |   |  | 2004      |  
|Operating Data (end of period, except average):      |  |                         |   |  |           |   |  |           |   |  |           |   |  |           |  
|Homes passed(1)                                      |  | 1,790,000               |   |  | 1,903,000 |   |  | 1,959,000 |   |  | 2,010,000 |   |  | 2,070,000 |  
|Fiber homes passed(2)                                |  | 1,302,000               |   |  | 1,769,000 |   |  | 1,892,000 |   |  | 1,942,000 |   |  | 1,990,000 |  
|Total pay-TV subscribers(3)                          |  | 522,000                 |   |  | 561,000   |   |  | 606,000   |   |  | 656,000   |   |  | 702,000   |  
|Pay-TV subscriber penetration                        |  | 29                      | % |  | 29        | % |  | 31        | % |  | 33        | % |  | 34        | %
|Average monthly revenue per pay-TV subscriber(4)     |  | HK$250                  |   |  | HK$232    |   |  | HK$233    |   |  | HK$220    |   |  | HK$225    |  
|Broadband-ready homes passed(5)                      |  | 912,000                 |   |  | 1,634,000 |   |  | 1,844,000 |   |  | 1,900,000 |   |  | 1,963,000 |  
|Broadband subscribers(6)                             |  | 53,000                  |   |  | 160,000   |   |  | 226,000   |   |  | 258,000   |   |  | 291,000   |  
|Broadband subscriber penetration                     |  | 6                       | % |  | 10        | % |  | 12        | % |  | 14        | % |  | 15        | %
|Average monthly revenues per broadband subscriber(7) |  | HK$227                  |   |  | HK$224    |   |  | HK$180    |   |  | HK$129    |   |  | HK$140    |  

---

|(1) | One residential household ready for pay-TV connection represents one home passed. For hotels and service apartments, each serviceable unit counts as one home passed.
For commercial and institutional accounts, each account counts as one home passed.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Fiber homes passed represents the number of homes passed that are connected to the fiber coaxial cable network.
|--- | ---------------------------------------------------------------------------------------------------------------

|(3) | One pay-TV billing account represents one pay-TV subscriber, except for hotels, service apartments and communal service accounts, for which one serviceable unit
represents one subscriber. In the case of commercial and institutional customers, such as hospitals and schools, one account represents one subscriber, regardless of the number of television outlets.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Average monthly revenues per pay-TV subscriber (pay-TV ARPU) equals the monthly average pay-TV revenues for the year divided by the average number of
pay-TV subscribers for the year. The average number of pay-TV subscribers is calculated using the number of pay-TV subscribers at the beginning of the year and the number of pay-TV subscribers at the end of each month. Pay-TV revenues include
monthly pay-TV subscription fees, set-top box rental/sales income and other related income.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Broadband-ready homes passed represent the number of residential homes passed that are able to subscribe to our broadband service. For hotels, service apartments and
commercial and institutional accounts, one signal point counts as one home passed.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | One broadband service billing account represents one broadband subscriber, except for hotels and service apartments, for which one personal computer port represents
one subscriber. In the case of a commercial customer, one billing account represents one subscriber, regardless of the number of personal computer ports.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Average monthly revenue per broadband subscriber (broadband ARPU) equals the monthly average broadband revenue for the year divided by the average number
of broadband subscribers for the year. The average number of broadband subscribers is calculated using the number of broadband subscribers at the beginning of the year and the number of broadband subscribers at the end of each month. Broadband
revenues include monthly broadband subscription fees, cable modem rental/sales income and other related income.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4



---

##### Table of Contents

EXCHANGE RATES



The Hong Kong dollar is freely convertible into other currencies (including the U.S. dollar). Since October 17, 1983, the
Hong Kong dollar has been linked to the U.S. dollar at the rate of HK$7.80 per US$1.00. The central element in the arrangements which give effect to the link is an agreement between the Hong Kong Government and the three Hong Kong banknote issuing
banks: The Hongkong and Shanghai Banking Corporation Limited, Standard Chartered Bank and the Bank of China. Under this agreement, the Hong Kong Government Exchange Fund issues certificates of its indebtedness to the banknote issuing banks to cover
the issuances of banknotes. When the banknotes are withdrawn from circulation, the banknote issuing banks surrender the certificates of indebtedness to the Hong Kong Government Exchange Fund and are paid the equivalent U.S. dollars at the fixed
rate.



Under the 1984 Joint Declaration between The
Peoples Republic of China, or PRC, and the United Kingdom, the Hong Kong dollar would continue to circulate and remain freely convertible after July 1, 1997, when Hong Kong became a Special Administrative Region of the PRC. However, no
assurance can be given that the Hong Kong Government, or any successor SAR government will maintain the link of HK$7.80 per US$1.00.



The following table sets forth the Hong Kong Dollar Noon Buying Rate as at and for the periods indicated.



|                                  |  |                   |  |             |  |        |  |       
|--------------------------------- |  | ----------------- |  | ----------- |  | ------ |  | ------
|                                  |  | Noon buying rate 
|Period                            |  | End               |  | Average (1) |  | High   |  | Low   
|                                  |  | (HK$ per US$1.00)
|2000                              |  | 7.7999            |  | 7.7924      |  | 7.8008 |  | 7.7765
|2001                              |  | 7.7980            |  | 7.7996      |  | 7.8004 |  | 7.7970
|2002                              |  | 7.7988            |  | 7.7996      |  | 7.8095 |  | 7.7970
|2003                              |  | 7.7640            |  | 7.7864      |  | 7.8001 |  | 7.7085
|2004                              |  | 7.7723            |  | 7.7899      |  | 7.8010 |  | 7.7632
|December 2004                     |  | 7.7723            |  | 7.7760      |  | 7.7821 |  | 7.7698
|January 2005                      |  | 7.7993            |  | 7.7948      |  | 7.7994 |  | 7.7775
|February 2005                     |  | 7.7992            |  | 7.7994      |  | 7.7999 |  | 7.7984
|March 2005                        |  | 7.7990            |  | 7.7994      |  | 7.7998 |  | 7.7987
|April 2005                        |  | 7.7946            |  | 7.7984      |  | 7.7995 |  | 7.7946
|May 2005                          |  | 7.7788            |  | 7.7914      |  | 7.7995 |  | 7.7767
|June 2005 (through June 23, 2005) |  | 7.7703            |  | 7.7768      |  | 7.7842 |  | 7.7692

---

|(1) | Determined by averaging the Hong Kong Dollar Noon Buying Rates on the last business day of each month during the relevant annual period and averaging the Hong Kong
Dollar Noon Buying Rates for each business day during the relevant monthly period.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of June 23, 2005, the Hong Kong Dollar Noon Buying rate was US$1.00 = HK$7.7703.



B. Capitalization and Indebtedness



Not applicable.



5



---

##### Table of Contents

C. Reasons for the Offer and Use of Proceeds



Not applicable.



D. Risk Factors



Investment in
our ordinary shares or ADSs involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this annual report, before you decide whether to buy our ordinary
shares or ADSs.



i-CABLE is subject to various changing
regulatory, competitive, economic, political and social risks and conditions, which are described below:



Any significant change in our ability to pay dividends or our dividend policy may adversely affect the market price of our ordinary shares and ADSs.



Although we have declared and paid dividends in
respect of the years ended December 31, 2001, 2002, 2003 and 2004, there can be no assurance that we will declare and pay dividends in the future or that we will maintain our current dividend policy. Any significant change in our ability to pay a
dividend or our dividend policy may adversely affect the market price of our ordinary shares and ADSs.



We reported net losses in previous years and we may incur net losses in the future.



Although we have recorded net profits for each year since 2000, we reported
net losses from the beginning of our pay-TV operation in 1993 until 1999. As of December 31, 2004, our consolidated accumulated losses were HK$4,978 million (US$640 million). Our ability to maintain profitability will depend on the growth of our
existing business and the success of our new products and services, as well as general market conditions. If we do not remain profitable or our accumulated losses are not offset by future profits, our financing needs may increase, we may not be able
to pay dividends in the future and the market price of our ordinary shares and/or ADSs may be adversely affected.



We may need to incur substantial capital expenditures to keep pace with technological developments or our customers demand for new products
and services. This may adversely affect our financial condition.



The markets for pay-TV, Internet access services and related services are characterized by rapidly changing technology, industry standards, subscriber needs and new products and services. The emerging nature of these
products and services and their rapid evolution will require us to continually improve the performance, features and reliability of our network, Internet content and consumer services, especially in response to our competitors offerings.



We may not be successful in responding quickly, cost
effectively or sufficiently to these developments. In addition, services or technologies developed by competitors may render our services or technologies undesirable or obsolete. Some of our competitors offer broadband Internet access service with
bandwidth advantage over our broadband Internet access service in the residential market. Furthermore, changing our services in response to market demand may require the adoption of new technologies that could render many of our assets less
competitive or obsolete. Even if we respond successfully to technological advances and emerging industry standards, the integration of new technology may require substantial capital expenditures. This may adversely affect our financial condition. We
may not be successful in modifying our network infrastructure in a timely and cost-effective manner. In addition, our new products and services may contain design flaws or other defects that could have a material adverse effect on our business and
operating results. We do not intend to conduct our own research and development of new technologies.



6



---

##### Table of Contents

Illegal viewing activities may affect our pay-TV subscriber growth and subscription revenue.



Our pay-TV business is dependent upon subscription
revenue. We are aware that some viewers in Hong Kong use unauthorized pay-TV decoders to receive our pay-TV service illegally. Although we have substantially migrated our transmissions from analog to digital platforms in order to better control and
limit illegal viewing activities, manufacturers or vendors of unauthorized pay-TV decoders still attempt to overcome our digital encryption methods. Illegal activities have continued and we are aware that pirated digital set-top-boxes are available
in the market. We have been deploying countermeasures to combat such activities. If we fail to deploy appropriate and timely countermeasures in response to such activities, illegal viewing activities may grow. Such illegal viewing activities will
adversely affect the growth of our pay-TV subscriber base and our subscription revenue.



The loss of key employees, including senior management, and our failure to recruit qualified personnel as needed could weaken our strategic, technological and operational expertise, delay the introduction of new
products and services and lower the quality of our services.



We may not be able to attract and retain key employees, including our senior management. Our key employees may be recruited by our competitors. This could hinder the introduction of our new products and services as planned. Our operations
could suffer with the loss of any member of our senior management team or any key employee. Our success also depends on our ability to attract and retain qualified personnel for strategic planning, programming and enhanced services, including
Internet, marketing and network operations. The competition for qualified personnel in the Internet services and pay-TV industry may increase in the future, making it difficult for us to attract and retain qualified personnel in the Internet
services and pay-TV industry.



Our programming costs are
substantial and may increase, which could reduce our margins if we are unable to pass on any such increase to our subscribers.



The growth and revenues for our pay-TV services depend on our ability to produce or purchase programming that is affordable to our subscribers. The cost
of some of our acquired programming has increased in the past and may increase substantially in the future if competition in the pay-TV and television services markets intensifies. If we are not able to pass on programming cost increases to our
subscribers, our revenues, cash flow and operating margins may be reduced.



New digital pay-TV channels may add to our programming costs and may adversely affect our profitability.



Digital broadcasting allows the compression of pay-TV signals, which increases our effective channel capacity. We intend to utilize this additional
capacity by increasing the number of pay-TV channels offered on our digital platform. We now offer a total of 93 channels with 48 channels in our basic package. During 2004, a total of 15 new channels were added to our digital platform. The channels
were either included in the basic service or marketed as tier packages to derive additional revenues from existing as well as new subscribers. We may not be able to limit the total costs of production or the acquisition of content for these new
channels. If such programming costs are significant and we are unable to pass on these costs to our pay-TV subscribers, our profitability may be adversely affected.



7



---

##### Table of Contents

Demand for our broadband Internet access service may not continue to grow.



The success of our broadband Internet access service (also known as
broadband service) will require continued growth in the use of the Internet and the demand for broadband services in Hong Kong. Although our broadband Internet subscriber base has been growing since the launch of the service in March
2000, this growth trend may not continue. Critical issues concerning the increased use of the Internet, including security, reliability, cost, ease of access and quality of service are likely to affect future demand for our broadband service. The
competitive pressures to provide low-cost broadband access may impact our ability to charge subscription fees at favorable rates. The demand for our broadband access service may decline or it may not command the fees necessary to permit us to
maintain or increase the profitability of our broadband business.



The competition we face from other television broadcasters and Internet service providers may cause us to lose market share.



Other operators began rolling out bundled (voice, data and television) service in earnest in 2004, causing the markets for pay-television, Internet access
and related services in Hong Kong to grow more competitive. Both PCCW and Hong Kong Broadband Network began to roll out bundled packages with aggressive marketing and pricing strategies. In response, we rolled out a bundled pay-TV and broadband
package in May 2004. We subsequently rolled out pay-TV and broadband packages that are bundled with local VoIP service provided by one of our affiliates. The VoIP service enables subscribers to make and receive calls using traditional telephone
handsets connected to a voice-enabled cable modem. Our competitors may in the future become even more aggressive in pricing their services. This may lead us to further reduce our prices for similar services, causing our revenue to decline. This high
level of competition may also result in a loss of our subscribers and may significantly increase our programming costs, resulting in a decrease in our cash flow and operating margin. We face strong competition in the television services market from
Hong Kongs free-to-air networks, Asia Television Limited and Television Broadcasts Limited, commonly known as ATV and TVB. In addition, two pay-TV services were launched during the third quarter of 2003. They are operated by the incumbent
telecommunications service provider, PCCW, and another telecommunications service provider, Hong Kong Broadband Network. In February 2004, Galaxy Satellite Broadcasting Limited, or Galaxy, launched its pay-TV service under the brand name exTV, which
was renamed SuperSUN TV in May 2005. Galaxy is owned by TVB, the dominant free-to-air television operator in Hong Kong. These new pay-TV service providers may cause us to lose market share and encounter pricing pressure in the future.



The opening up of our network to other service providers may negatively
affect our revenues and profitability.



Under our
fixed telecommunication network services license, we are required to open up our network to other telecommunications and television service providers through interconnection arrangements. The opening up of our network may lead to increased
competition which may negatively affect our subscriber base, revenues and operating profit. Although we expect to derive revenues from the service providers to whom we open up our network, we may not be able to charge these service providers fees
high enough to compensate for the loss in revenues and operating profit due to increased competition. If this is the case, the revenues from, and operating profit of, our broadcasting and broadband business may be negatively affected.



8



---

##### Table of Contents

Pay-TV competition may increase due to the Hong Kong Governments deregulation of the
television broadcasting and telecommunications sectors. Any increase in competition may cause us to lose subscribers and encounter pricing pressure.



We were initially able to operate our pay-TV business as the sole pay-TV provider in Hong Kong. In March 1998, a subsidiary of Cable & Wireless HKT
(now known as PCCW Limited) launched a video-on-demand service which offered instantaneous viewing of movies and other programs. To further liberalize the pay-TV market, the Hong Kong Government awarded five new pay-TV licenses in late 2000. Four
operators have since opted out from the Hong Kong market and returned their licenses to the Government. However, three operators have begun offering pay-TV services which may cause us to lose subscribers and encounter pricing pressure.



We may encounter pricing pressure and experience an adverse impact
on our subscriber base for broadband Internet access service as a result of competition from alternative Internet access platforms.



The Hong Kong Government is creating a regulatory regime that will accelerate the introduction of new broadband and wireless platforms in Hong Kong. The
development of these alternative Internet access platforms, such as third-generation mobile phone services, satellite interactive services, and local wireless fixed network services may intensify competition. As a result, we may encounter pricing
pressure and experience an adverse impact on our subscriber base for our broadband Internet access service.



We may not be able to acquire or retain the right to broadcast certain TV content.



Our pay-TV service includes broadcasting of TV content that we acquire from
third parties. In the event we do not acquire or retain the right to broadcast certain TV content, we may acquire rights to broadcast alternative TV content in substitution. Such alternative TV content may not be available on the same terms, or at
all, and any loss of TV content or inability to obtain the rights to provide suitable alternative TV content could adversely affect the quality of our pay-TV service. In the event that we retain certain TV content on terms and conditions
significantly different from prior agreements, our programming costs and/or pay-TV subscription revenues may be adversely affected.



Any small percentage change in our operating expenses may significantly reduce our consolidated earnings.



In 2004, our total operating expenses accounted for as much as 88% of our
total operating revenues. A high proportion of our operating expenses are fixed and do not vary in proportion to the number of our subscribers. Any small percentage change in our operating expenses may significantly reduce our consolidated earnings.



Our network system may fail or shut down, which may
adversely affect the quality of our pay-TV or Internet services.



Any failure to maintain a consistent level of high-quality service could harm our reputation and have a material effect on our business, operating results and financial condition. Our network is vulnerable to damage
or cessation of operations from fire, earthquakes, severe storms, power loss, telecommunications failures, network software flaws, transmission cable cuts and other catastrophic events. We may experience failures or shutdowns relating to individual
points of presence or even catastrophic failure of our entire network. Our insurance coverage may not cover such losses or, even if such losses are covered by our insurance, may not be sufficient to cover all losses arising from such events. Any
failure of our network, our servers, or any link in the delivery chain, whether from operational disruption, natural disaster or otherwise, resulting in an interruption in our operations could have a material adverse effect on our business,
financial condition and results of operations.



In addition,
our network is potentially vulnerable to computer viruses, break-ins and similar disruptive problems caused by our subscribers or other Internet users. Computer viruses, break-ins or other problems could lead to the following problems:



| |  |  | interruption, delay or cessation in service to our subscribers;
| | - |  | ---------------------------------------------------------------



9



---

##### Table of Contents

| |  |  | compromised security of confidential information stored in the computer systems of our subscribers; and
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | costly litigation.
| | - |  | ------------------



The success of our pay-TV and broadband Internet access service depends on our ability to maintain high-quality transmission with minimal service
disruptions or interference. This will be critical to our ability to attract and retain subscribers.



We have launched a satellite channel targeted primarily at Mainland China. This channel is expected to incur losses in its initial years of
operation and it may not become profitable.



We have
launched a satellite channel targeted primarily at Mainland China. The channel is available in hotels that are rated at or above three stars, foreign compounds, and other select areas in Mainland China. The relevant television market in Mainland
China is highly competitive. The channel has incurred losses since its launch and is expected to incur losses in its initial years of operation. In addition, any adverse development in the economic, political or legal environment in Mainland China
could have a negative effect on the operations and financial condition of this channel.



We established a wholly-owned subsidiary to embark on film production. This new subsidiary may cause volatility in our consolidated earnings and may not become profitable.



In 2005, we established a wholly-owned subsidiary, Sundream Motion Pictures
Limited (Sundream), to engage in film production. Through Sundream, we plan to produce up to 20 full-length Chinese feature films in the next two years. Some of these films will be released to overseas and Mainland China markets in
addition to local release. We are new to the film production industry and we will have to seek qualified personnel from external sources to be successful. We may not be able to attract personnel with appropriate expertise or experience in the film
industry.



The protection of intellectual property is essential
for any film production business. Any infringement of our intellectual property may significantly reduce our revenue from the films we produce. The existing or future regulatory environment and law enforcement mechanism in the markets where our
films are released may not offer adequate levels of protection from intellectual property infringement or we may not be effective in enforcing our intellectual property rights in any of these markets.



The financial performance of Sundream may vary significantly across different
financial periods as our production may fluctuate in terms of quantity as well as quality. There is no assurance that this subsidiary will become profitable and may cause volatility in our consolidated earnings.



We are in the process of instituting changes to our internal controls
and management systems in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Our failure to timely and successfully institute these changes and to maintain the adequacy of our internal controls could subject us to
regulatory actions and may adversely affect our stock price and our ability to raise additional capital.



We are in the process of instituting changes to our internal controls and management systems to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002. Beginning with the fiscal year ended December 31, 2006, Section 404 requires us to perform an evaluation of our internal controls over financial reporting and file annual management assessments of their effectiveness with
the U.S. Securities and Exchange Commission. That management assessment is required to include a certification of our internal controls by our chairman and director of finance.



10



---

##### Table of Contents

In addition, our independent registered public accounting firm will be required to attest to our
evaluation of internal controls over financial reporting. Unless we successfully design and implement changes to our internal controls and management systems, or if we fail to maintain the adequacy of these controls as such standards are modified or
amended from time to time, we may not be able to comply with Section 404 of the Sarbanes-Oxley Act of 2002. As a result, our independent registered public accounting firm will be unable to attest to the effectiveness of our internal controls over
financial reporting. This could subject us to regulatory scrutiny and result in a loss of public confidence in our management, which could, among other things, adversely affect the price of our ADSs and ordinary shares and our ability to raise
additional capital.



The Hong Kong Inland Revenue
Department may not accept our compromise settlement for an ongoing discussion regarding a finance lease arrangement.



We are currently in discussion with the Hong Kong Inland Revenue Department (IRD) regarding the deductibility of certain interest payments
claimed in the previous years tax computations of the lessors in a finance lease arrangement. We have made a cash settlement offer to the IRD based on partial disallowance of the said interest expenses in the lessors, on top of the
disallowance of certain interest expenses previously deducted by the lessees, therefore reducing their unused tax losses brought forward by the equivalent amount. The outcome of the discussion is uncertain. The IRD may decide that our settlement
proposal will not sufficiently counteract the tax benefits that we have gained and seek to enforce various protective assessments already issued and they may also levy additional penalty and interest, in which case, we may be liable to pay
additional taxes.



There may be political risks
associated with doing business in Hong Kong



A
significant part of our facilities and operations are currently located in Hong Kong. Hong Kong is a Special Administrative Region of the Peoples Republic of China, with its own executive, judicial and legislative branches. Hong Kong enjoys a
high degree of autonomy from China under the principle of one country, two systems; however, we can give no assurance that Hong Kong will continue to enjoy the same level of autonomy from China. Any intervention by the government of
China in the affairs of Hong Kong, in breach of the one country, two systems principle, may adversely affect our revenues and our share prices.



The state of Hong Kongs economy may affect our profitability.



As we are principally engaged in the provision of pay-TV and broadband services in Hong Kong, our financial position and the
results of our operations will be affected by the conditions of the pay-TV and Internet access markets in Hong Kong, which may in turn be influenced by the general state of the Hong Kong economy, changes in the Hong Kong regulatory environment, and
changes in demand and usage habits of Hong Kong consumers. We have limited control over any of these factors. The Hong Kong economy has experienced considerable volatility during the late 1990s and from 2000 to 2003, and there can be no assurance
that it will not continue to do so in the future. This could adversely affect our business operations.



We may be liable for information disseminated over our Internet services network, which could increase our costs or cause us to discontinue certain
services or content offerings.



We may be required to
spend substantial resources or discontinue certain services or content offerings as a result of liability under Hong Kong law for dissemination of information, which could have a material adverse effect on our business, operating results and
financial condition. Hong Kong law relating to liability of Internet service providers for information carried on or disseminated through their networks is new and untested. The imposition of potential liability upon Internet service providers, such
as liability for defamatory speech or copyright infringement, for materials carried on or disseminated over a network may cause us to adopt measures that may reduce our exposure to such liability. We do not carry errors and omissions insurance
which, under certain circumstances, could mitigate any damages incurred by us.



11



---

##### Table of Contents

Rights of shareholders under Hong Kong law may not provide expected levels of protection for
shareholders.



Our corporate affairs are governed by
our constitutive documents and by the laws of Hong Kong. The rights of our shareholders and the fiduciary responsibilities of our directors under Hong Kong law are not as clearly established as under statutes or judicial precedent in existence in
certain jurisdictions in the United States. Therefore, our public shareholders may have more difficulty in protecting their interests in the face of actions by our management, directors or our controlling shareholders than would shareholders of a
corporation incorporated in some jurisdictions in the United States.



Certain judgments obtained against us by our shareholders may not be enforceable in Hong Kong.



We are a Hong Kong company and most of our assets are located outside the United States. Substantially all of our current operations are conducted in Hong
Kong. In addition, most of our directors and officers are nationals and residents of countries other than the United States. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be
difficult for you to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of Hong Kong would recognize or enforce judgments of United States courts obtained against us or
such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, there is uncertainty as to whether Hong Kong courts would be competent to hear original actions brought in Hong Kong
against us or such persons predicated upon the securities laws of the United States or any state.



Forward-looking statements reflect current expectations and may not be correct.



This document contains various forward-looking statements, including
statements regarding our expectations and projections for future operating performance and business prospects. The words believe, expect, anticipate, estimate, project and similar words
identify forward-looking statements. In addition, all statements other than statements of historical facts included herein are forward-looking statements. These statements are forward-looking and reflect our current expectations. Although we believe
that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Such statements are subject to a number of risks and uncertainties, including changes in the
economic and political environments in Hong Kong. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the reference to these risks.



ITEM 4. INFORMATION ON THE COMPANY



A. History and Development of the Company



i-CABLE was incorporated under the laws of Hong Kong on May 21, 1999 with limited liability under the Companies Ordinance. We changed our name to i-CABLE Communications Limited with effect from August 27, 1999. Our principal place of
business is located at Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, Hong Kong. Our telephone number is (852) 2112-6868. Our registered office is located at 16th Floor, Ocean Centre, Harbour City, Canton Road, Kowloon, Hong Kong. The telephone number
for our registered office is (852) 2118-8118.



12



---

##### Table of Contents

Our agent for service of process in the United States is CT Corporation System, which is currently
located at 111 Eighth Avenue, 13th Floor, New York, New York 10011.



B. Business Overview



We believe
that we are the leading pay-TV programming operator and service provider in Hong Kong and that we are also Hong Kongs second largest residential broadband Internet access service provider.



We launched our pay-TV service in October 1993. As of December 31, 2004, we
had 702,000 pay-TV subscribers, representing a 7% increase over the previous year.



We launched our broadband service in March 2000. As of December 31, 2004, we had 291,000 broadband subscribers, representing a 13% increase over the previous year. As of December 31, 2004, our in-building coaxial
network passed over 2,070,000 homes. Within this total, 1,990,000 homes were connected to our fiber optic cable network, out of which 1,963,000 households were broadband-ready (i.e., these households were able to subscribe to our
broadband service).



In October 2004, i-CABLE Network Limited
(iNL), a wholly-owned subsidiary, entered into an agreement with Wharf T&T Limited (Wharf T&T), an affiliate of ours that is wholly-owned by The Wharf (Holdings) Limited (Wharf), in respect of our
provision of Internet Protocol Network point-of-presence (IP Point) service to Wharf T&T for three years. Under the agreement, we charge Wharf T&T a service fee that is determined based on the number of IP Points we provide to
Wharf T&T. With these IP Points, Wharf T&T provides local VoIP service to the residential market, utilizing our hybrid fiber coaxial (HFC) cable network for core and last-mile signal transmission. The local VoIP service enables
subscribers to make and receive calls using traditional telephone handsets connected to a voice-enabled cable modem. As of December 31, 2004, we provided 29,235 IP Points to Wharf T&T.



Business Strategy



Our goal is to become Hong Kongs leading provider of integrated multimedia communications services, encompassing
video, data and voice services. We have also started to expand into other markets outside of Hong Kong, particularly in Mainland China. Our strategy is to:



| |  |  | Expand our pay-TV subscriber base through programming differentiation
| | - |  | ---------------------------------------------------------------------



We will continue to provide locally-targeted, innovative television programming to maintain our market leadership in news, sports and movies. Our
investment in Chinese-language programming has been instrumental to our success to date since most of Hong Kongs population speaks Cantonese as their primary language. To complement our local programming, we will continue to broadcast sport
events, movies and major international channels such as CNN International, HBO Asia and Discovery. As of December 31, 2004, we carried 89 program channels on our digital platform. Some of the channels are included in our basic package while others
are marketed as tier packages to derive additional revenues from existing or new subscribers. We will continue to invest in programming content to maintain service differentiation, and we evaluate new genres and programs so that we can offer more
programming packages to existing and new subscribers. We also plan to continue to increase the number of our subscribers by marketing through direct sales, promotions and advertising. We believe there is an opportunity to further increase our number
of subscribers in a market such as Hong Kong as the market for pay-TV services continues to develop.



13



---

##### Table of Contents

| |  |  | Pursue penetration of our broadband Internet access service
| | - |  | -----------------------------------------------------------



In March 2000, we launched our broadband Internet access service based on cable modem technology. During 2004, our broadband subscribers grew by 13% to
291,000 and we maintained our position as the second largest residential broadband access service provider in Hong Kong. In May 2004, we introduced bundled pay-TV and broadband packages. This helped us compete in the residential broadband market. In
October 2004, we entered into an agreement with Wharf T&T in respect of our provision of IP Point service to Wharf T&T for three years. With these IP Points, Wharf T&T provides local VoIP service to the residential market, utilizing our
HFC cable network for core and last-mile signal transmission. In late 2004, we introduced broadband packages that are bundled with the local VoIP service provided by Wharf T&T.



| |  |  | Expand the distribution of our content to new markets and platforms beyond pay-TV and broadband Internet platforms
| | - |  | ------------------------------------------------------------------------------------------------------------------



Since late 2003, we have been supplying content to the mobile phone industry.
In 2004, we reached an agreement with Cathay Pacific Airways to be the sole supplier of local news on its planes. In 2005, we concluded another agreement with Kowloon-Canton Railway Corporation to be the sole content supplier and exclusive sales
agent for the public display system on its trains.



Products and Services



Pay-TV Services



We offer the following pay-TV services:



Basic Package. As of December 31, 2004, our basic package included access to
47 channels for our digital subscribers. We also offer various other packages, typically consisting of a limited number of channels offered in our basic or premium package at a lower subscription fee to enhance our pay-TV penetration.



Pay-Per-View and Premium Services. We currently offer four pay-per-view
channels and were the first pay-per-view provider in Asia. Pay-per-view channels offer viewing of adult entertainment and live sports events at additional fees. As of December 31, 2004, our premium channels included HBO Asia, Cinemax, NBA TV, Animax
and Channel A. HBO Asia and Cinemax offer Hollywood movies and other programs. Channel A features some of the more popular programs we offer from among all our local channels. In 2004, we also launched a two-channel premium package catering to the
Pakistani community in Hong Kong.



As of December 31, 2004, we
also provided access and maintenance services to approximately 231,000 satellite television system households in Hong Kong. Satellite television systems allow customers to view free-to-air channels distributed via satellite.



Internet and Multimedia Services



Broadband Internet Access. We introduced our broadband Internet access
service utilizing cable modem technology under the i-CABLE brand name in March 2000. As of December 31, 2004, we were Hong Kongs second largest residential broadband service provider. A cable modem is a peripheral device attached to a personal
computer that allows the user to send and receive data over a cable television system. The technology allows for a permanent connection to the Internet and eliminates the typical connection delays associated with accessing the Internet using dial-up
procedures. We charge our broadband Internet access subscribers flat fees with no usage charges. We typically market our broadband Internet access service at discounts to our standard monthly subscription fee for new subscribers.



14



---

##### Table of Contents

Programming



Pay-TV Services



Our strategy has been to achieve pay-TV subscriber penetration through local content production and packaging, consisting primarily of news, movies and
live and exclusive sports programming. As there are limited Cantonese language programming alternatives, we produce our own programming and repackage licensed programming to suit local preferences. We are one of the largest producers of television
programming in Hong Kong. We currently originate and repackage 19 channels in our basic package.



News, movies and sports have been our most important programming genres and we will continue to invest in such programming.



News. We produce four 24-hour Cantonese news channels. News 1 focuses
on financial news during trading hours and offers public affairs and documentary programs in the evenings. News 2 broadcasts non-stop news with half-hourly updates. Top News broadcasts non-stop news with updates every eight to ten minutes. We
believe subscribers are attracted to the convenience and quality of our 24-hour news programming. A Live News Channel was launched in 2005 to carry important press conferences, Hong Kong legislative council meetings and breaking news live. We have
also acquired broadcasting rights to international news channels such as CNN International, BBC World, Bloomberg Television and CNBC Asia.



Movies. Through our own three basic movie channels and three premium channels, we offer popular Hollywood titles, local blockbusters and special
packages catering to our subscribers.



Sports. Exclusive
and live coverage of sports events has played an important role in attracting new subscribers. Soccer is more popular than any other sports in Hong Kong. In 2004, we acquired the exclusive rights to broadcast the English Premier League football in
Hong Kong for the three-year period ending May 2007. We have since launched a dedicated channel to carry the tournament as well as a soccer betting channel. In addition, we exclusively carry the Spanish Primera Liga, the Italian Serie A and the
German Bundesliga to cater to the different programming interests of soccer fans. We have also secured the exclusive rights to broadcast the 2006 FIFA World Cup. We also carry other major international sports events, such as major tennis tournaments
including the French Open and U.S. Open, volleyball, table tennis and swimming events. Additionally, our Channel 18 provides comprehensive live coverage of all horse races of the Hong Kong Jockey Club.



Our Channels



We offer a variety of channels with our own originated or packaged channels, primarily in Cantonese, as well as licensed
satellite channels. As of December 31, 2004, we offered 89 channels on our network, consisting of 47 basic channels, 38 premium channels, including the channels that are included in our premium packages, and four pay-per-view channels.



News, sports and movies remained the mainstay of our programming platform.
We also carry a number of acclaimed documentary channels such as Discovery and the National Geographic channels. Our entertainment platform consists of a mix of international, regional and self-produced channels. In the summer of 2003, we launched a
24-hour Entertainment News Channel, the first of its kind in Hong Kong, which provides round-the-clock reporting and news magazine programs featuring the world of show business as well as lifestyle and trends in Hong Kong, the region and the world.
We also carry eight premium packages, for a total of 32 channels, catering to ethnic minority groups, sports fans and viewers with particular interests.



15



---

##### Table of Contents

Internet and Multimedia Services



Leveraging on our content library production and output, we have enhanced our Chinese language Internet portal to further
showcase the multimedia capabilities of our broadband Internet access service. To differentiate ourselves from other Internet services providers, we offer our television program content on our websites as well as develop new content and applications
with content providers to offer a rich multimedia experience to our subscribers.



Segment Information



The following table shows the breakdown of our total consolidated operating revenues for each of the periods indicated and the percentage contribution of each revenue component to our total operating revenues:



|                          |  |                                 |  |      |  |               |  |     |  |               |   |  |    
|------------------------- |  | ------------------------------- |  | ---- |  | ------------- |  | --- |  | ------------- | - |  | ---
|                          |  | For the year ended December 31,
|                          |  | 2002                            |  | 2003 |  | 2004         
|                          |  | HK$ inmillion                   |  | %    |  | HK$ inmillion |  | %   |  | HK$ inmillion |   |  | %  
|Pay television            |  | 1,711                           |  | 79   |  | 1,734         |  | 81  |  | 1,888         |   |  | 80 
|Internet and multimedia   |  | 450                             |  | 21   |  | 409           |  | 19  |  | 481           |   |  | 20 
|Corporate                 |  |                                |  |     |  |              |  |    |  | 6             |   |  |   
|Inter-segment elimination |  |                                |  |     |  |              |  |    |  | (3            | ) |  |   
|                          |  |                                 |  |      |  |               |  |     |  |               |   |  |    
|Total operating revenues  |  | 2,161                           |  | 100  |  | 2,143         |  | 100 |  | 2,372         |   |  | 100
|                          |  |                                 |  |      |  |               |  |     |  |               |   |  |    



Our business
activities are conducted primarily in Hong Kong. For the years ended 2002, 2003 and 2004, less than 10% of our revenues were derived from activities conducted outside Hong Kong.



Sales and Marketing



Pay-TV Services



We use a variety of marketing methods to attract and retain subscribers. Direct sales marketing is our most effective sales method, particularly due to
Hong Kongs high population density. Our marketing strategy is to:



| |  |  | achieve high brand awareness;
| | - |  | -----------------------------



| |  |  | feature live and exclusive sports, popular movies and convenient quality news programming;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | develop and retain a team of well-trained direct sales representatives;
| | - |  | -----------------------------------------------------------------------



| |  |  | integrate our direct sales, advertising, inbound and outbound-telemarketing and other sales channels to optimize subscriber acquisition opportunities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



16



---

##### Table of Contents

| |  |  | offer short-term promotions and incentives for subscribers to sign up quickly for longer-term commitments;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | promote customer loyalty by offering subscriber benefit programs;
| | - |  | -----------------------------------------------------------------



| |  |  | promote customer loyalty through the sale of set-top-boxes to subscribers; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | expand into niche markets by offering different programming packages which target subscribers with different price sensitivities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



Internet Access Services



The marketing strategy for our broadband Internet access service is to:



| |  |  | achieve high brand awareness;
| | - |  | -----------------------------



| |  |  | develop and retain a team of well-trained direct sales representatives;
| | - |  | -----------------------------------------------------------------------



| |  |  | integrate our direct sales, advertising, inbound, and outbound-telemarketing and other sales channels to optimize subscriber acquisition opportunities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | offer short-term promotions and incentives for subscribers to sign up quickly for longer-term commitments;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | offer packages bundled with our pay-TV service and the local VoIP service provided by Wharf T&T to attract new subscribers and promote customer loyalty; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | promote customer loyalty by offering subscriber benefit programs.
| | - |  | -----------------------------------------------------------------



By leveraging on our brand name, marketing and sales experience, and customer fulfillment capabilities, we believe we have established ourselves as Hong
Kongs second largest residential broadband Internet access service provider at the end of 2004.



Network Architecture



Overview



Cable television consists of a broadband network
transmitting multiple channels of videos, images, sound and data between a central facility and a subscribers television over fiber optic and coaxial cable.



Our cable television system consists of three major parts: a head-end, a distribution network, and a home terminal. At the
head-end, signals from live studios, video cassette playback machines and servers, and satellites are received, processed, amplified and then sent through a distribution network, which consists of trunk lines, feeder cables and drop cables. Drop
cables carry signals into a subscribers premises and, ultimately, to television receivers in the home terminal.



The significant advantages of fiber optic technology have led to the increased use of the fiber optic cable as part of the distribution networks
trunk lines, or backbone. The portion of our network employing fiber optic trunk lines generally requires less maintenance, resulting in lower operating costs. The increased capacity and reliability of fiber optic cable can be utilized to expand the
number and quality of services delivered to the subscribers premises.



17



---

##### Table of Contents

Our Distribution Network



Our distribution network can be divided into two sections: trunk transmission and in-building coaxial networks. We have
substantially completed transition of the trunk transmission sections from a microwave system to fiber optic cable to connect to the in-building coaxial networks to form a HFC cable network. The concentration of high-rise buildings in Hong Kong has
been a significant factor in shaping communications networks in the region. The resulting concept of these buildings as vertical streets highlights the importance of access to in-building coaxial networks and bandwidth allocation within
such in-building coaxial networks.



Most of our subscribers
live in high-rise apartment buildings which have been wired with in-building coaxial networks. We have been allocated 35 frequency channels by the Telecommunications Authority for television services and two additional frequency channels for
broadband services. The total number of frequency channels for television services allocated to us will be reduced to 20 following completion of our digital migration. However, with compression technology, the 20 frequency channels will enable us to
carry over 100 program channels. In addition, we have been granted an additional frequency channel for broadband service to better serve our expanding customer base.



We built our existing backbone network first by using a microwave system. The microwave system carries scrambled television
signals which travel through fiber optic cables from the cable television headend to transmission sites on hilltops. From the transmission sites, signals are broadcast to the signal-processing center located on the rooftops of our anchor buildings.
Each signal-processing center converts the microwave signals into radio frequency signals. These signals are then distributed by coaxial cable to households in the same building or adjoining buildings. The coaxial network transmits signals through
amplifiers to a multi-port two-way tap which connects to the subscribers drop. The subscribers drop connects to a set-top box which descrambles the television signals in the subscribers home.



To complete our HFC cable network, we have converted the majority of the
trunk transmission from microwave to fiber optic cable, which enables two-way active capability. A portion of our network trunks are laid along the infrastructure of the Mass Transit Railway Corporation, the Hong Kong subway system. The subway
underground infrastructure provides a stable and protective network environment and facilitates the maintenance of our fiber optic trunk transmission. The in-building coaxial networks, known as last mile access to the subscribers, remain unchanged
except for the installation of the return path modules to existing amplifiers.



The completed fiber coaxial cable network is two-way capable. It will also have the capacity to support additional advanced services by placing telecommunications and data-communications equipment at network nodes to
interface with facilities of various Internet service providers, value-added service providers, content providers, network carriers and broadcasters.



We returned the 12 GHz and 2 GHz microwave frequencies previously allocated to us to the Hong Kong Government during 2001. The Telecommunications
Authority has allowed us to use alternative frequencies at 18 GHz to broadcast our pay-TV services to certain homes in remote locations. In December 2001, we began to migrate our television service to digital broadcasting to combat illegal viewing
and to expand our channel capacity. The migration was substantially completed in the middle of 2004, a year ahead of our undertaking to the Government.



18



---

##### Table of Contents

To expand our service to remote areas and outlying islands not previously covered by our fiber or
microwave networks, we launched a 20-channel satellite service in the third quarter of 2004, comprising our flagship channels in news, sports and entertainment.



Broadband Internet Access System



We use our HFC cable network to provide broadband Internet access service. In order to provide such services, we need to install cable modem head-ends to
route the Internet data traffic through our digital transport network.



Internet access is the first non pay-TV application deployed over our HFC cable network. In October 2004, we entered into an agreement with Wharf T&T in respect of our provision of IP Point service to Wharf T&T for three years. With
these IP Points, Wharf T&T provides local VoIP service to the residential market, utilizing our HFC cable network for core and last-mile signal transmission. In the future, we may introduce other applications over the cable modem infrastructure
with incremental investment.



Customer Service and Technical Support



We believe providing a high level of customer service
and technical support to our subscribers is integral to our customers satisfaction. In order to achieve this, we operate a 24-hour customer service hotline. We continually seek to staff our customer service department with qualified personnel
to provide solutions to potential customer questions or related matters. We also continue to invest in equipment and technology to enhance operational efficiency. Most of our customer service representatives have in-depth knowledge of our pay-TV and
Internet and Multimedia services.



Subscribers can pay through
a direct-debit service that automatically deducts the monthly payment from a subscribers designated bank account or credit card account, by telephone, at payment points such as local banks or automated teller machines, or by mail.



We provide our subscribers with complete technical support, including
installation, maintenance and service calls and disconnection of our services. We monitor key statistics, such as average time for completion of installation, in order to identify any potential areas for improvement.



Research and Development



We do not conduct any research and development activities for new
technologies.



Intellectual Property



We have registered certain trademarks, including our brand name, logo, and
certain advertising features, as well as trademarks in connection with our pay-TV services with the Hong Kong Trade Marks Registry, the independent authority responsible for registration of trademarks in Hong Kong. In addition, we have registered
some of our trademarks in the PRC, Taiwan and Macau.



Insurance



We have insurance with reputable insurance providers
to cover risks incurred in the ordinary course of business, including general liability, property coverage and workers compensation insurance in amounts typical of similar operators in the cable industry. We believe our insurance coverage is
adequate and there have not been any significant insurance claims during the past three years.



19



---

##### Table of Contents

Regulations



Regulations on Television Broadcasting



Overview



We conduct our pay-TV business through our subsidiary, Hong Kong Cable Television Limited (HKC). HKC is a licensed subscription television
broadcaster and is subject to the provisions of the Broadcasting Ordinance, the Broadcasting Authority Ordinance, the Telecommunications Ordinance and its license and related regulations, codes of practice, guidelines and directions by the
Broadcasting Authority. The provisions are administered by the Broadcasting Authority, a statutory body established under the Broadcasting Authority Ordinance and the Telecommunications Authority. The Broadcasting Authority prescribes rules
concerning the content and scope of television programming, supervises all services provided by television broadcasters and makes recommendations to the Chief Executive-in-Council on applications for broadcasting licenses, as well as on the renewal,
suspension and revocation of licenses. The Chief Executive-in-Council issues domestic pay television program service licenses (formerly subscription television broadcasting licenses under the regime of the now repealed Television Ordinance) which
grants the right to provide domestic pay television program services. HKCs domestic pay television program service license sets forth the terms and conditions for providing its pay-TV service, including the length, network milestone
requirements, and the scope of its programming.



License



HKC provides its pay-TV services under its
subscription television broadcasting license (the Subscription TV License) which has been deemed to be a domestic pay television program service license issued under the Broadcasting Ordinance. The Subscription TV License came into
effect on June 1, 1993 and was valid for a period of 12 years until May 31, 2005.



We applied to the Government to renew the Subscription TV License in June 2003. The renewal was granted for another 12 years from June 1, 2005 with key terms no less favorable than our previous license, and the
license was renamed the Domestic Pay Television Program License. Separately, a new fixed carrier license has been issued to us  converted from our previous fixed line license - to include the transmission of our television service under the
current regulatory regime, which requires the transmission part of our television license to be subject to the Telecommunications Ordinance.



The Broadcasting Authority may require HKC to refrain from broadcasting all or part of certain programs, advertisements or other material where this would
result in material breaches of the terms and conditions of the license or violations of applicable law, regulations or public policy.



We also hold a non-domestic television service license for the uplink of a satellite channel, which has been granted limited landing right for reception
in hotels and selected compounds in Mainland China.



Restrictions on
Ownership and Control



The Broadcasting Ordinance provides
that the majority of directors and majority of principal officers of television broadcasters such as HKC must be persons who are ordinarily resident in Hong Kong. Persons are considered resident in Hong Kong if they reside in Hong Kong for at least
180 days in any calendar year and at least 300 days in any two consecutive calendar years, and have been so resident for at least one continuous period of seven years. The broadcaster must also be incorporated in Hong Kong. Directors ordinarily
resident in Hong Kong must also form the majority of the quorum at its board meetings. Following the enactment of the Broadcasting Ordinance, there are no foreign ownership controls over HKC. In other words, HKCs shareholders may be
non-residents of Hong Kong or foreign corporations.



20



---

##### Table of Contents

The Broadcasting Ordinance restricts cross-media ownership by barring the following entities from holding
a domestic pay or free television program service license or exercising control of such licensees unless approval from the Chief Executive-in-Council is obtained:



| |  |  | advertising agents;
| | - |  | -------------------



| |  |  | companies which are themselves licensees under the Broadcasting Ordinance;
| | - |  | --------------------------------------------------------------------------



| |  |  | sound broadcasting licensees under the Telecommunications Ordinance;
| | - |  | --------------------------------------------------------------------



| |  |  | publishers of Hong Kong newspapers; and
| | - |  | ---------------------------------------



| |  |  | directors, principal officers, shareholders holding more than a 15% beneficial interest and any associates of the foregoing.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



The Broadcasting Authority is also empowered to obtain information as to
HKCs past and present shareholders.



HKC is prohibited
from transferring its Subscription TV License to another company except with the approval of the Chief Executive-in-Council.



Programming



HKC is required to broadcast announcements of public interest and publicity material relating to the Broadcasting Authority but is not otherwise obligated
to broadcast a minimum number of channels. The maximum number of channels is set by frequency availability. Each channel, except any pay-per-view channels, must be broadcast for not less than 5 hours per day. We believe we have satisfied these
programming requirements.



Regulatory Developments



The Hong Kong Government has adopted the policy of
liberalizing the television broadcasting market, including the pay-TV market, with the aim of increasing competition. In December 1998, the Hong Kong Government adopted a number of policies designed to liberalize the market and increase competition.
These policies aim to increase competition by requiring HKC to open its networks, abolishing subscription and advertising royalties, allowing HKC to deliver telecommunications services using its subscription television network, lifting the
moratorium on pay television and video-on-demand program services, and opening the market for digital terrestrial television services. The restrictions on ownership and control were also modified. Some of the policy decisions have been implemented
through the enactment of the Broadcasting Ordinance in the second half of 2000. The Hong Kong Government also awarded five pay-TV licenses in late 2000. Four operators have since opted out from the Hong Kong market and returned their licenses to the
Government. Nonetheless, two new pay-TV services were launched during the third quarter of 2003. They were operated by the incumbent telecommunications service provider, PCCW, and another telecommunications service provider, Hong Kong Broadband
Network. Galaxy, which Hong Kongs dominant free-to-air television operator TVB owns, launched its pay-TV service under the brand name exTV in February 2004 and renamed it SuperSUN TV in May 2005.



21



---

##### Table of Contents

Regulations on Telecommunications



Overview



The Telecommunications Ordinance regulates the operation of telecommunications in Hong Kong. The Telecommunications Authority is the statutory body
responsible for regulating and administering the Telecommunications Ordinance. The Office of the Telecommunications Authority assists the Telecommunications Authority in administering and enforcing the provisions of the Telecommunications Ordinance,
regulating and licensing telecommunications, and ensuring the effective operation and successful development of Hong Kongs telecommunications industry. The Telecommunications Authority is empowered to issue licenses of the types set out in the
Telecommunications Regulations. The Telecommunications Authority is also empowered to require a licensee to comply with the conditions of its license and the Telecommunications Ordinance. The Telecommunications Authority may suspend or revoke
licenses for non-compliance and the Chief Executive in Council may cancel or suspend a license at any time if he considers that the public interest so requires.



The Telecommunications Ordinance was amended when the Telecommunications (Amendment) Ordinance 2000, or the Amended Ordinance, came into effect on June
16, 2000. The general effect of the Amended Ordinance is to enhance competition safeguards, improve interconnection and access arrangements to telecommunications services, streamline licensing procedures and provide the Telecommunications Authority
with powers over certain technical areas such as radio spectrum management. The competitive safeguards, which include provisions to deal with anti-competitive practices, the abuse of a dominant position, misleading and deceptive conduct, and
discrimination, are to be administered and enforced by the Telecommunications Authority and represent the first occasion on which competition law principles have been included in legislation in Hong Kong. The Amended Ordinance also significantly
increases penalties for breach of license conditions. In addition, under the Telecommunication (Amendment) (No. 2) Regulations 1999, the scope of services received and distributed by satellite master antenna television systems (SMATV)
has been extended to cover subscription satellite television services licensed in Hong Kong and, from January 1, 2000, telecommunications messages intended for users of the satellite system. In addition, the Telecommunications Authority issued five
wireless fixed telecommunication network services (FTNS) licenses in 2000.



Licenses



In
general, under the Telecommunications Ordinance, a person who establishes and maintains a means of telecommunications in Hong Kong, will require a license to do so.



In order to provide Internet access and services, a public non-exclusive telecommunications services (PNETS)
license is required to be obtained from the Telecommunications Authority. i-CABLE WebServe Limited is a wholly-owned subsidiary of the Company and holds a PNETS license to operate our Internet business. The Telecommunications Authority may cancel or
suspend the PNETS license at any time for up to 12 months for contravention of any provision of the Telecommunications Ordinance or any condition of the PNETS license.



HKC previously held a FTNS license which authorized us to provide broadband service utilizing the HFC part of its
subscription television network. The FTNS license was converted to a fixed carrier license in June 2005 to include the transmission of television service in line with the current telecommunications regulatory regime with terms no less favorable than
the previous license. The license is valid until January 2015. Furthermore, it removes the restriction contained in our previous license that our telecommunications services must be provided via the HFC network we built for the delivery of pay-TV
service, and give us greater flexibility in the introduction of service enhancement or new telecommunications services in future.



22



---

##### Table of Contents

The Telecommunications Authority assigned one pair of frequency channels on the in-building coaxial
network (one upstream channel and one downstream channel) for the operation of its cable modem broadband Internet service. An additional frequency was granted to us in May this year to cope with demands on traffic with the expansion of our customer
base.



New Regulatory Developments



In January 2002, the Telecommunications Authority announced its policy on
the implementation of the full liberalization of the local FTNS market in Hong Kong from January 1, 2003 which follows the liberalization policy announced in May 1999 to license the operation of additional wireline based fixed networks when the
moratorium on issuing new local FTNS licenses ends on December 31, 2002. Since January 1, 2003, the local and external FTNS market is fully liberalized and there is no pre-set limit for number of licenses for the operation of local wireline-based
fixed networks. In January 2003, three new local wireline-based FTNS were granted, including two that were granted to local wireless FTNS licensees by modifying their licenses to include the operation of local wireline-based FTNS. As of March 29,
2005, there were 9 local wireline-based FTNS licensees.



C. Organizational Structure



The
chart below represents i-CABLEs organizational structure as of December 31, 2004. All the companies have been established under the laws of Hong Kong, except for Apex Victory Limited, i-CABLE China Limited, i-CABLE Enterprises Limited, i-CABLE
Ventures Limited, Kreuger Assets Limited and Moscan Assets Limited, which were established under the laws of the British Virgin Islands; and Guangzhou Kuan Xun Customer Services Company Limited and Guangzhou Dong Liang Cai Movie and Television
Technology Consultation Company Limited (English translation/transliteration of Chinese name), both of which were established under the laws of China. All the companies are direct or indirect wholly-owned subsidiaries of i-CABLE.





23



---

##### Table of Contents

LOGO





24



---

##### Table of Contents

All of our subsidiaries are 100% owned unless otherwise specified and are consolidated in our financial
statements.



D. Property, Plant and Equipment



We own most of our cable systems distribution networks and lease some fiber links for our microwave network. We have obtained licenses to use the signal reception sites that house our antenna towers and head-ends and microwave complexes. We
have entered into an agreement with Wharf T&T for the shared use and maintenance of some of the ducts that house our network. We lease office space from Wharf in Tsuen Wan, Hong Kong, for our principal executive offices and programming
production studios. The physical components of our network require maintenance and periodic rebuilding to keep pace with technological advances. We believe that our properties, both owned and leased, are in good condition and are legally and
physically suitable and adequate for our business operations as presently conducted and as proposed to be conducted.



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS



A. Operating Results



You should
read the following discussion and analysis in conjunction with the Consolidated Financial Statements included elsewhere in this annual report. Unless otherwise indicated, all financial information in this annual report is presented in Hong Kong
dollars as of December 31, 2004. The U.S. dollar translations provided in this annual report are, unless otherwise indicated, calculated at the Hong Kong Dollar Noon Buying Rate at December 31, 2004, which was HK$7.7723 per US$1.00. Sums may not add
due to rounding.



Overview



i-CABLE was incorporated under the laws of Hong Kong in May 1999. The
following discussion reflects our financial condition and results of operations. Prior to our initial public offering in 1999, we underwent a corporate reorganization that was accounted for as a reorganization of businesses under common control.
Accordingly, our consolidated financial statements were prepared on the basis of historical costs and as if the consolidated companies had been part of i-CABLE throughout the periods presented.



This discussion should be read in conjunction with the information contained
in the Consolidated Financial Statements and notes thereto presented in this annual report. The information presented below has been extracted from the financial statements of the Company and its subsidiaries as prepared in accordance with Hong Kong
GAAP. A reconciliation of our net profit and shareholders equity as prepared in accordance with U.S. GAAP is also separately provided in note 30 to our consolidated financial statements.



HKC, our subsidiary, launched its pay-TV service in Hong Kong in October 1993
and is Hong Kongs leading pay-TV system operator. As of December 31, 2004, our network passed over 2,070,000 homes, of which 1,990,000 have been connected to our fiber network. As of December 31, 2004, we had 702,000 pay-TV subscribers.



Through our HFC network we began to offer broadband Internet
access service in March 2000. As of December 31, 2004, we had 291,000 broadband Internet subscribers. In October 2004, iNL, our wholly-owned subsidiary, entered into an agreement with Wharf T&T in respect of the provision of IP Point service to
Wharf T&T for three years. Under the agreement, iNL charges Wharf T&T a service fee that is determined based on the number of IP Points provided to Wharf T&T. With these IP Points, Wharf T&T provides local VoIP service to the
residential market, utilizing our HFC cable network for core and last-mile signal transmission. As of December 31, 2004, 29,235 IP Points were provided to Wharf T&T by iNL.



25



---

##### Table of Contents

The provision of television broadcasting services in Hong Kong is regulated by the Broadcasting
Authority, a statutory body of the Hong Kong Government. HKC is a licensed television broadcaster and is subject to the provisions of Hong Kongs Broadcasting Ordinance and other applicable laws, conditions and codes of practice. In order to
provide telecommunications services, including broadband Internet access service over our HFC cable network, we obtained a FTNS license from Hong Kongs Telecommunications Authority in January 2000.



We generated approximately 80% of our revenues during the fiscal year ended
December 31, 2004 from our pay-TV segment, with the remaining 20% mainly derived from our Internet and Multimedia segment.



Subscription fees charged to our pay-TV customers for basic, premium and pay-per-view services, and for provision of installation and other support
services accounted for the majority of our pay-TV revenue. We derive additional pay-TV revenues from advertising income, program-guide sales and, satellite television systems services. We have increased our pay-TV revenues in each of the past three
fiscal years primarily by attracting more subscribers.



In
2004, broadband revenues constituted over 89% of our Internet and Multimedia revenue, with additional revenues coming from our dial-up Internet access, portal subscriptions and advertisement fees.



Our operating expenses consist primarily of:



| |  |  | programming costs;
| | - |  | ------------------



| |  |  | network and other operating expenses;
| | - |  | -------------------------------------



| |  |  | selling, general and administrative expenses; and
| | - |  | -------------------------------------------------



| |  |  | depreciation
| | - |  | ------------



Programming costs, representing the largest component of our operating costs, are costs incurred for the acquisition, production and broadcasting of programming, and the amortization of programming rights.
Programming-related personnel costs accounted for approximately 39% of total programming costs in 2004.



Network and other operating expenses include our network maintenance and operating costs for the expanding network, telecommunication expenses for
Internet services, other technical support costs as well as our customer service and billing costs.



Selling, general and administrative expenses include expenses incurred for marketing, sales and administration, information systems support and other
corporate support services.



Depreciation includes the
depreciation of property, plant and equipment.



Non-GAAP Financial Measures



We use a financial measure that we defined as adjusted
EBITDA to provide additional information about our operating performance. Adjusted EBITDA refers to our earnings before the following items:



| |  |  | interest income;
| | - |  | ----------------



26



---

##### Table of Contents

| |  |  | finance costs;
| | - |  | --------------



| |  |  | non-operating income/expenses;
| | - |  | ------------------------------



| |  |  | provision for income tax;
| | - |  | -------------------------



| |  |  | depreciation of property, plant and equipment but after amortization of programming rights; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | impairment loss on investments.
| | - |  | -------------------------------



Adjusted EBITDA is not a standard measure under either Hong Kong GAAP or U.S. GAAP. However, we believe the investor community commonly uses this type of
financial measure to assess the operating performance of companies in our market sector.



As a measure of our operating performance, we believe that the most directly comparable Hong Kong GAAP and U.S. GAAP measure to adjusted EBITDA is net income. We operate in a capital intensive industry. We use
adjusted EBITDA in addition to net income because net income includes many accounting items associated with capital expenditures, such as depreciation of property, plant and equipment. These accounting items may vary between companies depending on
the method of accounting adopted by a company. By minimizing differences in capital expenditures and the associated depreciation expenses as well as reported tax positions, adjusted EBITDA provides further information about our operating performance
and an additional measure for comparing our operating performance with other companies results.



The following table reconciles our net income under Hong Kong GAAP to our definition of adjusted EBITDA for the periods indicated:



|                                |  |                    |   |  |      |   |  |      |   |  |      |   |  |      |  
|------------------------------- |  | ------------------ | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                |  | As of December 31, |  
|                                |  | 2000               |   |  | 2001 |   |  | 2002 |   |  | 2003 |   |  | 2004 |  
|                                |  | HK$                |   |  | HK$  |   |  | HK$  |   |  | HK$  |   |  | HK$  |  
|                                |  | (in millions)      |  
|Adjusted EBITDA                 |  | 442                |   |  | 615  |   |  | 730  |   |  | 789  |   |  | 828  |  
|                                |  |                    |   |  |     
|Adjustments:                    |  |                    |   |  |      |   |  |      |   |  |      |   |  |      |  
|Interest income                 |  | 101                |   |  | 58   |   |  | 26   |   |  | 9    |   |  |     |  
|Finance costs                   |  | (72                | ) |  | (72  | ) |  | (62  | ) |  | (16  | ) |  |     |  
|Non-operating income/(expenses) |  | (2                 | ) |  | 1    |   |  |     |   |  | (10  | ) |  | 1    |  
|Provision for income tax        |  |                   |   |  |     |   |  |     |   |  | (13  | ) |  | 43   |  
|Impairment loss on investments  |  |                   |   |  |     |   |  | (73  | ) |  |     |   |  |     |  
|Depreciation                    |  | (449               | ) |  | (435 | ) |  | (504 | ) |  | (539 | ) |  | (532 | )
|Net profit                      |  | 20                 |   |  | 167  |   |  | 117  |   |  | 220  |   |  | 340  |  



You should not
consider our definition of adjusted EBITDA in isolation or construe it as an alternative to net income or as an indicator of operating performance or any other standard measure under Hong Kong GAAP or U.S. GAAP. Our definition of adjusted EBITDA
does not account for taxes and other non-operating cash expenses. Our adjusted EBITDA measures may not be comparable to similarly titled measures used by other companies.



27



---

##### Table of Contents

Critical Accounting Policies and Estimates



Our financial statements are prepared in accordance with Hong Kong GAAP. The preparation of these financial statements
requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Our management evaluates their estimates and
assumptions including those related to revenue recognition, useful lives of property, plant and equipment and impairment of long lived assets at each balance sheet date. Actual results may differ from these estimates under different assumptions or
conditions.



We believe that the following critical accounting
policies have a more significant impact on our financial statements, either because of the significance of the financial statement elements to which they relate, or because they require judgment and estimations.



Revenue recognition. Revenues from rendering of services is recognized only
when the outcome of a transaction can be estimated reliably with the amount recognized by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all of the
following conditions are satisfied: (a) the amount of revenues can be measured reliably; (b) it is probable that the economic benefits associated with the transaction will flow to us; (c) the stage of completion of the transaction at the balance
sheet date can be measured reliably; and (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. In certain circumstances, it is necessary to apply the recognition criteria to the separately
identifiable components of a single multiple-element transaction in order to reflect the substance of the transaction. Please see note 2(h) to our consolidated financial statements for further details of our revenue recognition policies.



Useful lives of property, plant and equipment. The useful lives of
property, plant and equipment are estimated in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are estimated at the time the assets are acquired and are based on historical
experience with similar assets, also taking into account the anticipated technological or industrial changes. If these changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these
assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. Estimation of useful lives involves judgment and assumptions. Our policies regarding accounting for these assets are included in note
2(d) to our consolidated financial statements.



Impairment of
long lived assets. Long lived assets including property, plant and equipment, programming library and goodwill (including those initially taken to reserves) are reviewed for impairment whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. If any such indication exists, the assets recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable
amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
time value of money and the risks specific to the asset. Our accounting policies on impairment of assets are further detailed in note 2(t) to our consolidated financial statements.



Estimates for deferred tax assets. Under H.K. GAAP, tax assets are recognized for all unused tax losses to the extent that
it is probable that future taxable profit will be available against which they can be utilized. Under U.S. GAAP, deferred taxes are provided for as they arise, subject to the provision of valuation allowance against deferred tax assets if it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Management has made an assessment of the future profitability of various Company entities and their tax position, taking into account various risk factors as
discussed under Item 3  Key Information  Risk Factors, to derive the amount of tax loss to be recognized taking a five-year time-frame from 2005 to 2009, with appropriate adjustment for an increasing level of uncertainty
further into the future.



28



---

##### Table of Contents

Tax provision and contingent liability for tax dispute with IRD. We are in discussion with the IRD
regarding the tax affairs of The Cable Leasing Partnership and The Network Leasing Partnership (the Partnerships), our wholly owned subsidiaries, pursuant to a leveraged leasing arrangement. To preserve its right under the dispute, the
IRD has issued protective assessments of up to HK$272 million against various Company entities for the period from 1995/96 to 2003/04. We have since objected to the assessments and the IRD has granted unconditional holdover for HK$247 million of the
assessment amount, and conditional holdover for the remaining HK$25 million. We believe our maximum tax exposure as at December 31, 2004 under the protective assessments would amount to HK$106 million, of which up to HK$64 million would be
indemnified by Wharf Communications Limited as tax liability pertaining to events occurring up to our initial public offering on November 1, 1999, such that the our contingent tax exposure is estimated at HK$42 million. Although the outcome of the
discussions is still uncertain, the management considers that there are grounds to contest the protective assessments and will pursue this case vigorously, unless a compromised settlement can be reached with the IRD. Notwithstanding the foregoing,
based on a counter-offer under contemplation at the end of 2004, the management decided to make a provision of HK$12 million in 2004 (2002 and 2003: Nil) for the Companys expected share of the tax liability. Based on the most recent offer
being considered after the year end, management has decided to increase the provision to HK$17 million. As part of the settlement proposal, total tax losses of HK$692 million in two Company entities have also been offered to be surrendered
triggering the absorption of certain unrecognized tax losses and the recognition of an appropriate amount of deferred tax liability as disclosed under note 20(b) to our consolidated financial statements.



Bad debt provisioning. The Company has sound credit monitoring policies and
appropriate provisions are made for bad and doubtful receivables. Under Hong Kong GAAP and U.S. GAAP, provision is made against accounts receivable to the extent they are considered to be doubtful. This provision requires judgment regarding the
collectibility of certain receivables both as they are incurred and as they age. We determine bad debt provisions based on past experience of recovery of old receivables, the aging of the accounts receivable balance and historical write-off
experience. Outstanding receivables from affiliates are considered on an individual case basis for necessary bad debt provision.



29



---

##### Table of Contents

Results of Operations



The following table summarizes our results of operations under Hong Kong GAAP for the years ended December 31, 2002, 2003 and 2004:



|                                             |  |                         |   |  |       |   |  |      
|-------------------------------------------- |  | ----------------------- | - |  | ----- | - |  | -----
|                                             |  | Year ended December 31,
|                                             |  | 2002                    |   |  | 2003  |   |  | 2004 
|                                             |  | (HK$ in millions)      
|Service revenues                             |  | 2,161                   |   |  | 2,143 |   |  | 2,372
|                                             |  |                         |   |  |       |   |  |      
|Programming costs                            |  | 732                     |   |  | 650   |   |  | 791  
|Network and other operating expenses         |  | 351                     |   |  | 361   |   |  | 381  
|Selling, general and administrative expenses |  | 348                     |   |  | 343   |   |  | 373  
|                                             |  |                         |   |  |       |   |  |      
|                                             |  | 1,431                   |   |  | 1,353 |   |  | 1,544
|                                             |  |                         |  
|Depreciation                                 |  | 504                     |   |  | 539   |   |  | 532  
|                                             |  |                         |   |  |       |   |  |      
|Total operating expenses                     |  | 1,935                   |   |  | 1,892 |   |  | 2,076
|                                             |  |                         |  
|Profit from operations                       |  | 226                     |   |  | 251   |   |  | 296  
|Non-operating income/(expenses)              |  | (0                      | ) |  | (10   | ) |  | 1    
|Interest income                              |  | 26                      |   |  | 8     |   |  |     
|Impairment loss on investments               |  | (73                     | ) |  |      |   |  |     
|Finance costs                                |  | (62                     | ) |  | (16   | ) |  |     
|                                             |  |                         |   |  |       |   |  |      
|Profit before taxation                       |  | 117                     |   |  | 233   |   |  | 297  
|Provision for income tax                     |  |                        |   |  | (13   | ) |  | 43   
|                                             |  |                         |   |  |       |   |  |      
|Net profit                                   |  | 117                     |   |  | 220   |   |  | 340  
|                                             |  |                         |   |  |       |   |  |      



2004 Compared to 2003



Service Revenues



Our service revenues in 2004 increased by HK$229 million (US$29 million), or
11%, to HK$2,372 million (US$305 million) from HK$2,143 million in 2003. Service revenues from our pay-TV business in 2004 grew by HK$154 million (US$20 million), or 9%, to HK$1,888 million (US$243 million) from HK$1,734 million in 2003 due to a
growth in subscriptions and air time sales revenue. During the same period, service revenues from our Internet-related services increased by HK$72 million (US$9 million), or 18%, to HK$481 million (US$62 million) from HK$409 million during the
previous year as the growth in the number of broadband subscribers coupled with a rising broadband ARPU. Service revenues attributable to our Internet-related services accounted for 20% of our total service revenues in 2004, representing a 1%
increase as compared to 19% during the previous year.



Operating Expenses



Our operating
expenses including depreciation increased by HK$184 million (US$24 million), or 10%, to HK$2,076 million (US$267 million) in 2004 from HK$1,892 million in 2003, with the following breakdown:



Programming Costs. Programming costs increased by 22% to HK$791 million
(US$102 million) in 2004 from HK$650 million in 2003, primarily due to the carriage of UEFA Euro 2004 and higher other program acquisition costs.



30



---

##### Table of Contents

Network and Other Operating Expenses. Network and other operating expenses increased 5% to HK$381 million
(US$49 million) in 2004 from HK$361 million in 2003, primarily due to an increase in network repair and maintenance costs and provision for obsolete inventories.



Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 9% to HK$373 million
(US$48 million) in 2004 from HK$343 million in 2003 due primarily to higher marketing expenses and sales costs.



Depreciation. Depreciation expenses decreased slightly by 1% to HK$532 million (US$68 million) in 2004 from HK$539 million in 2003 due mainly to the
expiration of depreciation cycles on network assets, as partly offset by increased depreciation on further capital expenditures.



Operating Profit



We recognized an operating profit of HK$296 million (US$38 million) in 2004, representing a HK$45 million (US$6 million), or 18%, increase compared to
HK$251 million in 2003.



Interest Income and Finance
Costs



Interest income dropped by over 99% to HK$0.02
million in 2004 from HK$8 million in 2003 and finance costs decreased by 99% to HK$0.2 million in 2004 from HK$16 million in 2003 mainly due to the application of surplus funds to fully redeem our fixed rate convertible bonds in November 2003.



Provision for income tax



We made a HK$17 million (US$2 million) provision for profits tax payable on
the Companys leveraged leasing transactions and also recognized a HK$60 million (US$8 million) net increase in deferred tax assets, relating to the elimination of HK$34 million (US$4 million) deferred tax assets under the tax dispute and the
recognition of HK$94 million (US$12 million) deferred tax assets for tax losses following a reevaluation of our ability to realize operating loss carryforwards incurred by a subsidiary.



Net Profit



We recorded a net profit after taxation of HK$340 million (US$44 million) in 2004, representing an increase of HK$119 million (US$15 million), or 54%,
from HK$220 million in 2003. Basic and diluted earnings per share for 2004 were 16.8 cents as compared to basic and diluted earnings per share of 10.9 cents in 2003.



2003 Compared to 2002



Service Revenues



Our service revenues in 2003 decreased slightly by HK$18 million (US$2 million), or 1%, to HK$2,143 million (US$276 million) from HK$2,161 million in
2002. Service revenues from our pay-TV business in 2003 grew by HK$23 million (US$3 million), or 1%, to HK$1,734 million (US$223 million) from HK$1,711 million in 2002 due to a growth in subscription which more than offset the decline in airtime
sales revenues attributable to the absence of the 2002 World Cup. During the same period, service revenues from our Internet-related services decreased by HK$41 million (US$5 million), or 9%, to HK$409 million (US$53 million) from HK$450 million
during 2002 as the growth in the number of broadband subscribers was more than offset by a fall in broadband ARPU. However, both ARPU and revenue began to recover in the second half of 2003. Service revenues attributable to our Internet-related
services accounted for 19% of our total service revenues in 2003, representing a 2% decrease as compared to 21% during the previous year.



31



---

##### Table of Contents

Operating Expenses



Our operating expenses including depreciation decreased by HK$42 million (US$5 million), or 2%, to HK$1,892 million (US$244
million) in 2003 from HK$1,934 million in 2002, with the following breakdown:



Programming Costs. Programming costs decreased by 11% to HK$650 million (US$84 million) in 2003 from HK$732 million in 2002, primarily due to the absence of the costs associated with our carriage of the 2002 FIFA
World Cup and stringent cost control related to our ongoing price negotiation with content providers, which more than offset the additional costs associated with the launch of new channels.



Network and Other Operating Expenses. Network and other operating expenses
increased 3% to HK$361 million (US$46 million) in 2003 from HK$351 million in 2002, primarily due to an increase in network costs, repair and maintenance costs and the incremental customer service costs, as partially offset by lower international
bandwidth costs.



Selling, General and Administrative Expenses.
Selling, general and administrative expenses decreased slightly by 1% to HK$343 million (US$44 million) in 2003 from HK$347 million in 2002 due mainly to lower marketing costs as a result of the absence of major marketing campaigns such as the 2002
World Cup acquisition promotion, despite an expansion of the sales force.



Depreciation. Depreciation expenses increased by 7% to HK$539 million (US$69 million) in 2003 from HK$504 million in 2002 due mainly to capital investments in digital set-top boxes, cable modems and related network
equipment to cater for subscriber growth.



Operating
Profit



We recognized an operating profit of HK$251
million (US$32 million) in 2003, representing a HK$24 million (US$3 million), or 11%, increase compared to HK$226 million in 2002.



Interest Income and Finance Costs



Interest income dropped by HK$18 million (US$2 million), or 68%, to HK$8 million (US$1 million) in 2003 from HK$26 million in 2002 due to the low interest
rate environment and a significant reduction in surplus funds after the early redemption of our fixed rate convertible bonds in October 2002. Finance costs also decreased by HK$47 million (US$6 million), or 75%, to HK$16 million (US$2 million) in
2003 from HK$62 million in 2002 due to the partial redemption in October 2002 and full redemption in November 2003 of our fixed rate convertible bonds.



Impairment Loss



We did not make any provision for impairment loss in 2003 as compared to a HK$73 million (US$9 million) provision in 2002 for the diminution in value of
our venture investments in the technology sector.



Net
Profit



We recorded a net profit after taxation of
HK$220 million (US$28 million) in 2003, representing an increase of HK$103 million (US$13 million), or 88%, from HK$117 million in 2002. Basic and diluted earnings per share for 2003 were 10.9 cents as compared to basic and diluted earnings per
share of 5.8 cents in 2002.



32



---

##### Table of Contents

Our consolidated financial statements are prepared in accordance with Hong Kong GAAP which differs in
certain significant respects from U.S. GAAP.



The description
of the significant differences between Hong Kong GAAP and U.S. GAAP as they relate to i-CABLE, including deferred pre-maturity and franchise costs, the offset of goodwill against reserves, the reversal of impairment write down, provision for
deferred taxes liabilities and recognition of deferred tax assets, installation fees, costs and subscription fees, investment write down to earnings and share option compensation expense, is provided in note 30 to our consolidated financial
statements. A reconciliation of net profit for the three years ended December 31, 2002, 2003 and 2004 and shareholders equity as of December 31, 2003 and 2004 under Hong Kong GAAP to the comparable amounts determined under U.S. GAAP is also
provided in note 30 to our consolidated financial statements.



Net profit and shareholders equity under Hong Kong GAAP as compared to the amounts determined under U.S. GAAP is set forth below:



|                      |  |                                           |  |       |  |      
|--------------------- |  | ----------------------------------------- |  | ----- |  | -----
|                      |  | As of and for the year ended December 31,
|                      |  | 2002                                      |  | 2003  |  | 2004 
|                      |  | (HK$ in millions)                        
|Net profit:           |  |                                           |  |       |  |      
|Hong Kong GAAP        |  | 117                                       |  | 220   |  | 340  
|U.S. GAAP             |  | 100                                       |  | 128   |  | 248  
|                      |  |                                           | 
|Shareholders equity: |  |                                           |  |       |  |      
|Hong Kong GAAP        |  | 1,525                                     |  | 1,685 |  | 1,883
|U.S. GAAP             |  | 1,754                                     |  | 1,824 |  | 1,931



B. Liquidity and Capital Resources



Liquidity



Since the commencement of
our business, we have financed our operations and capital expenditure requirements primarily through a shareholders loan from Wharf Communications, cash flows from operations, issuance of convertible bonds and our initial public offering in
1999. In October 2002, we redeemed prior to maturity HK$1,500 million out of HK$1,800 million outstanding balance of our fixed rate convertible bonds. The balance of the convertible bonds amounting to HK$300 million was fully redeemed upon maturity
in November 2003. These fixed rate convertible bonds were held by a subsidiary of Wharf. We repaid our bank borrowings during 2003 and as of December 31, 2003, we were debt-free with a surplus cash of HK$29 million. As of December 31, 2004 we had
net cash of HK$115 million. As of December 31, 2004, we had current assets of HK$367 million and current liabilities of HK$732 million. Our current ratio was 50%.



As of December 31, 2004 the surplus cash of HK$115 million, together with expected cash flow from operations are expected to
be sufficient to fund our current operational and capital expenditure plans.



During 2004, net cash generated from operating activities amounted to HK$777 million (US$100 million), an increase of HK$57 million (US$7 million) or 8% from HK$720 million in 2003. Cash used in investing activities
in 2004 totaled HK$549 million (US$71 million), compared to cash generated from investing activities of HK$50 million (US$6 million) in 2003, mainly due to redemption of deposits with financial institutions and disposal of investments in 2003, as
well as increased capital expenditures in 2004. We believe that cash generated from our operations and funds available from external sources will be sufficient to cover our operating and capital expenditures for the next 12 months.



33



---

##### Table of Contents

The following table sets forth a summary of our statements of cash flows under Hong Kong GAAP for the
years ended December 31, 2002, 2003 and 2004:



|                                                     |  |                         |   |  |      |   |  |      |  
|---------------------------------------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                                     |  | Year ended December 31, |  
|                                                     |  | 2002                    |   |  | 2003 |   |  | 2004 |  
|                                                     |  | (HK$ in millions)       |  
|Net cash inflow from operating activities            |  | 863                     |   |  | 720  |   |  | 777  |  
|Net cash inflow/(outflow) from investing activities  |  | (884                    | ) |  | 49   |   |  | (549 | )
|Net cash outflow from financing activities           |  | (1,177                  | ) |  | (747 | ) |  | (141 | )
|                                                     |  |                         |   |  |      |   |  |      |  
|Net increase/(decrease) in cash and cash equivalents |  | (1,197                  | ) |  | 22   |   |  | 86   |  
|                                                     |  |                         |   |  |      |   |  |      |  



If the primary sources
of funding are inadequate to meet our liquidity requirements and borrowing commitments, or if we pursue new projects, we may need to raise capital in the future. Depending on our capital requirements, market conditions and other factors, we may
raise additional funds through debt or equity offerings or through the sale of assets. We have arranged short term bank credit facilities of approximately HK$670 million to meet any future cash outflow. In the event that such financing cannot be
obtained, we may have to scale back our business expansion plans.



Capital Resources



Our cash outflow for
capital expenditures increased by HK$96 million (US$12 million) or 26% to HK$459 million (US$59 million) in 2004 from HK$363 million in 2003. The capital expenditures consisted primarily of investments in digital set-top boxes, cable modems and
related broadband equipment, as well as in television production facilities and further network upgrade and expansion. These items are expected to be the major areas of our capital expenditures in 2005.



Our cash outflow for the purchase of our programming library for the year
ended December 31, 2004 increased by HK$5 million (US$1 million) or 5% to HK$95 million (US$12 million) from HK$91 million in 2003.



Contractual Obligations and Commitments



The following table summarizes our material contractual obligations and commitments at December 31, 2004:



|                                  |  |                   |  |           |  |                    |  |      
|--------------------------------- |  | ----------------- |  | --------- |  | ------------------ |  | -----
|                                  |  | 2005              |  | 2006-2008 |  | 2009 andthereafter |  | Total
|                                  |  | (HK$ in millions)
|Operating leases                  |  | 10                |  | 28        |  | 65                 |  | 103  
|                                  |  |                   |  |          
|Capital commitments               |  |                   |  |           |  |                    |  |      
|Authorized and contracted for     |  | 17                |  |          |  |                   |  | 17   
|                                  |  |                   |  |          
|Programming and other commitments |  |                   |  |           |  |                    |  |      
|Authorized and contracted for     |  | 332               |  | 363       |  |                   |  | 695  
|                                  |  |                   |  |           |  |                    |  |      
|                                  |  | 359               |  | 391       |  | 65                 |  | 815  
|                                  |  |                   |  |           |  |                    |  |      



34



---

##### Table of Contents

We have operating leases for our premises and certain office equipment, some of which have future minimum
non-cancellable lease payments and do not allow for early termination by us without cause. As of December 31, 2004, our minimum lease payment commitments under such operating leases totaled HK$103 million (US$13 million).



As of December 31, 2004, our capital commitments in respect of plant,
equipment, leasehold improvements and programming rights and services amounted to HK$712 million (US$92 million). We expect to meet these commitments from our current cash on hand and additional cash to be generated from future operations.



C. Research and Development, Patents and Licenses, etc.



We did not engage in research and development activities during the years ended December 31, 2004, 2003 and 2002.



D. Trend Information



Prospects



We plan to increase our pay-TV subscriber base by
marketing through direct sales, promotions, and advertising. In addition, we intend to continue to explore the opportunities for launching new services, by offering more tiered packages and by expanding the line-up of pay-per-view channels made
possible by the expanded effective network capacity following digitization. We have introduced five premium packages since 2002, and we intend to introduce new packages and programs to capitalize on our expanded network capacity following
digitization to derive additional income. In 2005, we launched a Live News Channel to carry important press conferences, Hong Kong legislative council meetings and breaking news live.



We are aware that some viewers in Hong Kong use unauthorized pay-TV decoders to receive our pay-TV service illegally.
Although we have substantially completed migrating our transmission from analog to digital platforms in order to better control and limit illegal viewing activities, illegal activities have continued and we are aware that pirated digital
set-top-boxes are available in the market. Despite the deployment of anti-piracy measures, we expect manufacturers or vendors of unauthorized pay-TV decoders to attempt to overcome our digital encryption methods. If we fail to deploy appropriate and
timely countermeasures in response to such activities, illegal viewing activities may grow. Such illegal viewing activities will adversely affect the growth of our pay-TV subscriber base and our subscription revenue. See Item 3 - Key
Information - Risk Factors - Illegal viewing activities may affect our pay-TV subscriber growth and subscription revenue.



Internet and Multimedia



We intend to increase our broadband subscriber base by marketing through direct sales, promotions, advertising, and offering competitive prices. The
growth of our broadband subscriber base may require continued growth in the demand for broadband services in Hong Kong, although critical issues concerning the increased use of the Internet may adversely affect future demand for our broadband
Internet access service. See Item 3 - Key Information - Risk Factors - Demand for our broadband Internet access service may not continue to grow.



The markets for Internet access and related services in Hong Kong are highly competitive. This high level of competition may reduce our broadband revenue,
resulting in a decrease in our cash flow and operating margin. In 2002, we offered an aggressive marketing initiative for our broadband service to maintain subscription growth momentum. This caused our broadband ARPU to decrease by 20% in 2002 to
HK$180 and 28% in 2003 to HK$129. Mainly because of the decrease in broadband ARPU, our Internet and Multimedia segment reported net operating loss of HK$85 million in 2003, after reporting a small operating income of HK$9 million in 2002. After the
initial focus on capturing market share, service operators in the broadband segment began to relax price competition toward the end of 2003, while revenues began to recover. However, we believe broadband services have become a commodity product that
is highly sensitive to price. Competition in the segment will continue to exert pressure on our income and market share. We will continue to enhance our service quality and introduce more value-added services to expand our market share in the
broadband segment. See Item 3 - Key Information - Risks Factors - The competition we face from other television broadcasters and Internet service providers may cause us to lose market share.



35



---

##### Table of Contents

Some of our competitors offer broadband Internet access service with bandwidth advantage over our
broadband Internet access service in the residential market. We may need to incur substantial capital expenditures to keep pace with our competitors technological developments. See Item 3 - Key Information - Risks Factors - We may need
to incur substantial capital expenditures to keep pace with technological developments or our customers demand for new products and services. This may adversely affect our financial condition.



In October 2004, we entered into an agreement with Wharf T&T in respect
of our provision of IP Point service to Wharf T&T for three years. Under the agreement, we charge Wharf T&T a service fee that is determined based on the number of IP Points provided by us to them. See Item 7 - Major Shareholders and
Related Party Transactions - Related party Transactions. With these IP Points, Wharf T&T provides local VoIP service to the residential market, utilizing our HFC cable network for core and last-mile signal transmission. As of December 31,
2004, we provided 29,235 IP Points to Wharf T&T.



Satellite
Television Service in Mainland China



We have launched
a satellite channel targeted primarily at Mainland China. The satellite channel has been granted approval to broadcast to hotels rated at or above three stars, foreign compounds and other select areas in Mainland China. The channel features live and
updated reporting of events in the entertainment world. The relevant television market in Mainland China is highly competitive. The channel is expected to incur losses in its initial years of operation and it may not become profitable. See
Item 3 - Key Information - Risk Factors - We have launched a satellite channel targeted primarily at Mainland China. The channel is expected to incur losses in its initial years of operation and it may not become profitable.



New Services



We continue to look for ways to offer new services by leveraging our HFC cable network, local content production expertise,
as well as our brand name, marketing and customer service infrastructure to launch new and enhanced Internet and telecommunications services. With our capacity to offer live digital content as well as the abundance of digital content in our library,
we have begun offering content to other service operators, such as new 3G mobile service operators.



At the same time, we have also begun to supply our programming service to other media. We are now the sole supplier of Hong Kong news service to an
onboard channel of Hong Kongs flagship airline, Cathay Pacific Airways. We have also reached an agreement with Kowloon-Canton Railway Corporation to be the sole content supplier and exclusive commercial airtime sales agent for a display
information display system on its trains. The service is expected to be launched in the second half of 2005. In May 2005, we entered into an agreement with China Information Broadcast Network Co. Ltd. to provide video content to mobile phone users
in Mainland China.



36



---

##### Table of Contents

Film Production



In 2005, we established a wholly-owned subsidiary, Sundream, to engage in film production. Through Sundream, we plan to produce up to 20 full-length
Chinese feature films in the next two years. Some of these films will be released to overseas and Mainland China markets in addition to local release. We plan to generate revenue from theatrical release and licensing of these films. However, this
subsidiary may cause volatility in our earnings and may not be profitable. See Item 3 - Key Information - Risk Factors - We established a wholly-owned subsidiary to embark on film production. This new subsidiary may cause volatility in our
consolidated earnings and it may not become profitable.



The significant trends that are expected to have a material effect on our financial performance and operating results for the current year are set out below:



Since the launch of our pay-TV service in October 1993, our total pay-TV subscribers have increased annually. During 2004,
our total pay-TV subscribers have increased by 7% to 702,000.



The pay-TV services market continues to be highly competitive. In the third quarter of 2003, two new pay-TV services were launched in the market. They were operated by the incumbent telecommunications service provider, PCCW, and another
telecommunications service provider, Hong Kong Broadband Network. In February 2004, Galaxy launched its pay-TV service under the brand name exTV which was renamed SuperSUN TV in May 2005.



Although our pay-TV and broadband subscribers have continued to grow, both the pay-TV and broadband services markets are
highly competitive. The growth in our pay-TV or broadband subscribers may slow in 2005 with intensifying competition. See Item 3 - Key Information - Risk Factors - The competition we face from other television broadcasters and Internet service
providers may cause us to lose market share.



Our
programming costs increased by 22% to HK$791 million (US$102 million) in 2004 from HK$650 million in 2003, primarily due to the carriage of UEFA Euro 2004 and higher other program acquisition costs. We expect the percentage increase in our
programming costs in 2005 to be less than the percentage increase in our programming costs in 2004.



E. Off-balance Sheet Arrangements



None.



F. Tabular Disclosure of Contractual Obligations



See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Capital Resources - Contractual Obligations and Commitments.



G. Recent Hong Kong Accounting Pronouncements



The Hong Kong Institute of Certified Public Accountants (HKICPA) has undertaken to converge by January 1, 2005 all Hong Kong Financial Reporting Standards, or HKFRSs, with International Financial Reporting
Standards, or IFRSs, issued by the International Accounting Standards Board. As a result, the HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (new HKFRSs), which
are effective for accounting periods beginning on or after January 1, 2005.



37



---

##### Table of Contents

We have not early adopted these new HKFRSs in the financial statements for the year ended December 31,
2004. We have completed a preliminary assessment of the impact of these new HKFRSs to the extent that they are applicable. A brief summary of the key features of these new HKFRSs and our preliminary assessment results are set out below:



In March 2004, the HKICPA issued Hong Kong Accounting Standards
(HKAS) No. 1, Presentation of Financial Statements which supersedes Hong Kong Statement of Standard Accounting Practice (SSAP) No. 1, Presentation of Financial Statements (revised in 2001) and
Interpretation 8 Presentation of Financial Statements  Current Assets: Classification of Restricted and Appropriated Cash Balance. HKAS 1 requires an entity to present assets and liabilities in order of liquidity and any change in
accounting policies, including those affecting presentation, to be adopted retrospectively, unless impracticable. It also requires the disclosure of any judgments management has made in the process of applying the entitys accounting policies
that have the most significant effect on the amounts recognized in the financial statements and key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities. Currently, management does not expect the application of HKAS 1 will have a material impact on its financial position or results of operations.



In April 2004, the HKICPA issued Hong Kong Financial Reporting Standards
(HKFRS) No. 2, Share-based Payment. HKFRS 2 addresses the accounting for share-based payment transactions in financial statements and requires an entity to measure the employee service received and the liability incurred at
the fair value of the instrument at the grant date. HKFRS 2 is applicable to grants originally made on or after November 7, 2002, or subsequent modification to grants made on or before November 7, 2002 in annual periods commencing after January 1,
2005. As all of our existing share options were granted before November 7, 2002, adoption of this new HKFRS is optional, but this is not our intention to do so. However, any new schemes that we may introduce after January 1, 2005 and any future
modifications to our existing schemes will need to be accounted for in accordance with the new HKFRS 2.



In November 2004, the HKCPA issued HKAS 24, Related Party Disclosures which supersedes SSAP 20 under the same title. HKAS 24 will affect the
identification and disclosure of related party transactions with the following main changes from SSAP 20:



| |  |  | The amounts of transactions and outstanding balances with respect to related parties.
| | - |  | -------------------------------------------------------------------------------------



| |  |  | The expense recognized during the period in respect of bad or doubtful debts due from related parties.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Classification of amounts payable to, and receivable from, related parties into different categories of related parties.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



We intend to comply with the above disclosure requirements in respect of its
various related party transactions in our financial statements starting from financial years beginning on or after January 1, 2005. Apart from enhancing the related party transaction disclosures, we do not expect the application of HKAS 24 to have a
material impact on our financial position or results of operations.



H. Recent U.S. GAAP Pronouncements



Please see Note 30(i) to our consolidated financial statements for the year ended December 31, 2004 for a discussion of the impact of recent U.S. GAAP accounting pronouncements on our results of operations.



38



---

##### Table of Contents

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



|A. | Directors and Senior Management
|-- | -------------------------------



Our directors and senior management are as follows:



|                                     |  |                            |  |                                                                                            
|------------------------------------ |  | -------------------------- |  | -------------------------------------------------------------------------------------------
|Name                                 |  | Age as ofDecember 31, 2004 |  | Positions                                                                                  
|Mr. Stephen T. H. Ng                 |  | 52                         |  | Chairman and Chief Executive Officer                                                       
|Mr. Samuel S. F. Wong                |  | 43                         |  | Director and Chief Financial Officer                                                       
|Mr. Fa-Kuang Hu, GBS, CBE, JP        |  | 81                         |  | Director                                                                                   
|Mr. Quinn Y. K. Law                  |  | 52                         |  | Director                                                                                   
|Mr. Victor C. W. Lo, GBS, OBE, JP    |  | 54                         |  | Director                                                                                   
|Dr. Dennis T. L. Sun, BBS, JP        |  | 54                         |  | Director                                                                                   
|Sir Gordon Y. S. Wu, GBS, KCMG, FICE |  | 69                         |  | Director                                                                                   
|Mr. Anthony K. K. Yeung, JP          |  | 59                         |  | Director                                                                                   
|Mr. Vincent T. Y. Lam                |  | 54                         |  | Executive Director, Technology and Network Services, HKC(1)                                
|Mr. Eric Lo                          |  | 54                         |  | Executive Director, Cable Subscription Services, HKC(1)                                    
|Mr. Benjamin W. S. Tong              |  | 55                         |  | Executive Director, Multimedia Services, HKC(1)                                            
|Mr. SiuMing Y. M. Tsui               |  | 51                         |  | Executive Director, Programming Services, HKC(1)                                           
|Mr. Garmen K. Y. Chan                |  | 51                         |  | Vice President, External Affairs                                                           
|Mr. Ronald Y. C. Chiu                |  | 52                         |  | Vice President, News and Sports, HKC(1)                                                    
|Mr. Felix W. K. Yip                  |  | 46                         |  | Vice President, Human Resources, Administrationand Audit                                   
|Mr. Simon K. K. Yu                   |  | 51                         |  | Vice President, Procurement                                                                
|Mr. Samuel C. C. Tsang               |  | 48                         |  | General Manager, Hong Kong Cable EnterprisesLimited and Hong Kong Cable News ExpressLimited
|Mr. David C. T. Wong                 |  | 50                         |  | Vice President, i-CABLE Enterprises Limited                                                

---

|(1) | HKC - Hong Kong Cable Television Limited.
|--- | -----------------------------------------



Directors



Stephen T. H. Ng. Mr. Ng became Chairman of the Company in August 2001. He has been a Director, President and Chief Executive Officer since 1999 and
formerly was the Deputy Chairman of the Company. He is also the deputy chairman and managing director of Wharf, deputy chairman of Wheelock and Company Limited (Wheelock), a director of Joyce Boutique Holdings Limited, and the chairman,
president and chief executive officer of Wharf T&T. He serves as a member of the General Committee of the Hong Kong General Chamber of Commerce.



39



---

##### Table of Contents

Samuel S. F. Wong. Mr. Wong has been a Director of the Company since 2003. He joined HKC in 1993 and was
appointed as the Chief Financial Officer of the Company and of HKC in February 2002. He is currently responsible for finance, corporate development, accounting, planning, treasury, management information systems, investor relations, investment
projects, and commercial dealings with acquired channels. Mr. Wong previously worked in Toronto, Canada with the investment and corporate banking group of the Bank of Nova Scotia and as a chartered accountant with Price Waterhouse.



Fa-Kuang Hu, GBS, CBE, JP. Mr. Hu has been an independent Non-executive
Director of the Company since 1999. He also serves as a member and chairman of each of the Companys Audit Committee, Related Party Transactions Committee and Compensation Committee. He is also Senior Advisor to the Board of Mitsubishi Electric
Hong Kong Group Ltd. and is a director of Hysan Development Company Limited. He holds a Bachelor of Science degree from Shanghai Jiao Tong University.



Quinn Y. K. Law. Mr. Law has been a Director of the Company since 2003. He also serves as a member of each of the Companys Audit Committee, Related
Party Transactions Committee and Compensation Committee. He is also a director of Wharf, Modern Terminals Limited and Wharf T&T. He was formerly a director of Wheelock. He is a Certified Public Accountant (Practising) in Hong Kong and also holds
memberships in various professional bodies. He has been serving on a number of committees of the Hong Kong Institute of Certified Public Accountants, the Taxation Committee of the Hong Kong General Chamber of Commerce and the Advisory Board on
Accounting Studies of The Chinese University of Hong Kong.



Mr.
Law received his professional training in one of the Big Four accountancy firms and was qualified in 1977. Prior to joining Wharf, he worked in the then Securities Commission and two international shipping companies in Hong Kong. Over the years, Mr.
Law has held in the Wharf Group various executive positions including finance and administration.



Victor C. W. Lo, GBS, OBE, JP. Mr. Lo has been an independent Non-executive Director of the Company since 2000. He is also the chairman and chief
executive of publicly-listed Gold Peak Industries (Holdings) Limited. Furthermore, he is currently chairman of Hong Kong Science and Technology Parks Corporation, council chairman of The Hong Kong Polytechnic University and chairman of Board of
Governors, Hong Kong Design Centre. He is also a member of the Steering Committee on Innovation and Technology, the Greater Pearl River Delta Business Council and the Exchange Fund Advisory Committee. He was awarded the Gold Bauhinia Star by the
Government of the HKSAR in 2001. He graduated from the Institute of Design of Illinois Institute of Technology in the United States with a Bachelor of Science degree in Product Design.



Dennis T. L. Sun, BBS, JP. Dr. Sun has been an independent Non-executive Director of the Company since 2001. He also serves
as a member of each of the Companys Audit Committee, Related Party Transactions Committee and Compensation Committee. He is the chairman and managing director of publicly-listed China Hong Kong Photo Products Holdings Limited. Furthermore, he
is the chairman of the Board of Governors of the Hong Kong Arts Centre, deputy chairman of the Hong Kong Management Association and a council member of The City University of Hong Kong. He was also the vice patron of the Community Chest of Hong Kong
from 1999 to 2004. He is the honorary chairman of the Hong Kong Photo Marketing Association, the life honorary advisor of the Photographic Society of Hong Kong and the founding member of the China Charity Foundation. He was awarded the Bronze
Bauhinia Star in 1999 and appointed as a Justice of the Peace in 2002.



40



---

##### Table of Contents

Dr. Sun holds a Bachelors degree in Pharmacy from University of Oklahama, USA and a Degree of
Doctor of Philosophy in Business Administration from Southern California University for Professional Studies.



Gordon Y. S. Wu, GBS, KCMG, FICE. Sir Gordon Wu has been an independent Non-executive Director of the Company since 2001. He is the chairman as well as
the founder of publicly-listed Hopewell Holdings Limited. He is also the Chairman of publicly-listed Hopewell Highway Infrastructure Limited. He is active in civic and community services, and has received many awards and honors which include,
inter alia, chairmanship of City University of Hong Kong since 2004, as well as membership of Chinese Peoples Political Consultative Conference, The Peoples Republic of China since 1983, and Great Pearl River Delta Business
Council since 2004.



Sir Gordon is also a stalwart supporter of
his alma mater Princeton University, USA where he earned his Bachelor of Science in Engineering degree in 1958. He received Honorary Doctorate Degrees from Hong Kong Polytechnic University, University of Strathclyde, UK and University of Edinburgh,
UK. He is a Fellow of The Institution of Civil Engineers and Honorary Fellow of Australian Society of Certified Practising Accountants. He has been appointed the Honorary Consul of The Republic of Croatia in the Hong Kong SAR. He was awarded the
Gold Bauhinia Star in 2004.



Anthony K. K. Yeung, JP. Mr. Yeung
was appointed a Director of the Company in September 2004 and has since been an independent Non-executive Director. He also serves as a member of each of the Companys Audit Committee and Related Party Transactions Committee. He is the chairman
of K. K. Yeung Management Consultants Ltd., Wall Street Resources Ltd. and Environmental International Limited. Furthermore, he is a managing partner of K. K. Yeung Partnership, Certified Public Accountants (Practising). He is also an independent
Non-executive Director of publicly-listed TeleEye Holdings Limited.



Mr. Yeung is a Practising Certified Public Accountant in Hong Kong and senior member of the accountancy professions, i.e. Fellow, Chartered Institute of Management Accountants; Fellow, Chartered Association of Certified Accountants; Fellow,
Chartered Institute of Secretaries and Administrators; Fellow, Hong Kong Institute of Certified Public Accountants and Taxation Institute of Hong Kong.



Mr. Yeung is the vice chairman of the Hong Kong General Chamber of Commerce, the chairman of the Management Consultancies Association of Hong Kong, the
chairman of the Trade and Industry Department Customer Liaison Group for Small and Medium Enterprises and also a committee member of Professional Services Advisory Committee of Trade Development Council.



Furthermore, Mr. Yeung is a member of the Small & Medium Enterprises
Committee, the Labour Advisory Board, the Equal Opportunities Commission, the Rehabilitation Advisory Committee and the Professional Services Development Assistance Scheme Vetting Committee, appointed by the Chief Executive of the Government of the
HKSAR. He is also a member of the Election Committee of the Government of the HKSAR.



In January 2005, Mr. Yeung was conferred Grade of Knight of the Crown by King Albert II of Belgians.



Senior Management



Stephen T. H. Ng. See Directors above.



Samuel S. F. Wong. See Directors above.



41



---

##### Table of Contents

Vincent T. Y. Lam. Mr. Lam joined Wharf Communications in 1992 as Vice President - Planning, to lead its
investment in pay-TV and telecommunications. In 1995, Mr. Lam was appointed chief operating officer of iNL responsible for the rollout and deployment of cable network infrastructure in Hong Kong. In 1999, Mr. Lam became Strategic Planning
Director of HKC, responsible for legal, regulatory and long-term planning. He was appointed an executive director, Technology and Network Services of HKC in February 2002. Mr. Lam has over 20 years of experience in the telecommunications industry in
the United States and Asia. Prior to joining Wharf Communications, Mr. Lam was general manager of business development in Asia for U.S. West International.



Eric Lo. Mr. Lo joined HKC in 1993 as Marketing and Sales Director to create and manage HKCs marketing and sales operations. He was appointed Cable
Operations Director in 1995 when he was put in charge of customer service and technical operations as well. He became an executive director, Cable Subscription Services of HKC in February 2002. Mr. Lo has an extensive background in consumer
marketing. Prior to joining HKC, Mr. Lo was associated with American Express, Sears Roebuck and The Bank of Montreal.



Benjamin W. S. Tong. Mr. Tong joined HKC in 1995 to manage the Marketing and Sales Department in the Cable Operations Division. He was appointed Cable
Multimedia Services Director in August 1999 to lead the development of our broadband Internet access service. He became an executive director, Multimedia Services of HKC in February 2002. Mr. Tong has over 20 years of marketing and sales experience
in Hong Kong, Mainland China and Taiwan. Prior to joining HKC, Mr. Tong was marketing and sales director in Taiwan for American Express.



SiuMing Y. M. Tsui. Mr. Tsui joined HKC in July 2001 as Chief Operating Officer of our subsidiary, i-CABLE Satellite Television Limited, to develop
satellite television business and program production in Mainland China. Mr. Tsui was appointed Executive Director, Programming Services of HKC in August 2002. Mr. Tsui was principally responsible for program development, production and transmission
of channels other than the Sports and News platform. Mr. Tsui has extensive managerial and production experience in the media industry. Prior to joining HKC, he was chief executive officer of Sun TV Cyberworks Holdings Limited, senior vice president
for Asia Television Limited and chief executive officer of Emperor Movie Group Limited.



Garmen K. Y. Chan. Mr. Chan joined HKC in 1995 as external affairs director. He is responsible for formulating and implementing regulatory and external affairs strategies and action plans for the Company and our
subsidiaries. Mr. Chan came from a diverse media background in Hong Kong, having held key positions in English newspapers and local television stations. Mr. Chan was a media consultant prior to joining HKC.



Ronald Y. C. Chiu. Mr. Chiu joined HKC in 1991 as a member of the pre-license
consultant team. When HKC was awarded the license in June 1993, Mr. Chiu was appointed Assistant News Controller and was instrumental in the launch of the first 24-hour Cantonese language News Channel in the world. Mr. Chiu was promoted to News
Controller in 1994 and appointed as Vice President, News & Sports in 2002, a portfolio giving him also overall responsibility for the planning and production of HKCs sports programs.



Prior to joining HKC, Mr. Chiu held various senior news positions in the
television industry. His experience spans from reporting, editing, news anchoring, to planning and execution of news coverage as well as management of news operation.



42



---

##### Table of Contents

Felix W. K. Yip. Mr. Yip joined HKC in February 2005 as Vice President - Human Resources, Administration
and Audit. He has a successful track record in Human Resources and Administration. He started his professional career with the Dairy Farm Group of companies. He next spent ten years in various positions with San Miguel Brewing International Limited,
where he last held the position of General Manager - Human Resources & Administration, China Business Operations.



Simon K. K. Yu. Mr. Yu joined the Wharf Group in 1987 and has held various administration and audit positions in the Wharf Group. He was appointed
corporate controller-operations of Wharf Communications in 1992, responsible for operations, accounting, finance, control, administration and personnel. In 1996, Mr. Yu was appointed Administration and Audit Director of HKC and he became Vice
President - Procurement of HKC in 2003.



Samuel C. C. Tsang.
Mr. Tsang joined Wharf Communications in 1992 as marketing consultant to bid for the cable television license in Hong Kong. In 1995, he was appointed Enterprises Director to take charge of international program licensing and advertising sales for
the station. He became chief operating officer of Hong Kong Cable Enterprises Limited (HKCE) when it was set up in 2000 to take over advertising sales of HKC. He became General Manager of both HKCE and Hong Kong Cable News Express
Limited on March 1, 2005. Mr. Tsang has extensive experience in media and marketing, specialising in new business establishment in Mainland China and Hong Kong.



David C. T. Wong. Mr. Wong joined HKC in May 2004 as Vice President of i-CABLE Enterprises Limited. He is responsible for formulating and implementing
strategies for the Company and its subsidiaries in opening up cross-media business opportunities. Mr. Wong has over 20 years of journalistic experience and held various senior editorial and managerial positions in the Sing Tao Newspapers Group.
Prior to joining us, Mr. Wong was Director-General of the Hong Kong Press Council  a self-regulatory body to promote professional ethics of the newspaper industry.



B. Compensation



During 2004, an
aggregate amount of HK$35.2 million in compensation was paid to our directors and officers as a group by us and by the Wharf Group on our behalf. We also provide fringe benefits and other compensation arrangements to a number of our directors and
officers.



Retirement Scheme and Mandatory Provident Fund



The principal retirement scheme that we operate is a
defined contribution retirement scheme for our employees, established under a trust deed. Some of our fellow subsidiaries also participate in the scheme.



The scheme is funded by contributions from employees and employers. The employees and employers contribute respectively to the scheme sums, which
represent percentages of the employees salaries as defined under the trust deed. Forfeited contributions may be utilized by the employers to reduce contributions.



Our principal retirement scheme is closed to new employees joining after October 1, 2000 while existing members of the
scheme can continue to accrue future benefits.



Employees
joining after October 1, 2000 will participate in the Mandatory Provident Fund (MPF) with terms as stipulated by the MPF Authority in Hong Kong. We will also provide voluntary top-up benefits to employees receiving a monthly basic salary
exceeding HK$20,000 which is the relevant income cap as stipulated by the MPF Ordinance.



43



---

##### Table of Contents

Our retirement scheme costs before capitalization and charged to the statement of operations during the
year ended December 31, 2004 amounted to HK$18,389,059 (HK$20,835,331 in 2003) which were incurred after utilization of forfeitures to reduce our contributions of HK$1,735,772 (HK$2,091,170 in 2003).



The total employers cost in respect of our retirement scheme, including
the cost related to the MPF which is not operated by us, charged to statement of operations during the year ended December 31, 2004 amounted to HK$29,997,877 (HK$30,939,810 in 2003).



C. Board Practices



Our directors
during the financial year were Mr. Stephen T. H. Ng, Mr. Samuel S. F. Wong, Mr. F. K. Hu, Mr. Quinn Y. K. Law, Mr. Victor C. W. Lo, Dr. Dennis T. L. Sun, Sir Gordon Y. S. Wu and Mr. Anthony K. K. Yeung (appointed on September 28, 2004).



Mr. Anthony Yeung, being appointed as a Director of the Company after the
last Annual General Meeting, retired from the Board in accordance with Article 78 of the Companys Articles of Association, and Mr. F. K. Hu and Mr. Victor Lo also retired from the Board by rotation in accordance with Article 82, at the Annual
General Meeting held on May 11, 2005. Being eligible, they offered themselves for re-election and were duly re-elected. None of the retiring Directors proposed for re-election at the Annual General Meeting held on May 11, 2005 has a service contract
with the Company which is not terminable by the employer within one year without payment of compensation (other than statutory compensation).



Under the provisions of the Companys Articles of Association, the Chairman of the Company is not subject to retirement from the Board by rotation.
As regards the other seven Directors (six of them not holding any executive title of the Company), three of them retired and were re-elected as Directors at the Annual General Meeting held on May 11, 2005 as mentioned above, and the remaining four
Directors will have their respective terms of office coming to an end by reason of retirement by rotation at the Annual General Meeting of the Company in 2006 or 2007 in accordance with Article 82 of the Companys Articles of Association.



There is no relationship between any of our directors or
senior managers and any other director or senior manager. None of our directors has a service contract with us or any of our subsidiaries which is not determinable by the employer within one year without payment of compensation.



Audit Committee



As of December 31, 2004, our audit committee was composed of three independent directors: Mr. Fa-Kuang Hu (Chairman), Dr.
Dennis T. L. Sun (Deputy Chairman), Mr. Quinn Y. K. Law and Mr. Anthony K. K. Yeung. Mr. Yeung is a financial expert within the meaning of the Sarbanes-Oxley Act of 2002. Under our audit committee charter, all members of our audit
committee must be independent, the audit committee must meet at least twice a year and must have at least three members. The audit committees responsibilities include the appointment of our external auditors and a review of our accounting
policies and practices. The committee has the authority to obtain advice and assistance from the Company and its management or any outside legal expert or other advisor.



Compensation Committee



As of December 31, 2004, our compensation committee was composed of Mr. Fa-Kuang Hu (Chairman), Dr. Dennis Sun (Deputy Chairman) and Mr. Quinn Law. Our
compensation committee must have at least two members, who are appointed by our board of directors among our non-executive directors. The chairman and a majority of the members of the committee must be independent from us. The quorum for a
compensation committee meeting is two members. Decisions are made by a majority of votes of the members present, and in the case of an equality of votes, the chairman of the committee shall have a second or casting vote. A resolution in writing
signed by all of the committee members is treated as if it had been passed at a meeting of the committee. The committee has the authority to obtain advice and assistance from the Company and its management or any outside legal expert or other
advisor. The compensation committees responsibilities include the following:



| |  |  | approve compensation and benefits for directors and senior executives;
| | - |  | ----------------------------------------------------------------------



44



---

##### Table of Contents

| |  |  | decide the terms of the Employee Share Option Scheme; and
| | - |  | ---------------------------------------------------------



| |  |  | review compensation-related or other issues as requested by our board of directors.
| | - |  | -----------------------------------------------------------------------------------



D. Employees



As of December 31,
2004 we had 2,982 full-time employees, classified by function as follows:



|                                        |  |      
|--------------------------------------- |  | -----
|Television operations                   |  | 1,041
|Network and technical operations        |  | 641  
|Sales and marketing                     |  | 559  
|Customer service and support operations |  | 514  
|Internet access and content operations  |  | 72   
|Administration, finance and others      |  | 155  
|                                        |  |      
|Total                                   |  | 2,982
|                                        |  |      



We believe our
relations with our employees are good.



E. Share ownership



At December
31, 2004, Mr. Stephen T. H. Ng and Mr. Samuel S. F. Wong, our directors, owned 1,065,005 and 3,000 of our ordinary shares, respectively. Except as disclosed in the previous sentence, none of our directors serving as of December 31, 2004 owned any of
our ordinary shares at December 31, 2004.



Employee Share Option Scheme



We operate an employee share option scheme pursuant
to which our board of directors may, at their discretion, award any full time employee of any member of us, including Executive Directors of any of our subsidiaries, to take up options to subscribe for ordinary shares up to a maximum aggregate
number of ordinary shares equal to 10% of our total issued share capital. The price for an ordinary share payable by a participant upon the exercise of an option will be determined by our board of directors in their discretion from time to time,
except that with effect from September 1, 2001, the minimum exercise price must be at least the higher of:



| |  |  | the closing price of the Shares as stated in the Hong Kong Stock Exchanges daily quotations sheet on the date of grant, which must be a business day; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the average closing price of the Shares as stated in the Hong Kong Stock Exchanges daily quotations sheets for the 5 business days immediately preceding the date of grant.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45



---

##### Table of Contents

The period during which an option may be exercised will be determined by the Directors at their
discretion, except that no option may be exercised later than 10 years after it has been granted. The employee share option scheme commenced on November 2, 1999 and will remain in force for a period of ten years from such date.



Under our employee share option scheme, certain options to subscribe for a
total of 22,910,000, 50,034,000 and 380,000 of our ordinary shares were granted during 2000, 2001 and 2002, respectively, to our executive(s)/employee(s) at subscription prices of HK$10.49, HK$3.30 and HK$3.30 per share, respectively.



The above-mentioned options include the options granted to two of our
Directors, Mr. Stephen T. H. Ng and Mr. Samuel S. F. Wong, to subscribe for 1,500,000 and 700,000 ordinary shares, respectively. The consideration for the granting of such options to them was HK$10 per option. The option rights are exercisable
during the period from April 1, 2001 to December 31, 2009 at a subscription price of HK$10.49 per share.



The above-mentioned options also include the options granted to Mr. Stephen T. H. Ng and Mr. Samuel S. F. Wong to subscribe for 1,100,000 and 476,000 of
our ordinary shares respectively. The consideration for the granting of such options to them was HK$10 per option. The option rights of 150,000 shares in respect of Mr. Ng and 65,500 shares in respect of Mr. Wong were exercisable from April 1, 2003
to December 31, 2003. The remaining 700,000 shares in respect of Mr. Ng and 241,500 shares in respect of Mr. Wong are exercisable up to December 31, 2005.



The total number of employee share options which were granted, exercised and lapsed during the year ended December 31, 2004 are set out in note 30(g) to
our consolidated financial statements.



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



A. Major Shareholders



The
following table contains information with respect to the ownership of our ordinary shares, as of December 31, 2004, by each person known to us to own, directly or indirectly, 5% or more of our ordinary shares. We are not aware of any arrangement
that may at a subsequent date result in a change of control of our company. There are no differences in the voting rights among any of the major shareholders.



|        |  |                                   |  |                          |  |         |  
|------- |  | --------------------------------- |  | ------------------------ |  | ------- | -
|        |  |                                   |  | Ordinary shares owned(2) | 
|Name(1) |  |                                   |  | Number                   |  | Percent |  
|(i)     |  | Wharf Communications Limited      |  | 1,355,261,583            |  | 67.12   | %
|(ii)    |  | The Wharf (Holdings) Limited      |  | 1,356,031,238            |  | 67.16   | %
|(iii)   |  | WF Investment Partners Limited    |  | 1,463,822,799            |  | 72.49   | %
|(iv)    |  | Wheelock and Company Limited      |  | 1,481,442,626            |  | 73.37   | %
|(v)     |  | HSBC Trustee (Guernsey) Limited   |  | 1,481,442,626            |  | 73.37   | %
|(vi)    |  | Marathon Asset Management Limited |  | 121,332,000              |  | 6.01    | %

---

|(1) | For the avoidance of doubt and double counting, it should be noted that duplication occurs in respect of the shareholdings stated against (i) to (v) above to the
extent that the shareholding stated against party (i) above was entirely duplicated or included in that against party (ii) above, with the same duplication of the shareholdings in respect of (ii) in (iii), (iii) in (iv) and (iv) in (v).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



46



---

##### Table of Contents

|(2) | Due to the amalgamation of Bermuda Trust (Guernsey) Limited with HSBC Trustee (Guernsey) Limited into one company known as HSBC Trustee (Guernsey) Limited with
effect from January 1, 2005, the name of Bermuda Trust (Guernsey) Limited, which appeared in the register kept by the Company under section 336 of the Securities and Futures Ordinance of Hong Kong (the Register) prior to January 1, 2005,
has been accordingly amended to become HSBC Trustee (Guernsey) Limited.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All the interests stated above represented long positions and as at December 31, 2004, there were no short position interests recorded in the Register.



B. Related Party Transactions



We
are a party to certain agreements and engage in transactions with a number of entities that are related to us. A significant part of these transactions are transactions with Wharf and its subsidiaries (together, the Wharf Group). We are
a 67.12%-owned subsidiary of Wharf. We lease various properties from the Wharf Group and paid rentals and related management fees in the amount of HK$40.6 million, HK$38.4 million and HK$35.4 million for the years 2002, 2003 and 2004, respectively.
The Wharf Group provides telecommunication services to us relating to dataline leasing, public non-exclusive telecommunication services and international bandwidth access. Expenses for such telecommunication services amounted to HK$23.8 million,
HK$24.5 million and HK$24.8 million in 2002, 2003 and 2004, respectively. The Wharf Group also offers computer maintenance and consulting services to us. Such computer services fees amounted to HK$12.2 million, HK$14.2 million and HK$14.0 million in
2002, 2003 and 2004, respectively. On the other hand, we offer the Wharf Group operation and maintenance services in relation to ducts, cables and ancillary equipment, generating income of HK$20.6 million, HK$21.3 million and HK$21.2 million in
2002, 2003 and 2004, respectively. In addition, certain management services costs incurred by the Wharf Group on our behalf are recharged to us. Fees recharged for this purpose in 2002, 2003 and 2004 were HK$13.4 million, HK$11.6 million and HK$11.6
million, respectively.



The following table sets forth
information relating to certain connected transactions (the Connected Transactions) between the Company and the Wharf Group for the years ended December 31, 2004, 2003 and 2002:



|                                                                                                                                                                                                                                                                                                                                  |      |                                                        |      |             |      |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------------------------------------ | ---- | ----------- | ---- | -----------
|Description of the Connected Transactions                                                                                                                                                                                                                                                                                         |      | Amount paid (received) For the year ended December 31,
|                                                                                                                                                                                                                                                                                                                                  | 2002 |                                                        | 2003 |             | 2004
|                                                                                                                                                                                                                                                                                                                                  |      | HK$ million                                            |      | HK$ million |      | HK$ million
|I.      Property                                                                                                                                                                                                                                                                                                                  |      |                                                        |      |             |      |            
|1.      Headquarters leased from the Wharf Group Factory 3 on G/F, 4/F to 12/F (inclusive), portions of 1/F and
2/F, units 1-7 on 40/F, units 1, 2 and 4 on G/F, storeroom 3 on the roof top, and various car-parking and lorry-parking spaces of Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, New Territories (Cable TV Tower) |      | 30.7                                                   |      | 28.5        |      | 25.4       
|2.      Licenses granted to the Wharf Group to occupy premises                                                                                                                                                                                                                                                                    |      |                                                        |      |             |      |            
|(a)    Northern portion of 12/F of Cable TV Tower                                                                                                                                                                                                                                                                                 |      | 1.2                                                    |      | 1.2         |      | 1.2        
|(b)    9/F and 12/F of Cable TV Tower                                                                                                                                                                                                                                                                                             |      | 2.5                                                    |      | 2.5         |      | 2.5        
|3.      Licenses granted by the Wharf Group to occupy premises                                                                                                                                                                                                                                                                    |      |                                                        |      |             |      |            
|(a)    Workshop No. E13, 11/F, Block E of Tsing Yi Industrial Centre Phase II, Nos. 1-33
Cheung Tat Road, Tsing Yi, New Territories                                                                                                                                                                                               |      | 0.1                                                    |      | 0.1         |      | 0.1        



47



---

##### Table of Contents

|                                                                                                                                                  |      |                                                        |      |             |      |            
|------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------------------------------------ | ---- | ----------- | ---- | -----------
|Description of the Connected Transactions                                                                                                         |      | Amount paid (received) For the year ended December 31,
|                                                                                                                                                  | 2002 |                                                        | 2003 |             | 2004
|                                                                                                                                                  |      | HK$ million                                            |      | HK$ million |      | HK$ million
|(b)    Unit D (2002: Units C & D), 6/F of Kowloon Godown, 1-3 Kai Hing Road, Kowloon Bay, Kowloon                                                 |      | 1.4                                                    |      | 1.0         |      | 1.0        
|4.      Car-parking spaces rented from the Wharf Group                                                                                            |      |                                                        |      |             |      |            
|Car-parking spaces at Chai Wan Kok Street, Tsuen Wan, New Territories                                                                             |      | 2.1                                                    |      | 2.4         |      | 2.4        
|                                                                                                                                                  |      |                                                        |     
|II.     Computer services                                                                                                                         |      |                                                        |      |             |      |            
|1.      Information technology services provided by the Wharf Group                                                                               |      | 7.6                                                    |      | 8.4         |      | 11.0       
|2.      Billing services provided by the Wharf Group                                                                                              |      | 6.2                                                    |      | 6.5         |      | 6.9        
|                                                                                                                                                  |      |                                                        |     
|III.   Network                                                                                                                                    |      |                                                        |      |             |      |            
|1.      Maintenance and sharing of ducts, cables and ancillary equipment provided to the Wharf
Group                                              |      | 20.4                                                   |      | 21.1        |      | 21.0       
|2.      Telecommunications services provided by the Wharf Group                                                                                   |      | 23.8                                                   |      | 24.5        |      | 24.8       
|3.      Project management services provided to the Wharf Group                                                                                   |      | 7.6                                                    |      | 7.1         |      | 6.5        
|4.      Multi-party arrangements for the construction, sharing and maintenance of ducts for telecommunications
cables and equipment in Hong Kong: |      |                                                        |      |             |      |            
|(a) Payment to the Wharf Group                                                                                                                    |      | 1.5                                                    |      | 1.2         |      | 1.1        
|(b) Payment from the Wharf Group                                                                                                                  |      | 1.2                                                    |      | 1.6         |      | 2.4        
|                                                                                                                                                  |      |                                                        |     
|IV.                                                                                                                                               |      |                                                        |      |             |      |            
|1.      Advertising services provided by the Wharf Group                                                                                          |      | 1.2                                                    |      | 1.5         |      | 1.2        
|2.      Advertising services provided to the Wharf Group                                                                                          |      | 0.7                                                    |      |            |      |           
|                                                                                                                                                  |      |                                                        |     
|V.     Management services provided by the Wharf Group                                                                                            |      | 13.4                                                   |      | 11.6        |      | 11.6       
|                                                                                                                                                  |      |                                                        |     
|VI.   Video link service provided by the Wharf Group                                                                                              |      | 2.7                                                    |      | 2.3         |      | 2.2        



As all of the
Connected Transactions described above are and will continue to be conducted on an ongoing basis, it is considered that strict compliance with the relevant requirements (the Requirements) relating to the Connected Transactions under the
Rules governing the Listing of Securities (the Listing Rules) on The Stock Exchange of Hong Kong Limited (the Hong Kong Stock Exchange) would be impractical. On our application, the Hong Kong Stock Exchange granted us
conditional waivers from strict compliance with the Requirements in respect of the Connected Transactions.



Our directors, including our independent non-executive directors, have reviewed the Connected Transactions and confirmed that:



| | 1. | the Connected Transactions were entered into:
| | -- | ---------------------------------------------



| | (a) | by us in the ordinary and usual course of business;
| | --- | ---------------------------------------------------



| | (b) | either on normal commercial terms or if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms that are no less favorable
than those available to or from (as appropriate) independent third parties; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | in accordance with the relevant agreements governing such Connected Transactions on terms that are fair and reasonable and in the interests of our shareholders as a whole.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48



---

##### Table of Contents

| | 2. | in respect of each of the Connected Transactions mentioned above in paragraphs numbered I.1, I.2(a), I.3(a), I.4, II.1, II.2, III.1, III.2, III.3, III.4(a), III.4(b), and V, the
aggregate amount of Connected Transactions within each such category for the financial year ended December 31, 2004 of the Company was less than 2.5% of the applicable percentage ratios of the Company under the Listing Rules and also did not exceed
the relevant cap amount previously prescribed by the Hong Kong Stock Exchange (as set out in the relevant conditional waiver granted to the Company in January 2002), i.e. 3% of our consolidated net tangible assets as disclosed in our audited
consolidated accounts for the year ended December 31, 2003;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | in respect of each of the Connected Transactions mentioned above in paragraphs numbered I.2(b), I.3(b) and IV.1, the aggregate amount of fees paid for the financial year ended
December 31, 2004 in respect of each of such category was less than 2.5% of the applicable percentage ratios of the Company under the Listing Rules and also did not exceed the relevant cap amount of HK$10 million previously prescribed by the Hong
Kong Stock Exchange as set out in the relevant conditional waiver granted to the Company in October 2001; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | in respect of the Connected Transaction mentioned above in paragraph numbered (VI), the amount paid for the financial year ended December 31, 2004 was less than 2.5% of the
applicable percentage ratios of the Company under the Listing Rules and also did not exceed the relevant cap amount (as previously prescribed by the Hong Kong Stock Exchange and as set out in the relevant conditional waiver granted to the Company in
October 2000) of 1% of our turnover for the immediately preceding year.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to the transactions disclosed in the table above, on October 18, 2004, an agreement (the Agreement) was entered into by iNL, a wholly-owned subsidiary of the Company, with Wharf T&T in
respect of the provision of IP Point service to Wharf T&T for three years commencing from October 18, 2004. There is a right for either party to terminate the Agreement at the first or second anniversary by giving 3 months prior notice. Since
the Company is a 67%-owned subsidiary of Wharf, the transaction constitutes a continuing connected transaction for the Company under the Listing Rules.



The service fee per month per IP Point is HK$25 net of discounts (if applicable), payable in cash and on monthly basis. The minimum purchase is 25,000 IP
Points, applicable from May 18, 2005 onwards. The parties have agreed to adopt an annual cap amount for the service fees for each of the three financial years of the Company ending December 31, 2005, 2006 and 2007. Such annual cap amounts for those
three financial years are HK$25 million, HK$40 million and HK$50 million respectively, which are in line with iNLs internal forecasts based on an upside scenario. No cap amount was adopted for the service fee payable for the period from
commencement of the Agreement to December 31, 2004, which is below the de minimis level under the Listing Rules.



In April 2005, HKC and i-CABLE WebServe Limited (iWL), both wholly-owned subsidiaries of i-CABLE; and Wharf T&T entered into an agreement
whereby the parties agreed to mutually appoint each other as their non-exclusive sales and servicing agent for one or more service plans (Service Plans) as the parties may from time to time decide to offer. Such Service Plans may
comprise one or more of pay-TV, broadband and telephony services.



For each subscription agreement for the Service Plans solicited by a party for the others, the other parties (whose services form part of the Service Plans) will each pay to the soliciting party a one-off payment of HK$120 in the month of
sale and a monthly sum of HK$20 for the contractual term of the relevant subscription contract or in the absence of which, a period of 12 months. The said service fee may from time to time be negotiated and varied by the parties on an arms
length basis with regard to the then prevailing market conditions and the necessary resources that the parties are required to commit to the said agency services.



49



---

##### Table of Contents

The parties have also agreed that the aggregate annual service fees payable or receivable, which ever is
higher, by Wharf T&T to or from (as the case may be) HKC and iWL under the agreement for each of the years ending December 31, 2005, December 31, 2006 and December 31, 2007 must not exceed HK$33.1 million, HK$47 million and HK$50 million
respectively.



C. Interests of Experts and Counsel



Not applicable.



ITEM 8. FINANCIAL INFORMATION



A. Consolidated Statements and Other Financial Information



Financial Statements



See Item 19(a) for a list of financial statements filed under Item 18.



Legal Proceedings



We are in discussion
with the IRD regarding the tax affairs of The Cable Leasing Partnership and The Network Leasing Partnership (the Partnerships), our wholly owned subsidiaries, pursuant to a leveraged leasing arrangement.



To preserve its right under the dispute, the IRD has issued protective
assessments of up to HK$272 million against various Company entities for the period from 1995/96 to 2003/04. We have since objected to the assessments and the IRD has granted unconditional holdover for HK$247 million of the assessment amount, and
conditional holdover for the remaining HK$25 million. For the latter, the Partnerships purchased HK$18 million of Tax Reserve Certificates (TRCs) before December 31, 2004 and HK$7 million after year end, in satisfaction of the holdover
condition.



We believe our maximum tax exposure as of December
31, 2004 under the protective assessments would amount to HK$106 million, of which up to HK$64 million would be indemnified by Wharf Communications Limited as tax liability pertaining to events occurring up to our initial public offering on November
1, 1999, such that our contingent tax exposure is estimated at HK$42 million.



Although the outcome of the discussions is still uncertain, we believe that there are grounds to contest the protective assessments and we intend to pursue this case vigorously, unless a compromised settlement can be
reached with the IRD. Notwithstanding the foregoing, based on a counter-offer under contemplation, at the end of 2004, we decided to make a provision of HK$12 million in 2004 for our expected share of the tax liability. This provision was increased
to HK$17 million based on the most recent offer being considered by our management after the year end.



Dividend Policy



Annual dividends, if any, on our outstanding ordinary shares and ADSs will be declared by and subject to the discretion of our board of directors and must be approved at a general meeting of shareholders. In addition, our board of directors
may from time to time pay to the shareholders such interim dividends as appear to our board of directors to be justified. We may pay dividends to shareholders in the future; however, such payments will depend upon a number of factors, including our
results of operations, earnings, capital requirements and surplus, general financial conditions, contractual restrictions and other factors considered relevant by our board of directors.



50



---

##### Table of Contents

B. Significant Changes



Not
applicable.



ITEM 9. THE OFFER AND LISTING



A. Offer and Listing Details



On
June 23, 2005, the last reported sale price of our ADSs on the Nasdaq National Market was US$7.01. As of March 31, 2005, there were 29 registered holders of ADSs on our record.



The principal trading market for our ordinary shares is the Stock Exchange of Hong Kong Limited, or the HKSE. Our ADSs have
been quoted on The Nasdaq National Market under the symbol ICAB since November 24, 1999. Each ADS represents 20 ordinary shares.



The table below sets forth, for the periods indicated, the highest and lowest closing price for our ordinary shares on the HKSE and our ADSs on the Nasdaq
National Market. The closing price for the ordinary shares on the HKSE and the ADSs on The Nasdaq National Market on December 31, 2004 was HK$2.90 per ordinary share and US$7.25 per ADS, respectively. The table is based on information made available
by commercial financial information services and is believed to be reliable.



|                                |  |                 |  |       |  |       |  |     
|------------------------------- |  | --------------- |  | ----- |  | ----- |  | ----
|                                |  | Ordinary Shares |  | ADSs 
|                                |  | High            |  | Low   |  | High  |  | Low 
|                                |  | (HK$)           |  | (US$)
|Fiscal Year:                    |  |                 |  |       |  |       |  |     
|2000                            |  | 11.150          |  | 2.400 |  | 27.50 |  | 6.00
|2001                            |  | 5.100           |  | 3.150 |  | 13.40 |  | 7.80
|2002                            |  | 6.200           |  | 2.575 |  | 15.50 |  | 6.52
|2003                            |  | 2.875           |  | 1.660 |  | 7.25  |  | 4.20
|2004                            |  | 3.175           |  | 2.450 |  | 8.00  |  | 4.80
|Fiscal 2003:                    |  |                 |  |       |  |       |  |     
|First Quarter                   |  | 2.875           |  | 1.660 |  | 7.25  |  | 4.21
|Second Quarter                  |  | 2.200           |  | 1.680 |  | 5.82  |  | 4.20
|Third Quarter                   |  | 2.400           |  | 1.810 |  | 6.25  |  | 4.81
|Fourth Quarter                  |  | 2.025           |  | 1.820 |  | 5.20  |  | 4.55
|Fiscal 2004:                    |  |                 |  |       |  |       |  |     
|First Quarter                   |  | 3.175           |  | 1.970 |  | 7.92  |  | 4.80
|Second Quarter                  |  | 3.100           |  | 3.050 |  | 7.90  |  | 6.39
|Third Quarter                   |  | 2.675           |  | 2.400 |  | 7.57  |  | 6.16
|Fourth Quarter                  |  | 2.900           |  | 2.725 |  | 8.00  |  | 6.85
|Fiscal 2005:                    |  |                 |  |       |  |       |  |     
|First Quarter                   |  | 2.900           |  | 2.775 |  | 7.25  |  | 6.60
|Previous Six Months:            |  |                 |  |       |  |       |  |     
|December 2004                   |  | 3.000           |  | 2.900 |  | 7.89  |  | 7.22
|January 2005                    |  | 2.900           |  | 2.750 |  | 7.25  |  | 6.85
|February 2005                   |  | 2.775           |  | 2.650 |  | 7.05  |  | 6.71
|March 2005                      |  | 2.825           |  | 2.600 |  | 7.05  |  | 6.60
|April 2005                      |  | 3.025           |  | 2.850 |  | 7.68  |  | 7.05
|May 2005                        |  | 2.850           |  | 2.675 |  | 7.40  |  | 6.75
|June 2005 (As of June 23, 2005) |  | 2.750           |  | 2.650 |  | 7.28  |  | 6.75



51



---

##### Table of Contents

B. Plan of Distribution



Not
applicable.



C. Markets



Our ADSs are listed
on the Nasdaq National Market under the symbol ICAB, and our ordinary shares are listed on the HKSE under the number 1097.



D. Selling Shareholders



Not
applicable.



E. Dilution



Not applicable.



F. Expense of the Issue



Not
applicable.



ITEM 10. ADDITIONAL INFORMATION



A. Share Capital



Not applicable.



B. Memorandum and Articles of Association



We are a Hong Kong company and our affairs are governed by our memorandum and articles of association and Hong Kong law. The following are summaries of material provisions of our memorandum and articles of association and Hong Kong law as
they relate to the material terms of our ordinary shares.



Certificates representing the ordinary shares are issued in registered form. Under the laws of Hong Kong, shareholders who are not residents of Hong Kong may hold, vote and transfer their ordinary shares in the same manner as Hong Kong
residents. There are no conversion or redemption rights of the ordinary shares.



Voting Rights



We are required to hold
an annual general meeting of shareholders within 15 months from the date of our last annual general meeting. We may also hold other general meetings of shareholders, which are called extraordinary general meetings, from time to time. Our board of
directors may convene an extraordinary general meeting at will or, under section 113 of the Companies Ordinance of Hong Kong, upon request of our shareholders and in default, an extraordinary general meeting may be convened by the requesting
shareholders. Our annual general meeting and any general meeting of i-CABLE called for the passing of a special resolution requires at least 21 days notice, and any other meeting of i-CABLE requires at least 14 days notice. The notice
must specify the place, the day and the hour of the meeting and, in the case of special business, the general nature of that business. NASDAQ MarketPlace Rule 4350 (f) requires a minimum quorum of 331/3percent of the outstanding shares of a companys common voting stock for any meeting of the holders of a companys common stock. At the time of
our initial public offering in 1999, we received an exemption from compliance with the quorum requirement under NASDAQ MarketPlace Rule 4350 (f). According to our articles of association, the quorum for a general meeting is two shareholders present
in person or by proxy. We believe this is consistent with the practice of companies incorporated in Hong Kong.



52



---

##### Table of Contents

A corporation that is a shareholder will be deemed to be present in person by its duly authorized
representative or by proxy. If within five minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened upon request of shareholders, will be dissolved. In any other case, the meeting will stand adjourned to such
other day not being less than 14 nor more than 28 days thereafter and at such time and place as may be decided by the chairman of the meeting. At an adjourned meeting, one shareholder present in person or by proxy will be a quorum.



Subject to any special rights, privileges or restrictions as to voting for
the time being attached to any class or classes of shares, at any general meeting every shareholder who is present in person has one vote on a show of hands, and on a poll every shareholder present in person or by proxy has one vote for every
ordinary share held by such shareholder.



If at any time our
capital is divided into different classes of shares, all or any of the special rights attached to any class may, subject to the provisions of the Companies Ordinance, be varied or abrogated either with the consent in writing by at least
three-fourths of the holders of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. At such separate general meetings, the provisions of our
articles of association relating to general meetings apply with an additional requirement that the necessary quorum be not less than one-third of the issued shares of that class, and at an adjourned meeting, and that any holder of shares of the
class present may demand a poll.



As a foreign private issuer,
we are exempt from the rules under the Exchange Act prescribing the furnishing and the content of proxy statements.



Dividends



No dividend is payable except out of our profits or other distributable reserves.



Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends are declared
and paid according to the amounts paid up on the shares in respect whereof the dividend is paid, but no amount paid up on a share in advance of calls is for this purpose treated as paid up on the share. All dividends will be apportioned and paid
equally according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividends are paid. Our board of directors may deduct from any dividend or other monies payable to our shareholders all sums
of money, if any, presently payable to us by such shareholder on account of calls, installments or otherwise.



In respect of any dividend that our board of directors or our shareholders in general meeting have resolved be paid or declared, our board of directors
may further propose either:



| |  |  | that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid provided that the shareholders are at the same time accorded the right
to elect to receive such dividend, or part thereof, as the case may be, in cash in lieu of such allotment, or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | that the shareholder entitled to such dividend be entitled to elect to receive an allotment of shares credited as fully paid in lieu of the whole or such part of the dividend as the
Board may think fit.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



53



---

##### Table of Contents

Any dividend unclaimed after a period of six years from the date of declaration of such dividend will be
forfeited and will revert to us.



Liquidation



If we are to be liquidated, the liquidator may, with the approval of our
shareholders and any other approval required by the Companies Ordinance, divide among our shareholders in cash or in kind the whole or any part of our assets and may vest the whole or any part of such assets in trustees upon such trusts for the
benefit of the shareholders as the liquidator, with the approval of the shareholders, thinks fit, provided, that a shareholder will not be compelled to accept any shares or other assets that would subject such shareholder to liability.



Registration and Transfers



Any shareholder may transfer all or any of his fully paid shares by an
instrument of transfer in the usual common form or in any other form that the board of directors may approve, subject to such of the requirements of our memorandum and articles of association as may be applicable. Such requirements may include:



| |  |  | lodging the instrument of transfer with us accompanied by the certificate for the shares to which it relates and such other evidence as our board of directors may reasonably require
to show the right of the transferor to make the transfer; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limiting the number of joint holders to whom the share is to be transferred to four, in the case of a transfer to joint holders.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



The instrument of transfer of a share will be signed by or on behalf of the
transferor and, in the case of partly paid shares, the transferee, and the transferor will be deemed to remain the holder of the share until the name of the transferee is entered in the register. All instruments of transfer, when registered, may be
retained by us.



We may charge a fee not exceeding HK$2, or
such higher amount as the Hong Kong Stock Exchange may approve for the time being, for registering any transfer or other document relating to or affecting the title to any of our shares, or for otherwise making any entry in the register of members
relating to any of our shares.



Our board of directors will
cause to be kept a register of shareholders on which various particulars required by the Companies Ordinance are entered. We are entitled, by giving notice in an advertisement in a newspaper circulating generally in Hong Kong, to close our register
of shareholders for a period not exceeding 30 days in each year. The period of 30 days may be extended up to 60 days in a year by an ordinary resolution at a general meeting of our shareholders.



Changes in Share Capital



Our shareholders may from time to time by ordinary resolution increase our
capital by such sum to be divided into shares of such amounts as the resolution will prescribe.



Subject to the Companies Ordinance, our shareholders may, by resolution, increase the capital, direct that the new shares or any of them will be offered
in the first instance to all the holders for the time being of shares of any class or classes in proportion to their shareholdings or may make any other provisions as to the issue of the new shares. The new shares will be subject to all the
provisions of our memorandum and articles of association with reference to lien, the payment of calls, forfeiture, transfer, transmission and otherwise.



54



---

##### Table of Contents

Our shareholders may from time to time by ordinary resolution:



| |  |  | consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;
| | - |  | ---------------------------------------------------------------------------------------------------------------

| |  |  | sub-divide all or part of our shares into shares of smaller amount than is fixed by our articles of association;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | cancel any shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any person and diminish the amount of its authorized share capital
by the amount of the shares so cancelled; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | subject to any condition prescribed by law, reduce our issued share capital or any capital redemption reserve fund or any share premium account or other undistributable reserve in
any manner.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Where any difficulty arises in
regard to any such consolidation and division, our board of directors may issue fractional certificates or arrange for the sale of the fractional shares and distribution of the net proceeds equally among the shareholders. For this purpose, our board
of directors may authorize the transfer of fractional shares to or in accordance with the directions of the purchaser.



Pre-emptive Rights



The Companies Ordinance provides that our directors may not, without prior shareholder approval, allot shares to existing shareholders other than in
proportion to their respective shareholding. Each year we obtain a general mandate from shareholders authorizing our directors to allot and issue and otherwise dispose of ordinary shares up to the level permitted by the listing rules of the Hong
Kong Stock Exchange without requiring such specific approval.



Purchase
of Own Shares



Subject to the provisions of the
Companies Ordinance and other applicable laws or regulations and to any special rights conferred on the holder of any class of our shares, we may purchase our shares of any class. On purchase, such shares will be cancelled. Under the listing rules
of the Hong Kong Stock Exchange, restrictions are imposed on companies listed in Hong Kong, which accordingly apply to us, on the purchase by such a company of its own shares, including (i) a requirement for prior approval, either by way of a
general mandate or by specific approval in relation to a particular transaction, by the shareholders in general meeting, (ii) limitations on purchases in the market over a particular period, and (iii) reporting requirements.



Miscellaneous



Share certificates registered in the names of two or more persons are deliverable to any one of them named in our share
register, and if two or more such persons tender a vote, the vote of the person whose name first appears in the share register will be accepted to the exclusion of any other. In the case of joint holders, dividends that are declared will be paid to
whichever of such persons is named first in the share register, and notices will be given to any one of them named in the share register.



55



---

##### Table of Contents

Certain Rights of Our Shareholders



In the event that a duty owed by our directors may have been breached, shareholders holding in excess of 10% of our share
capital may request our directors to convene a general meeting. At such general meeting, shareholders present may pass an ordinary resolution to remove a director or directors and to elect replacement directors. Our shareholders may petition the
courts for an appropriate order of the courts on the grounds of conduct by the directors that is oppressive or prejudicial to some part of the shareholders, including the shareholder bringing the action. Hong Kong law allows a derivative action to
be brought by our shareholders where it is alleged that our directors have committed a fraudulent action on our minority shareholders.



Certain Powers of Our Directors



Our Articles of Association give our board of directors the power to borrow and raise funds, including issuing securities. Our board of directors may also
mortgage or charge all or any part of the Companys undertaking, property and assets and uncalled capital.



Our Articles of Association limit a directors power to vote on transactions in which he or she is materially interested. Subject to exceptions
described below, a director of the Company shall not vote on any contract, arrangement or proposal in which the director knows he/she or any of his or her associates is materially interested. For this purpose, material interest is presumed if a
company, in which the director and his or her associates in aggregate own five percent or more of its shares or voting rights, is materially interested in the transaction. A director of the Company may, however, vote on the following matters:



| |  |  | any contract, arrangement or proposal to give security or indemnity to the director or his or her associates for money lent or obligations undertaken by such director or his or her
associates at the request of or for the benefit of the Company or its subsidiaries;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any contract, arrangement or proposal to give security or indemnity to the director or his or her associates for debts of the Company or its subsidiaries for which such director or
his or her associates assumed responsibility by giving security or indemnity;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any contract, arrangement or proposal concerning offering of securities by the Company (or any company which the Company may promote or be interested in purchasing) for which the
director or his or her associates participate in the underwriting;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any contract, arrangement or proposal in which the director or his or her associates are interested only by virtue of their interest in the securities of the Company;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any contract, arrangement or proposal concerning any other company in which the director or his or her associates own less than five percent of such companys shares or voting
rights;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any contract, arrangement or proposal concerning employee benefits that do not provide privileges to directors of the Company or their associates, including employee share schemes
and retirement, death or disability benefits schemes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



56



---

##### Table of Contents

Indemnification



Our directors and officers are indemnified by i-CABLE against all liabilities incurred by such directors and officers in defending any proceedings,
whether civil or criminal, in which judgment is given in their favor, or in which they are acquitted, or in connection with any application under the Companies Ordinance in which relief from liability is granted to them by the court.



Inspection of Books and Records



Except when the register of members is closed, the register and the index of
names of our shareholders are open to any shareholder for inspection without charge during business hours. However, no shareholder, other than our officers, has any right to inspect any of our accounting records except as conferred by law or
authorized by our directors.



Transfer Agent



We have appointed Tengis Limited as the transfer agent and registrar for our
ordinary shares.



C. Material Contracts



See
Exhibits 10.1-10.10, which are incorporated by reference to our Registration Statement on Form F-1 (File No. 333-11014) filed with the Commission on November 1, 1999.



D. Exchange Controls



Under
existing Hong Kong law, (i) there are no foreign exchange controls or other laws, decrees or regulations that affect the remittance of dividends or other payments on the Companys outstanding ordinary shares to U.S. residents and (ii) there are
no limitations on the rights of non-resident or foreign owners to hold the Companys ordinary shares.



E. Taxation



This summary is
based on the Inland Revenue Ordinance, Stamp Duty Ordinance and Estate Duty Ordinance, their subsidiary legislation, and judicial and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to change,
possible retroactively.



Tax on Dividends



No tax is payable in Hong Kong by way of withholding or otherwise in respect
of dividends on the ordinary shares.



Profits Tax



No tax is imposed in Hong Kong in respect of capital gains from the sale of
the ordinary shares and ADSs as long as they are held as capital assets. Trading gains from the sale of assets by persons carrying on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such
trade, profession or business will be chargeable to Hong Kong profits tax which is currently imposed at the rate of 17.5% on corporations and at the rate of 16% on unincorporated businesses or individuals. Gains or losses from sales of shares listed
on the HKSE will be considered to be derived from or arise in Hong Kong.



57



---

##### Table of Contents



Gains or losses from sales
of ADSs may be considered to be derived from or arise in Hong Kong where either the contracts of purchase and sale are effected in Hong Kong. In determining whether a contract is effected in Hong Kong, the IRD considers all steps leading up to and
including the signing and execution of the purchase and sales contracts. Liability for Hong Kong profits tax would thus arise in respect of trading gains from sales of ordinary shares realized by persons carrying on a business of trading or dealing
in securities in Hong Kong. Liability for Hong Kong profits tax would also arise in respect of trading gains from sales of ADSs realized by persons carrying on a business of trading or dealing in securities in Hong Kong where the contracts of
purchase and sale were effected in Hong Kong.



Stamp Duty



Hong Kong stamp duty, currently charged at the rate
of HK$1.00 per HK$1,000 or part thereof on the higher of the consideration for or the value of the ordinary shares, will be payable by the purchaser on every purchase and by the seller on every sale of ordinary shares. For example, a total of
HK$2.00 per HK$1,000 or part thereof is currently payable on a typical sale and purchase transaction involving ordinary shares. In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of ordinary shares. The withdrawal
of ordinary shares upon the surrender of ADSs, and the issuance of ADSs upon the deposit of ordinary shares, will also attract stamp duty at the rate described above for sale and purchase transactions unless the withdrawal or deposit of ADSs does
not result in a change in the beneficial interest of the ordinary shares under Hong Kong law. The issuance of ADSs by the depositary upon the deposit of ordinary shares issued directly by i-CABLE to the depositary or for the account of the
depositary does not attract stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong Kong where the transfer does not result in a requirement to register such transfer of ADSs in Hong Kong or a change in the beneficial
interest of the ordinary shares under Hong Kong law.



If stamp
duty is not paid on or before the due date, a penalty of up to 10 times the duty payable may be imposed.



Estate Duty



The
ordinary shares are Hong Kong property under Hong Kong law, and accordingly such ordinary shares may be subject to estate duty on the death of the beneficial owner of such ordinary shares, regardless of the place of the owners residence,
citizenship or domicile. The IRD may treat the ADSs as Hong Kong property that may be subject to estate duty on the death of the beneficial owner of the ADSs even if the ADSs are located outside Hong Kong at the date of such death. Hong Kong estate
duty is imposed on a progressive scale from 5% to 15%. The rate of and the threshold for estate duty has, in the past, been adjusted on a fairly regular basis. No estate duty is payable when the aggregate value of the dutiable estate does not exceed
HK$7.5 million, and the maximum rate of duty of 15% applies when the aggregate value of the dutiable estate exceeds HK$10.5 million.



Where a person has transferred ordinary shares to a controlled company (which is defined in the Estate Duty Ordinance to mean a company controlled by not
more than 5 persons) during a period of 3 years ending on the persons death, the controlled company may be liable to estate duty if during that period the deceased has received benefits from it. This may also apply to a transfer by the
deceased of ADSs to the company if the ADSs were to be treated as Hong Kong property by the Inland Revenue Department.



The Revenue (Abolition of Estate Duty) Bill 2005, which seeks to implement the proposal to abolish estate duty announced in the 2005/2006 Budget, was
gazetted on May 6, 2005. Under the proposal in the Bill, estates of persons who pass away after the commencement of the Revenue (Abolition of Estate Duty) Ordinance 2005 will not be subject to estate duty.



58



---

##### Table of Contents

Tax Treaties



No double tax treaty exists between the United States and Hong Kong apart from a treaty to avoid double taxation on shipping income.



United States



Certain U.S. Federal Income Tax Considerations



The following is a summary of certain United States federal income tax considerations that are anticipated to be material to
the purchase, ownership, and disposition of our shares or ADSs by U.S. Holders, as defined below. This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), its legislative history, existing and proposed U.S.
Treasury regulations, published rulings and court decisions, all as in effect on the date hereof. These laws are all subject to change or different interpretation, possibly on a retroactive basis. This summary does not discuss all aspects of United
States federal income taxation which may be important to particular investors in light of their individual investment circumstances, such as investors subject to special tax rules including: partnerships, financial institutions, insurance companies,
broker-dealers, tax-exempt organizations, and, except as described below, non-U.S. Holders, or to persons that will hold our shares or ADSs as part of a straddle, hedge, conversion, or constructive sale transaction for United States federal income
tax purposes or that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not discuss any foreign, state, or
local tax considerations. This summary assumes that investors will hold our shares or ADSs as capital assets (generally, property held for investment) under the United States Internal Revenue Code.



Each prospective investor is urged to consult its own tax advisor regarding
the United States federal, state, local, and foreign income and other tax considerations of the purchase, ownership, and disposition of our shares or ADSs.



For purposes of this summary, a U.S. Holder is a beneficial owner of shares or ADSs that is for United States federal income tax purposes:



| |  |  | an individual who is a citizen or resident of the United States;
| | - |  | ----------------------------------------------------------------



| |  |  | a corporation, or other entity that is taxable as a corporation, created in or organized under the laws of the United States or any State or political subdivision thereof;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | a trust the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control
all substantial decisions of the trust; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a trust that was in existence on August 20, 1996, was treated as a United States person, for United States federal income tax purposes, on the previous day, and elected to continue
to be so treated.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



59



---

##### Table of Contents

A beneficial owner of our shares or ADSs that is not a U.S. Holder is referred to herein as a
Non-U.S. Holder.



A foreign corporation will be
treated as a passive foreign investment company or PFIC, for United States federal income tax purposes, if 75% or more of its gross income consists of certain types of passive income or 50% or more of its assets
are passive for any year. Based on our current and projected income, assets, and activities, we presently believe that we are not a PFIC in the current year and do not anticipate becoming a PFIC in the future. This is, however, a factual
determination made on an annual basis. Because the classification of certain of our assets for United States federal income tax purposes is uncertain, the PFIC rules are subject to administrative interpretation, and the relevant facts may change in
the future, however, no assurance can be given that we are not or will not be treated as a PFIC. The discussion below under U.S. Holders-Dividends and U.S. Holders-Sale or Other Disposition of Shares or ADSs, assumes that we
will not be subject to treatment as a PFIC for United States federal income tax purposes. If we were currently or were to become a PFIC, U.S. Holders would be subject to special rules and a variety of potentially adverse tax consequences under the
Code. See PFIC Considerations below.



U.S.
Holders



For United States federal income tax purposes, a
U.S. Holder of an ADS will be treated as the owner of the proportionate interest of the shares held by the depositary that is represented by an ADS and evidenced by such ADS. Accordingly, no gain or loss will be recognized upon the exchange of an
ADS for the holders proportionate interest in the shares. A U.S. Holders tax basis in the withdrawn shares will be the same as the tax basis in the ADS surrendered therefore, and the holding period in the withdrawn shares will include
the period during which the holder held the surrendered ADS.



Dividends. Any cash distributions paid by us out of our earnings and profits, as determined under United States federal income tax principles, will be subject to tax as ordinary dividend income and will be includible in the gross
income of a U.S. Holder upon actual or constructive receipt. Cash distributions paid by us in excess of our earnings and profits will be treated first as a tax-free return of capital to the extent of the U.S. Holders adjusted tax basis in our
shares or ADSs, and thereafter as gain from the sale or exchange of a capital asset. Dividends paid in Hong Kong dollars will be includible in income in a United States dollar amount based on the United States dollar to Hong Kong dollar exchange
rate prevailing at the time of receipt of such dividends by the depositary, in the case of ADSs, or by the U.S. Holder, in the case of shares held directly by such U.S. Holder. U.S. Holders should consult their own tax advisors regarding the United
States federal income tax treatment of any foreign currency gain or loss recognized on the subsequent conversion of Hong Kong dollars received as dividends to United States dollars. Dividends received on shares or ADSs will not be eligible for the
dividends received deduction allowed to corporations.



Under
current law, qualified dividend income received by an individual after December 31, 2002 and before January 1, 2009 is subject to United States federal income tax rates lower than those applicable to ordinary income. The top federal
income tax rate on such qualifying dividends received by an individual is 15%, or 5% for those individuals whose incomes fall in the 10- or 15- percent brackets. Based upon our existing and anticipated future operations and current assets, we
believe that we are a qualified foreign corporation and that our dividends paid to U.S. Holders who are individuals will be eligible to be treated as qualified dividend income, provided that such Holders satisfy applicable
holding period requirements with respect to the ADSs and other application requirements. Dividends paid by foreign corporations that are classified as PFICs are not qualified dividend income. See PFIC Considerations below.



60



---

##### Table of Contents

Dividends received on shares or ADSs generally will be treated, for United States federal income tax
purposes, as income from non-U.S. sources. Such non-U.S. source income generally will be passive income or financial services income for taxable years beginning on or before December 31, 2006, and as passive category
income, or in certain cases general category income, for taxable years beginning after December 31, 2006, which is treated separately from other types of income for purposes of computing the foreign tax credit. A U.S. Holder may be
eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on shares or ADSs. U.S. Holders who do not elect to claim a foreign tax credit for federal
income tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholdings, but only for a year in which the U.S. Holder elects to do so for all creditable foreign income taxes.



In addition, the United States Treasury has expressed concerns that parties
to whom depositary shares are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by the holders of ADSs. Accordingly, the analysis of the creditability of foreign withholding taxes could be affected by
future actions that may be taken by the United States Treasury.



Sale or Other Disposition of Shares or ADSs. A U.S. Holder will recognize capital gain or loss upon the sale or other disposition of shares or ADSs in an amount equal to the difference between the amount realized upon the disposition
and the U.S. Holders adjusted tax basis in such shares or ADSs, as each is determined in U.S. dollars. Any such capital gain or loss will be long-term if the shares or ADSs have been held for more than one year and will generally be United
States source gain or loss. The claim of a deduction in respect of a capital loss, for United States federal income tax purposes, may be subject to limitations. If a U.S. Holder receives Hong Kong dollars for any such disposition, such U.S. Holder
should consult its own tax advisor regarding the United States federal income tax treatment of any foreign currency gain or loss recognized on the subsequent conversion of the Hong Kong dollars to United States dollars.



Pursuant to recently-enacted legislation, a penalty in the amount of $10,000
in the case of a natural person and $50,000 in any other case is imposed on any taxpayer that fails to timely disclose its participation in a reportable transaction (as defined in Section 6011 of the Code). A taxpayer that has
participated in a reportable transaction during the tax year must attach a disclosure statement to its United States federal income tax return. A reportable transaction includes a transaction generating a loss under Code
Section 165 in excess of certain specified amounts (which amounts vary depending on several factors, including the status of the taxpayer as an individual, trust, partnership or corporation). Investment in shares and ADSs could be treated as a
reportable transaction that must be disclosed on a U.S. Holders United States federal income tax return if the investment results in the taxpayer claiming a foreign currency loss on such tax return equal to or greater than the
specified amount (e.g., $50,000 in the case of a taxpayer that is an individual or trust). U.S. Holders are urged to consult their own tax advisors regarding the circumstances in which an investment in shares or ADSs may result in a reportable
transaction that is required to be disclosed.



PFIC
Considerations



If we were to be classified as a PFIC for
any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of United States federal income tax that a U.S. Holder could derive from investing in a foreign company that
does not distribute all of its earnings on a current basis. In such event, a U.S. Holder of the shares or ADSs may be subject to tax at ordinary income tax rates on (i) any gain recognized on the sales of the shares or ADSs and (ii) any excess
distribution paid on the shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years). In addition, a U.S. Holder may be subject to an interest charge on such
gain or excess distribution. Prospective investors are urged to consult their own tax advisors regarding the potential tax consequences to them if we are or do become a PFIC, as well as certain elections that may be available to them to mitigate
such consequences.



61



---

##### Table of Contents

Non-U.S. Holders



An investment in shares or ADSs by a Non-U.S. Holder will not give rise to any United States federal income tax consequences
unless:



| |  |  | the dividends received or gain recognized on the sale of the shares or ADSs by such person is treated as effectively connected with the conduct of a trade or business by such person
in the United States as determined under United States federal income tax law, and the dividends are attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that you maintain in the United States if
that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis. In such cases you generally will be taxed in the same manner as a U.S. holder. If you are a corporate non-U.S. Holder,
effectively connected dividends may, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or a lower rate if you are eligible for the benefits of an income tax treaty that provides for a
lower rate, or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the case of gains recognized on a sale of shares or ADSs by an individual, such individual is present in the United States for 183 days or more and certain other conditions are
met. The non-U.S. Holder will be subject to United States federal income tax at a rate of 30% on the amount by which the U.S.-source capital gains exceed non-U.S.-source capital losses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Backup Withholding and Information Reporting



In general, information reporting requirements will apply to dividends on or
the proceeds received on the sale, exchange or redemption of shares or ADSs paid within the United States (and, in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations, and backup
withholding tax at the rate of 28% may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (or otherwise establishes, in the manner provided by law, an exemption from backup withholding) or to report
dividends required to be shown on the U.S. Holders United States Federal income tax returns.



Backup withholding is not an additional income tax, and the amount of any backup withholding from a payment to a U.S. Holder will be allowed as credit
against the U.S. Holders United States Federal income tax liability provided that the appropriate returns are filed.



A non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign
status to the payor, under penalties of perjury, on IRS Form W-8BEN.



F. Dividends and paying agents



Not applicable.



G. Statement by experts



Not
applicable.



62



---

##### Table of Contents

H. Documents on display



We file
annual reports with and furnish other information to the SEC as may be applicable from time to time. You may read and copy any documents filed or furnished by i-CABLE at the SECs public reference room in Washington, D.C. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room.



I. Subsidiary Information



Not
applicable.



ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Market Risk



We
are exposed to foreign exchange and interest-rate risk primarily associated with underlying assets and/or liabilities. During 2004, we entered into a forward foreign exchange contract with a financial institution to hedge certain firmly committed,
non-Hong Kong dollar commercial transactions in 2005. We had, as at December 31, 2004, an outstanding forward contract to buy foreign currency with a notional principal value of HK$101 million equivalent.



Foreign Currency Risk



The functional currency for our operations is the HK dollar. We have
incurred and expect to continue to incur expenses and liabilities in U.S. dollars, primarily because our licensed programming costs are in U.S. dollars. There have been no material operating trends or effects on our liquidity as a result of
fluctuations in currency exchange rates. To date, the Hong Kong Government has continued to support a linkage of the value of the HK dollar to the U.S. dollar at approximately HK$7.80 to US$1.00, and the PRC has not devalued the Renminbi since
January 1, 1994.



Interest Rate Risk



As of December 31, 2004, we had cash and cash equivalents of HK$115 million
(US$14.8 million). The interest income derived from these cash and cash equivalents is determined with reference to market interest rates.



Deflation



For the years 2002, 2003 and 2004, Hong Kong experienced an annual deflation rate of 3.0%, 2.6% and 0.4%, respectively, based on its Composite Consumer
Price Index. Deflation in Hong Kong has not had a material impact on our operations.



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



Not applicable.



63



---

##### Table of Contents

PART II



ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



None.



ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



None.



ITEM 15. CONTROLS AND PROCEDURES



(a) We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a - 14(c) of the Securities Exchange Act of 1934, as amended) as of December 31, 2004. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective in all material respects to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is made known to them by others within i-CABLE and its subsidiaries and is
recorded, processed, summarized and reported as and when required.



(b) There were no significant changes in our internal control over financial reporting or in other factors that could significantly affect internal controls subsequent to the date of our evaluation.



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT



Mr. Anthony K. K. Yeung, JP, who was appointed as a Director as well as audit committee member of the Company in September 2004, qualifies as an audit committee financial expert as defined in Section 407 of the
Sarbanes-Oxley Act of 2002.



ITEM 16B. CODE OF ETHICS



We
adopted a Code of Ethics that applied to our Chief Executive Officer and senior financial officers in 2003. We amended this Code of Ethics to comply with the Sarbanes-Oxley Act of 2002 in 2005. We filed this amended Code of Ethics as an exhibit to
this annual report on Form 20-F for 2004. We have never granted a waiver for non-compliance with the policies and procedures set forth in the code of ethics for any employee of our company or any of our subsidiaries.



ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Fees to the Independent Auditor



The
Board of Directors engaged KPMG (KPMG) to perform an annual audit of the Companys financial statements. The following table presents fees for professional audit services rendered by KPMG for the audit of the Companys annual
consolidated financial statements for 2003 and 2004, and fees billed for other services rendered by KPMG in each of those years.



|                      |  |         |  |        
|--------------------- |  | ------- |  | -------
|                      |  | 2003    |  | 2004   
|                      |  | HK$000 |  | HK$000
|Audit fees            |  | 2,527   |  | 2,504  
|Audit-related fees(1) |  | 16      |  | 16     
|Tax fees(2)           |  | 387     |  | 772    
|All other fees(3)     |  |        |  | 450    
|                      |  |         |  |        
|Total fees            |  | 2,930   |  | 3,742  
|                      |  |         |  |        

---

|(1) | Audit related fees consist of fees for issuance of agreed upon procedures reports not required by statute or regulation.
|--- | ------------------------------------------------------------------------------------------------------------------------



64



---

##### Table of Contents

|(2) | Tax fees consist of fees for tax compliance, tax advice, and tax planning services.
|--- | -----------------------------------------------------------------------------------

|(3) | Fees for issuance of a report in connection with the capital reduction of a subsidiary during 2004.
|--- | ---------------------------------------------------------------------------------------------------



Pre-Approval of Services Provided by KPMG



The Audit Committee has adopted policies and procedures for pre-approving
all non-audit work performed by KPMG after January 1, 2003. Specifically, the policies and procedures prohibit KPMG from performing any services for the Company or its subsidiaries without the prior approval of the Audit Committee.



All of the services provided by KPMG in 2004 were approved by the Audit
Committee pursuant to the approval policies described above, and none of such services were approved pursuant to the procedures described in Rule 2-01(c)(7)(i)(C) of Regulation S-X, which waives the general requirement for pre-approval in certain
circumstances.



Nasdaq listing requirements require listed
companies to be audited by an independent public accountant that either: (a) has received an external quality control review by an independent public accountant (peer review) that determines whether the auditors system of quality
control is in place and operating effectively and whether established policies and procedures and applicable auditing standards are being followed or (b) is enrolled in a peer review program and has within 18 months received a peer review that meets
guidelines acceptable to Nasdaq. Among other things, the peer review should be comparable to the peer review standards of the American Institute of Certified Public Accountants and the peer review program should be subject to oversight by an
independent body comparable to the Public Company Accounting Oversight Board (the PCAOB).



While there is no peer review requirement in Hong Kong, the companys independent registered public accounting firm, KPMG, are registered with the
PCAOB and also with the Hong Kong Institute of Certified Public Accountants, the regulatory body of Hong Kong public accountants, and are subject to their oversight and inspection reviews.



ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES



Not applicable.



ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.



Not applicable.



PART III



ITEM 17. FINANCIAL STATEMENTS



We
have responded to Item 18 in lieu of responding to this Item.



65



---

##### Table of Contents

ITEM 18. FINANCIAL STATEMENTS



See Item 19(a) for a list of financial statements filed under Item 18.



ITEM 19. EXHIBITS



|                                                                                                        |  |     
|------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                        |  | Page
|(a) List of Financial Statements                                                                        |  |     
|                                                                                                        | 
|Report of Independent Registered Public Accounting Firm                                                 |  | F-1 
|                                                                                                        | 
|Consolidated Statements of Operations for the three years ended December 31, 2002, 2003 and 2004        |  | F-2 
|                                                                                                        | 
|Consolidated Balance Sheets as of December 31, 2003 and 2004                                            |  | F-3 
|                                                                                                        | 
|Consolidated Statements of Changes in Equity for the three years ended December 31, 2002, 2003 and 2004 |  | F-4 
|                                                                                                        | 
|Consolidated Statements of Cash Flows for the three years ended December 31, 2002, 2003 and 2004        |  | F-6 
|                                                                                                        | 
|Notes to Consolidated Financial Statements                                                              |  | F-8 



(b) List of Exhibits



See Item 19(a) and Exhibits, which are incorporated by
reference to the Registrants Registration Statement on Form F-1 (File No. 333-11014) filed with the Commission on November 1, 1999, except for Exhibit 3.2 - Articles of Association of i-CABLE, which was amended on each of June 6, 2002 and May
29, 2003 and was filed with the annual report on Form 20-F for 2003 as Exhibit 1.1 and is incorporated by reference herein.



|             |  |                                                                                                              
|------------ |  | -------------------------------------------------------------------------------------------------------------
|Exhibit 8.1  |  | List of Subsidiaries.                                                                                        
|             | 
|Exhibit 11.1 |  | Code of Ethics.                                                                                              
|             | 
|Exhibit 12.1 |  | Certification by the Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
|             | 
|Exhibit 12.2 |  | Certification by the Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
|             | 
|Exhibit 13.1 |  | Certification by the Chief Executive Officer and Chief Financial Officer required by 18 U.S.C.ss.1350.       



66



---

##### Table of Contents

SIGNATURES



The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
annual report on its behalf.



i-CABLE Communications LimitedBy:

/s/ Samuel S. F. WongName:

Samuel S. F. WongTitle:

Chief Financial Officer




Date: June 30, 2005



67



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders



i-CABLE Communications
Limited:



We have audited the accompanying consolidated
balance sheets of i-CABLE Communications Limited and its subsidiaries (the Group) as of December 31, 2003 and 2004 and the related consolidated statements of operations, changes in equity and cash flows for each of the years in the
three-year period ended December 31, 2004, all expressed in Hong Kong dollars. These consolidated financial statements are the responsibility of the Groups management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.



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



In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of i-CABLE Communications Limited and its subsidiaries as of December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity with accounting principles generally accepted in Hong Kong.



Accounting principles generally accepted in Hong Kong vary in certain significant respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effect of such differences is presented in Note 30 to the consolidated financial statements.



The accompanying consolidated financial statements as of and for the year ended December 31, 2004 have been translated into United States dollars solely
for the convenience of the reader. We have audited the translation, and in our opinion, the consolidated financial statements expressed in Hong Kong dollars have been translated into United States dollars on the basis set forth in Note 1 to the
consolidated financial statements.



/s/ KPMG



Hong Kong

June 28, 2005



F - 1



---

##### Table of Contents

i-CABLE Communications Limited



Consolidated Statements of Operations

For the year ended December 31



|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|---------------------------------------------------------------------- |  | ---- | --- |  | ----------------------------------------------------- | --------- | - | ---- | --- | --------- | ---- |  | --- | --------- | - |  | --- | --------- | -
|                                                                       |  | Note |     |  | 2002                                                  |           |   | 2003 |     |           | 2004 |  |     | 2004      |  
|                                                                       |  |      |     |  | HK$                                                   |           |   | HK$  |     |           | HK$  |  |     | US$       |  
|                                                                       |  |      |     |  | (in thousands, except for per share and per ADS data) |          
|Service revenues                                                       |  | 3,4  |     |  |                                                       | 2,160,788 |   |      |     | 2,142,813 |      |  |     | 2,371,727 |   |  |     | 305,151   |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Programming costs                                                      |  |      |     |  |                                                       | (732,205  | ) |      |     | (649,523  | )    |  |     | (790,575  | ) |  |     | (101,717  | )
|Network and other operating expenses                                   |  |      |     |  |                                                       | (351,148  | ) |      |     | (360,983  | )    |  |     | (380,584  | ) |  |     | (48,967   | )
|Selling, general and administrative expenses                           |  |      |     |  |                                                       | (346,742  | ) |      |     | (343,098  | )    |  |     | (372,738  | ) |  |     | (47,957   | )
|Depreciation                                                           |  |      |     |  |                                                       | (504,258  | ) |      |     | (538,599  | )    |  |     | (532,113  | ) |  |     | (68,463   | )
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Profit from operations                                                 |  |      |     |  |                                                       | 226,435   |   |      |     | 250,610   |      |  |     | 295,717   |   |  |     | 38,047    |  
|                                                                       |  |      |     |  |                                                      
|Interest income                                                        |  | 5    |     |  |                                                       | 26,355    |   |      |     | 8,485     |      |  |     | 24        |   |  |     | 3         |  
|Finance costs                                                          |  | 5    |     |  |                                                       | (62,463   | ) |      |     | (15,610   | )    |  |     | (238      | ) |  |     | (31       | )
|Non-operating income/(expenses)                                        |  | 6    |     |  |                                                       | (198      | ) |      |     | (9,885    | )    |  |     | 1,499     |   |  |     | 193       |  
|Impairment loss on investments                                         |  | 5    |     |  |                                                       | (72,870   | ) |      |     |          |      |  |     |          |   |  |     |          |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Profit before taxation                                                 |  | 5    |     |  |                                                       | 117,259   |   |      |     | 233,600   |      |  |     | 297,002   |   |  |     | 38,212    |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Provision for income tax                                               |  | 7    | (a) |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|- current income tax charge                                            |  |      |     |  |                                                       | (10,823   | ) |      |     | (139,938  | )    |  |     | (17,665   | ) |  |     | (2,273    | )
|- deferred income tax credit                                           |  |      |     |  |                                                       | 10,823    |   |      |     | 126,796   |      |  |     | 60,322    |   |  |     | 7,761     |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|                                                                       |  |      |     |  |                                                       |          |   |      |     | (13,142   | )    |  |     | 42,657    |   |  |     | 5,488     |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Net profit                                                             |  |      |     |  |                                                       | 117,259   |   |      |     | 220,458   |      |  |     | 339,659   |   |  |     | 43,700    |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Earnings per share                                                     |  | 9    |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Basic                                                                  |  |      |     |  | HK$                                                   | 0.06      |   |      | HK$ | 0.11      |      |  | HK$ | 0.17      |   |  | US$ | 0.02      |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Diluted                                                                |  |      |     |  | HK$                                                   | 0.06      |   |      | HK$ | 0.11      |      |  | HK$ | 0.17      |   |  | US$ | 0.02      |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Weighted-average shares outstanding for earnings per share (thousands) |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Basic                                                                  |  |      |     |  |                                                       | 2,016,284 |   |      |     | 2,019,234 |      |  |     | 2,019,234 |   |  |     | 2,019,234 |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Diluted                                                                |  |      |     |  |                                                       | 2,026,931 |   |      |     | 2,019,234 |      |  |     | 2,019,234 |   |  |     | 2,019,234 |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Earnings per ADS                                                       |  | 9    |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Basic                                                                  |  |      |     |  | HK$                                                   | 1.16      |   |      | HK$ | 2.18      |      |  | HK$ | 3.36      |   |  | US$ | 0.43      |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Diluted                                                                |  |      |     |  | HK$                                                   | 1.16      |   |      | HK$ | 2.18      |      |  | HK$ | 3.36      |   |  | US$ | 0.43      |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|ADS outstanding for earnings per ADS (thousands)                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Basic                                                                  |  |      |     |  |                                                       | 100,814   |   |      |     | 100,962   |      |  |     | 100,962   |   |  |     | 100,962   |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Diluted                                                                |  |      |     |  |                                                       | 101,347   |   |      |     | 100,962   |      |  |     | 100,962   |   |  |     | 100,962   |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Dividends attributable to the year                                     |  | 8    |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|Interim dividend declared during the year                              |  |      |     |  |                                                       | 30,289    |   |      |     | 30,289    |      |  |     | 60,577    |   |  |     | 7,794     |  
|Final dividend proposed after the balance sheet date                   |  |      |     |  |                                                       | 30,289    |   |      |     | 80,769    |      |  |     | 90,866    |   |  |     | 11,691    |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  
|                                                                       |  |      |     |  |                                                       | 60,578    |   |      |     | 111,058   |      |  |     | 151,443   |   |  |     | 19,485    |  
|                                                                       |  |      |     |  |                                                       |           |   |      |     |           |      |  |     |           |   |  |     |           |  



See accompanying notes to the
consolidated financial statements which are an integral part of these statements.



F - 2



---

##### Table of Contents

i-CABLE Communications Limited



Consolidated Balance Sheets

As of December 31



|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|------------------------------------------- |  | ---- | --- |  | --------- | - |  | --------- | - |  | ------- | -
|                                            |  | Note |     |  | 2003      |   |  | 2004      |   |  | 2004    |  
|                                            |  |      |     |  | HK$000   |   |  | HK$000   |   |  | US$000 |  
|ASSETS                                      |  |      |     |  |           |   |  |           |   |  |         |  
|Current assets                              |  |      |     |  |           |   |  |           |   |  |         |  
|Inventories                                 |  | 10   |     |  | 17,511    |   |  | 16,195    |   |  | 2,084   |  
|Accounts receivable from trade debtors, net |  | 11   |     |  | 112,054   |   |  | 118,237   |   |  | 15,213  |  
|Deposits, prepayments and other receivables |  |      |     |  | 84,693    |   |  | 116,119   |   |  | 14,940  |  
|Amounts due from fellow subsidiaries        |  | 12   |     |  | 3,453     |   |  | 1,416     |   |  | 182     |  
|Amount due from immediate holding company   |  | 18   |     |  |          |   |  | 320       |   |  | 41      |  
|Cash and cash equivalents                   |  |      |     |  | 28,915    |   |  | 115,013   |   |  | 14,798  |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|Total current assets                        |  |      |     |  | 246,626   |   |  | 367,300   |   |  | 47,258  |  
|                                            |  |      |     | 
|Property, plant and equipment               |  | 13   |     |  | 2,169,729 |   |  | 2,050,787 |   |  | 263,858 |  
|Programming library                         |  | 14   |     |  | 142,171   |   |  | 127,311   |   |  | 16,380  |  
|Deferred tax assets                         |  | 20   | (b) |  | 112,600   |   |  | 203,285   |   |  | 26,155  |  
|Non-current investments                     |  | 15   |     |  | 9,725     |   |  | 9,725     |   |  | 1,251   |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|TOTAL ASSETS                                |  |      |     |  | 2,680,851 |   |  | 2,758,408 |   |  | 354,902 |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY        |  |      |     |  |           |   |  |           |   |  |         |  
|Current liabilities                         |  |      |     |  |           |   |  |           |   |  |         |  
|Amounts due to trade creditors              |  | 16   |     |  | 48,520    |   |  | 109,302   |   |  | 14,063  |  
|Accrued expenses and other payables         |  |      |     |  | 441,369   |   |  | 354,024   |   |  | 45,549  |  
|Receipts in advance and customers deposits |  |      |     |  | 241,753   |   |  | 220,564   |   |  | 28,378  |  
|Taxation                                    |  | 20   | (a) |  | 131,055   |   |  | 17,022    |   |  | 2,190   |  
|Amounts due to fellow subsidiaries          |  | 17   |     |  | 20,606    |   |  | 31,572    |   |  | 4,062   |  
|Amount due to immediate holding company     |  | 18   |     |  | 300       |   |  |          |   |  |        |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|Total current liabilities                   |  |      |     |  | 883,603   |   |  | 732,484   |   |  | 94,242  |  
|                                            |  |      |     | 
|Deferred tax liabilities                    |  | 20   | (b) |  | 112,600   |   |  | 142,963   |   |  | 18,394  |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|TOTAL LIABILITIES                           |  |      |     |  | 996,203   |   |  | 875,447   |   |  | 112,636 |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|Shareholders equity                        |  |      |     |  |           |   |  |           |   |  |         |  
|Share capital                               |  | 21   |     |  | 2,019,234 |   |  | 2,019,234 |   |  | 259,799 |  
|Reserves                                    |  |      |     |  | (334,586  | ) |  | (136,273  | ) |  | (17,533 | )
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|TOTAL SHAREHOLDERS EQUITY                  |  |      |     |  | 1,684,648 |   |  | 1,882,961 |   |  | 242,266 |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY  |  |      |     |  | 2,680,851 |   |  | 2,758,408 |   |  | 354,902 |  
|                                            |  |      |     |  |           |   |  |           |   |  |         |  



See accompanying notes to the
consolidated financial statements which are an integral part of these statements.



F - 3



---

##### Table of Contents

i-CABLE Communications Limited



Consolidated Statements of Changes in Equity



|                                                                                                 |  |               |  |                              |  |         |                       |  |                |  |            |              |  |          |   |  |           |  
|------------------------------------------------------------------------------------------------ |  | ------------- |  | ---------------------------- |  | ------- | --------------------- |  | -------------- |  | ---------- | ------------ |  | -------- | - |  | --------- | -
|                                                                                                 |  | Share capital |  | Reserves                     |  |         | Total                 | 
|                                                                                                 |  | Sharepremium  |  | Investmentrevaluationreserve |  |         | Specialcapitalreserve |  | Revenuereserve |  |            | Totalreserve |  |         
|                                                                                                 |  | HK$000       |  | HK$000                      |  | HK$000 |                       |  | HK$000        |  | HK$000    |              |  | HK$000  |   |  | HK$000   |  
|Group                                                                                            |  |               |  |                              |  |         |                       |  |                |  |            |              |  |          |   |  |           |  
|Balance at January 1, 2002*                                                                      |  | 2,014,000     |  | 4,826,326                    |  | (14,500 | )                     |  |               |  | (5,369,451 | )            |  | (557,625 | ) |  | 1,456,375 |  
|                                                                                                 |  |               |  |                              |  |         |                      
|Transfer from the statement of operations                                                        |  |              |  |                             |  |        |                       |  |               |  | 117,259    |              |  | 117,259  |   |  | 117,259   |  
|Dividend approved in respect of the previous year                                                |  |              |  |                             |  |        |                       |  |               |  | (50,350    | )            |  | (50,350  | ) |  | (50,350   | )
|Dividend declared in respect of the current year                                                 |  |              |  |                             |  |        |                       |  |               |  | (30,289    | )            |  | (30,289  | ) |  | (30,289   | )
|Deficit on revaluation of investments and net loss not recognized in the statement of operations |  |              |  |                             |  | (58,156 | )                     |  |               |  |           |              |  | (58,156  | ) |  | (58,156   | )
|Transfer to the statement of operations on impairment of investments                             |  |              |  |                             |  | 72,870  |                       |  |               |  |           |              |  | 72,870   |   |  | 72,870    |  
|Transfer to the statement of operations on disposal of debt securities                           |  |              |  |                             |  | (214    | )                     |  |               |  |           |              |  | (214     | ) |  | (214      | )
|Shares issued under share option scheme                                                          |  | 5,234         |  | 12,039                       |  |        |                       |  |               |  |           |              |  | 12,039   |   |  | 17,273    |  
|                                                                                                 |  |               |  |                              |  |         |                       |  |                |  |            |              |  |          |   |  |           |  
|Balance at December 31, 2002*                                                                    |  | 2,019,234     |  | 4,838,365                    |  |        |                       |  |               |  | (5,332,831 | )            |  | (494,466 | ) |  | 1,524,768 |  
|                                                                                                 |  |               |  |                              |  |         |                      
|Transfer from the statement of operations                                                        |  |              |  |                             |  |        |                       |  |               |  | 220,458    |              |  | 220,458  |   |  | 220,458   |  
|Dividend approved in respect of the previous year                                                |  |              |  |                             |  |        |                       |  |               |  | (30,289    | )            |  | (30,289  | ) |  | (30,289   | )
|Dividend declared in respect of the current year                                                 |  |              |  |                             |  |        |                       |  |               |  | (30,289    | )            |  | (30,289  | ) |  | (30,289   | )
|                                                                                                 |  |               |  |                              |  |         |                       |  |                |  |            |              |  |          |   |  |           |  
|Balance at December 31, 2003*                                                                    |  | 2,019,234     |  | 4,838,365                    |  |        |                       |  |               |  | (5,172,951 | )            |  | (334,586 | ) |  | 1,684,648 |  
|                                                                                                 |  |               |  |                              |  |         |                       |  |                |  |            |              |  |          |   |  |           |  





F - 4



---

##### Table of Contents

i-CABLE Communications Limited



Consolidated Statements of Changes in Equity



|                                                  |  |               |  |                              |  |                       |       |                 |  |            |               |  |          |   |  |           |  
|------------------------------------------------- |  | ------------- |  | ---------------------------- |  | --------------------- | ----- | --------------- |  | ---------- | ------------- |  | -------- | - |  | --------- | -
|                                                  |  | Share capital |  | Reserves                     |  |                       | Total |                
|                                                  |  | Share premium |  | Investmentrevaluationreserve |  | Specialcapitalreserve |       | Revenuereserves |  |            | Totalreserves |  |         
|                                                  |  | HK$000       |  | HK$000                      |  | HK$000               |       | HK$000         |  | HK$000    |               |  | HK$000  |   |  | HK$000   |  
|Balance at December 31, 2003*                     |  | 2,019,234     |  | 4,838,365                    |  |                      |       |                |  | (5,172,951 | )             |  | (334,586 | ) |  | 1,684,648 |  
|                                                  |  |               |  |                              |  |                       |      
|Transfer from the statement of operations         |  |              |  |                             |  |                      |       |                |  | 339,659    |               |  | 339,659  |   |  | 339,659   |  
|Dividend approved in respect of the previous year |  |              |  |                             |  |                      |       |                |  | (80,769    | )             |  | (80,769  | ) |  | (80,769   | )
|Dividend declared in respect of the current year  |  |              |  |                             |  |                      |       |                |  | (60,577    | )             |  | (60,577  | ) |  | (60,577   | )
|Transfer to special capital reserve**             |  |              |  |                             |  |                      |       | 3,345           |  | (3,345     | )             |  |         |   |  |          |  
|                                                  |  |               |  |                              |  |                       |       |                 |  |            |               |  |          |   |  |           |  
|Balance at December 31, 2004*                     |  | 2,019,234     |  | 4,838,365                    |  |                      |       | 3,345           |  | (4,977,983 | )             |  | (136,273 | ) |  | 1,882,961 |  
|                                                  |  |               |  |                              |  |                       |       |                 |  |            |               |  |          |   |  |           |  

---

The application of the share premium account is
governed by Section 48B of the Hong Kong Companies Ordinance.



|* | Included in the Groups revenue reserve is positive goodwill written off against reserves in prior years amounting to HK$197,785,000.
|- | -------------------------------------------------------------------------------------------------------------------------------------

|** | The special capital reserve is non-distributable and it should be applied for the same purposes as the share premium account. Details of the special capital reserve are set out in
Note 23 to the financial statements.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes to
the consolidated financial statements which are an integral part of these statements.



F - 5



---

##### Table of Contents

i-CABLE Communications Limited



Consolidated Statements of Cash Flows



|                                                                   |  |                        |   |  |          |   |  |          |   |  |         |  
|------------------------------------------------------------------ |  | ---------------------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                                   |  | Year ended December 31 |  
|                                                                   |  | 2002                   |   |  | 2003     |   |  | 2004     |   |  | 2004    |  
|                                                                   |  | HK$000                |   |  | HK$000  |   |  | HK$000  |   |  | US$000 |  
|Operating activities                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|Profit before taxation                                             |  | 117,259                |   |  | 233,600  |   |  | 297,002  |   |  | 38,212  |  
|                                                                   |  |                        |   | 
|Adjustments for:                                                   |  |                        |   |  |          |   |  |          |   |  |         |  
|Finance costs                                                      |  | 62,463                 |   |  | 15,610   |   |  | 238      |   |  | 31      |  
|Interest income                                                    |  | (26,355                | ) |  | (8,485   | ) |  | (24      | ) |  | (3      | )
|Depreciation                                                       |  | 504,258                |   |  | 538,599  |   |  | 532,113  |   |  | 68,463  |  
|Amortization of programming library                                |  | 152,861                |   |  | 95,152   |   |  | 92,860   |   |  | 11,948  |  
|Impairment loss on investments                                     |  | 72,870                 |   |  |         |   |  |         |   |  |        |  
|Gain on disposal of listed investments                             |  | (469                   | ) |  | (99      | ) |  |         |   |  |        |  
|Impairment loss of property, plant and equipment                   |  | 1,671                  |   |  | 5,734    |   |  | 3,824    |   |  | 492     |  
|(Gain)/loss on disposal of property, plant and equipment           |  | 198                    |   |  | 7,593    |   |  | (1,499   | ) |  | (193    | )
|                                                                   |  |                        |   |  |          |   |  |          |   |  |         |  
|Operating profit before changes in working capital                 |  | 884,756                |   |  | 887,704  |   |  | 924,514  |   |  | 118,950 |  
|                                                                   |  |                        |   | 
|Decrease in inventories                                            |  | 16,020                 |   |  | 5,772    |   |  | 9,135    |   |  | 1,175   |  
|(Increase)/decrease in accounts receivable from trade debtors      |  | 8,543                  |   |  | (22,574  | ) |  | (6,183   | ) |  | (796    | )
|(Increase)/decrease in deposits, prepayments and other receivables |  | 10,989                 |   |  | (54,780  | ) |  | (29,967  | ) |  | (3,856  | )
|(Increase)/decrease in amounts due from fellow subsidiaries        |  | (440                   | ) |  | 4,744    |   |  | 2,037    |   |  | 262     |  
|Increase/(decrease) in amounts due to trade creditors              |  | 17,541                 |   |  | (2,721   | ) |  | 32,336   |   |  | 4,160   |  
|Increase/(decrease) in accrued expenses and other payables         |  | (23,603                | ) |  | 54,489   |   |  | (12,492  | ) |  | (1,607  | )
|Decrease in receipts in advance and customers deposits            |  | (6,529                 | ) |  | (140,821 | ) |  | (21,189  | ) |  | (2,726  | )
|Increase in amounts due to fellow subsidiaries                     |  | 3,927                  |   |  | 3,848    |   |  | 10,966   |   |  | 1,411   |  
|Increase/(decrease) in amount due to immediate holding company     |  | 31                     |   |  | (232     | ) |  | (620     | ) |  | (79     | )
|                                                                   |  |                        |   |  |          |   |  |          |   |  |         |  
|Cash generated from operations                                     |  | 911,235                |   |  | 735,429  |   |  | 908,537  |   |  | 116,894 |  
|                                                                   |  |                        |   | 
|Interest received                                                  |  | 25,448                 |   |  | 10,704   |   |  | 24       |   |  | 3       |  
|Interest paid                                                      |  | (62,382                | ) |  | (15,690  | ) |  | (238     | ) |  | (31     | )
|Hong Kong Profits Tax paid                                         |  | (10,904                | ) |  | (10,890  | ) |  | (131,639 | ) |  | (16,937 | )
|Overseas tax paid                                                  |  |                       |   |  |         |   |  | (59      | ) |  | (7      | )
|                                                                   |  |                        |   |  |          |   |  |          |   |  |         |  
|Net cash from operating activities                                 |  | 863,397                |   |  | 719,553  |   |  | 776,625  |   |  | 99,922  |  
|                                                                   |  |                        |   |  |          |   |  |          |   |  |         |  





F - 6



---

##### Table of Contents

i-CABLE Communications Limited



Consolidated Statements of Cash Flows (continued)



|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|-------------------------------------------------------------- |  | ---------------------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                               |  | Year ended December 31 |  
|                                                               |  | 2002                   |   |  | 2003     |   |  | 2004     |   |  | 2004    |  
|                                                               |  | HK$000                |   |  | HK$000  |   |  | HK$000  |   |  | US$000 |  
|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|Investing activities                                           |  |                        |   |  |          |   |  |          |   |  |         |  
|Purchase of property, plant and equipment                      |  | (608,689               | ) |  | (362,788 | ) |  | (459,036 | ) |  | (59,060 | )
|Additions to programming library                               |  | (107,652               | ) |  | (90,729  | ) |  | (95,357  | ) |  | (12,269 | )
|Proceeds from sales of property, plant and equipment           |  | 4,333                  |   |  | 7,982    |   |  | 5,161    |   |  | 664     |  
|(Placement)/redemption of deposits with financial institutions |  | (156,000               | ) |  | 468,000  |   |  |         |   |  |        |  
|Purchase of investments                                        |  | (46,861                | ) |  |         |   |  |         |   |  |        |  
|Proceeds from disposal of investments                          |  | 31,182                 |   |  | 27,078   |   |  |         |   |  |        |  
|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|Net cash generated from/(used in) investing activities         |  | (883,687               | ) |  | 49,543   |   |  | (549,232 | ) |  | (70,665 | )
|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|Financing activities                                           |  |                        |   |  |          |   |  |          |   |  |         |  
|Proceeds from/(repayment of) bank loans                        |  | 386,299                |   |  | (386,299 | ) |  |         |   |  |        |  
|Proceeds from shares issued under share option scheme          |  | 17,273                 |   |  |         |   |  |         |   |  |        |  
|Dividends paid                                                 |  | (80,639                | ) |  | (60,578  | ) |  | (141,295 | ) |  | (18,179 | )
|Redemption of convertible bonds                                |  | (1,500,000             | ) |  | (300,000 | ) |  |         |   |  |        |  
|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|Net cash used in financing activities                          |  | (1,177,067             | ) |  | (746,877 | ) |  | (141,295 | ) |  | (18,179 | )
|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|Net increase/(decrease) in cash and cash equivalents           |  | (1,197,357             | ) |  | 22,219   |   |  | 86,098   |   |  | 11,078  |  
|                                                               |  |                        |   | 
|Cash and cash equivalents at January 1                         |  | 1,204,053              |   |  | 6,696    |   |  | 28,915   |   |  | 3,720   |  
|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  
|Cash and cash equivalents at December 31                       |  | 6,696                  |   |  | 28,915   |   |  | 115,013  |   |  | 14,798  |  
|                                                               |  |                        |   |  |          |   |  |          |   |  |         |  



See accompanying notes to the
consolidated financial statements which are an integral part of these statements.



F - 7



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements

For the year ended December 31, 2004

1. Basis of presentation



The consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (which include all
applicable Statements of Standard Accounting Practice and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) (HK GAAP). Information relating to the nature and effect of differences
between HK GAAP and accounting principles generally accepted in the United States (US GAAP) are set out in Note 30.



The consolidated financial statements are expressed in Hong Kong dollars. Solely for the convenience of the reader, the December 31, 2004 consolidated
financial statements have been translated into United States dollars at the rate of exchange US$1=HK$7.7723, the noon buying rate for cable transfers for buying Hong Kong dollars at December 31, 2004 as certified for customs purposes by the Federal
Reserve Bank of New York. No representation is made that Hong Kong dollar amounts could have been, or could be, converted into United States dollars at that rate or at any other particular rate at December 31, 2004 or any other date.



2. Significant accounting policies



|(a) | Statement of compliance
|--- | -----------------------



These financial statements have been prepared in accordance with HK GAAP. A summary of the significant accounting policies adopted by the Group is set out
below.



|(b) | Basis of preparation of the financial statements
|--- | ------------------------------------------------



The measurement basis used in the preparation of the financial statements is historical cost except for certain investments in securities which are
recorded at fair value as explained in the accounting policies set out below.



|(c) | Basis of consolidation
|--- | ----------------------



The consolidated financial statements include the financial statements of the Company and all its subsidiaries made up to December 31 each year.



| | (i) | Subsidiaries and controlled enterprises
| | --- | ---------------------------------------



| |  | A subsidiary, in accordance with the Hong Kong Companies Ordinance, is a company in which the Group, directly or indirectly, holds more than half of the issued share capital, or
controls more than half of the voting power, or controls the composition of the Board of Directors. Subsidiaries are considered to be controlled if the Company has the power, directly or indirectly, to govern their financial and operating policies,
so as to obtain benefits from their activities.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | An investment in a controlled subsidiary is consolidated into the consolidated financial statements, unless it is acquired and held exclusively with a view to subsequent disposal in
the near future or operates under severe long-term restrictions which significantly impair its ability to transfer funds to the Group, in which case, it is stated in the consolidated balance sheet at fair value with changes in fair value recognized
in the same way as other investments in securities as set out in Note 2(s) below.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | All material intra-Group transactions and balances are eliminated on consolidation.
| |  | -----------------------------------------------------------------------------------



F - 8



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(c) | Basis of consolidation (continued)
|--- | ----------------------------------



| | (ii) | Goodwill
| | ---- | --------



| |  | Positive goodwill arising on consolidation represents the excess of the cost of the acquisition over the Groups share of the fair value of the identifiable assets and
liabilities acquired.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For acquisitions before January 1, 2001, positive goodwill is eliminated against reserves and is reduced by impairment losses recognized in the statement of operations (see Note
2(t) below).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For acquisitions on or after January 1, 2001, positive goodwill is amortized to the consolidated statement of operations on a straight-line basis over its estimated useful life.
Positive goodwill is stated in the consolidated balance sheet at cost less any accumulated amortization and any impairment losses (see Note 2(t) below).
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On disposal of a controlled subsidiary during the year, any attributable amount of purchased goodwill not previously amortized through the consolidated statement of operations or
which has previously been dealt with as a movement on Group reserves is included in the calculation of the profit or loss on disposal.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Property, plant and equipment and depreciation
|--- | ----------------------------------------------



Property, plant and equipment are stated in the balance sheet at cost, less accumulated depreciation and any accumulated impairment losses (see Note 2(t)
below). Cost includes materials, labour and an appropriate proportion of overhead and borrowing costs directly attributable to acquisition, construction or production of such property, plant and equipment that necessarily take a substantial period
of time to get ready for their intended use. Estimated cost of dismantling and removing the property, plant and equipment and restoring the site, to the extent that it is recognized as a provision under Statement of Standard Accounting Practice
(SSAP) 28 Provisions, contingent liabilities and contingent assets issued by the HKICPA, is also included.



Depreciation is provided on a straight-line basis on the cost of the equipment required to support a fully operating network and cable television system
at rates determined by the estimated useful lives of the assets ranging from five to 20 years, adjusted by the appropriate pre-maturity fraction during the pre-maturity period, which began with the first earned subscriber revenue on October 31, 1993
and was to continue until the earlier of the attainment of a predetermined subscriber level and December 31, 1996. The pre-maturity period ended on November 30, 1996, when the predetermined subscriber level was attained. Depreciation is provided on
a straight-line basis on the cost of other assets at rates determined by the estimated useful lives of the assets of two to 40 years.



The principal annual depreciation rates used are as follows:



|                                                                  |  |                                                     
|----------------------------------------------------------------- |  | ----------------------------------------------------
|Network, decoders, cable modems and television production systems |  | 5% to 50%                                           
|Furniture, fixtures, other equipment and motor vehicles           |  | 10% to 33.33%                                       
|Leasehold land                                                    |  | Shorter of 40 years andunexpired term of land leases
|Buildings                                                         |  | 2.5%                                                
|Leasehold improvements                                            |  | 8.33%                                               





F - 9



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(e) | Programming costs
|--- | -----------------



| | (i) | Programming library
| | --- | -------------------



| |  | Programming library consists of presentation rights for commissioned programs and acquired programs for showing on the Groups television channels, and commissioned programs
for licensing purposes.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Presentation rights are stated in the balance sheet at cost less accumulated amortization and any impairment losses (see Note 2(t) below). Amortization is charged to the statement
of operations on an accelerated basis over the license period or over the estimated number of future showings. Subsequent expenditure on programs after initial acquisition is recognized as an expense when incurred.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Commissioned programs for licensing purposes comprise direct production costs and production overheads, and are stated at the lower of amortized cost or net realizable value. Costs
are amortized on an individual program basis in the ratio of the current years gross revenues to managements forecast of the total ultimate gross revenues from all sources.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Live programs
| | ---- | -------------



| |  | Live programs consist of third party feed programs and are charged to the statement of operations upon telecast of the programs. Payments made in advance or in arrears of program
costs recognized are recorded as prepayments or accruals, as appropriate.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | In-house developed programs
| | ----- | ---------------------------



| |  | In-house developed programs consist primarily of news, documentary and general entertainment programs which take a short time from production to telecast. Accordingly, the costs of
in-house developed programs are written off in the period in which they are incurred.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | Inventories
|--- | -----------



Inventories are stated at the lower of cost and net realizable value. Cost is calculated on the weighted average basis and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the
inventories to their present location and condition. Net realizable value is determined by the Group based on the expected replacement cost of the inventories net of provisions for obsolescence.



|(g) | Cash and cash equivalents
|--- | -------------------------



Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid
investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form
an integral part of the Groups cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement. None of the Groups cash and cash equivalents are restricted as to withdrawal.





F - 10



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(h) | Revenue recognition
|--- | -------------------



Revenue is recognized in the statement of operations provided it is probable that the economic benefits will flow to the Group and the revenue and costs,
if any, can be measured reliably as follows:



| | (i) | Income from the provision of subscription television services, Internet services, and Internet Protocol Point wholesale services is recognized at the time when the services are
provided.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Installation fees are recognized upon completion of the related installation work to the extent of direct selling costs.
| | ---- | ------------------------------------------------------------------------------------------------------------------------



| | (iii) | Where packaged service fees comprise a number of elements and the fees can be allocated on a reasonable basis into elements of subscription service and installation service, revenue
is recognized in accordance with the accounting policies set out in Note 2(h)(i)and (ii) above. Where packaged service fees cannot be allocated into individual elements, the fees are deferred and recognized evenly over the term of the service
period.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Advertising income net of agency deductions is recognized on telecast of the advertisement. When an advertising contract covers a specified period, the related income is recognized
evenly over the contract period.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | Program licensing income is recognized on a straight-line basis over the license period or in full upon delivery of the programs concerned in accordance with the terms of the
license contracts, and is stated net of withholding tax.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | When the outcome of construction contracts relating to the Groups satellite television services business can be estimated reliably, revenue from a fixed price contract is
recognized using the percentage of completion method, measured with reference to the percentage of contract costs incurred to date relative to the estimated total contract costs. When the outcome of such construction contracts cannot be estimated
reliably, revenue is recognized only to the extent that recovery of contract costs is probable.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | Dividend income from unlisted investments is recognized when the shareholders right to receive payment is established.
| | ----- | -----------------------------------------------------------------------------------------------------------------------



| | (viii) | Interest income is accrued on a time-apportioned basis by reference to the principal outstanding and the rate applicable.
| | ------ | -------------------------------------------------------------------------------------------------------------------------



|(i) | Borrowing costs
|--- | ---------------



Borrowing costs are expensed in the statement of operations in the period in which they are incurred, except to the extent that they are capitalized as
being directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use.



|(j) | Income tax
|--- | ----------



| | (i) | Income tax for the year comprises current tax and movements in deferred tax assets and liabilities.
| | --- | ---------------------------------------------------------------------------------------------------



| | (ii) | Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax
payable in respect of previous years.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 11



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(j) | Income tax (continued)
|--- | ----------------------



| | (iii) | Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable
profits will be available against which the asset can be utilized, are recognized. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the
reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible
temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of
deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in
which the tax loss or credit can be utilized.



The limited
exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, negative goodwill treated as deferred income, the initial recognition of assets or liabilities
that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls
the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.



The amount of deferred tax recognized is measured based on the expected
manner of realization or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.



The carrying amount of a deferred tax asset is reviewed at each balance
sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that
sufficient taxable profit will be available.



Current tax
balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities if, and
only if, the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:



| |  |  | in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the same taxable entity; or
| | - |  | ---------------------------



| |  |  | different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to
realize the current tax assets and settle the current tax liabilities on a net basis or realize and settle simultaneously.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 12



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(k) | Advertising costs
|--- | -----------------



Advertising costs are expensed as incurred. Advertising costs amounted to HK$63,689,974, HK$40,924,164 and HK$42,562,845 for each of the years ended
December 31, 2002, 2003 and 2004, respectively.



|(l) | Operating leases
|--- | ----------------



Rentals payable and rentals receivable in respect of assets held or provided under operating leases are recognized in the statement of operations in equal
instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received or granted are recognized in the
statement of operations as an integral part of the aggregate net lease rentals payable or receivable.



|(m) | Foreign currency translation
|--- | ----------------------------



The functional currency of the Groups operations is the Hong Kong dollar.



Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates ruling at the
transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Exchange gains and losses are dealt with in the statement of
operations.



The results of foreign subsidiaries are translated
into Hong Kong dollars at the average exchange rates for the year; balance sheet items are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are dealt with as a movement
in reserves.



On disposal of a foreign subsidiary, the
cumulative amount of the exchange differences which relate to that foreign enterprise is included in the calculation of the profit and loss on disposal.



|(n) | Allowance for doubtful accounts
|--- | -------------------------------



An allowance for doubtful accounts is provided upon the evaluation of the recoverability of the receivables at the balance sheet date.



|(o) | Retirement benefits
|--- | -------------------



The principal retirement scheme operated by the Group is a defined contribution retirement scheme which has been closed to new employees joining after
October 1, 2000 while existing members of the scheme can continue to accrue future benefits. Employees joining after October 1, 2000 will participate in the Mandatory Provident Fund (MPF) with terms as stipulated by the MPF Authority.
Assets of both schemes are maintained independently from those of the Group. Contributions to the retirement schemes are charged to the statement of operations as and when incurred. Retirement contributions incurred by the Group for the years ended
December 31, 2002, 2003 and 2004 amounted to HK$40,716,728, HK$30,939,810 and HK$29,997,877 respectively.



F - 13



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(p) | Construction contracts
|--- | ----------------------



The accounting policy for contract revenue is set out in Note 2(h)(vi) above. When the outcome of a construction contract can be estimated reliably,
contract costs are recognized as an expense with reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that the total contract costs will exceed the total contract revenue, the expected loss is
recognized as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognized as an expense in the period in which they are incurred.



Construction contracts in progress at the balance sheet date are recorded in
the balance sheet at the net amount of costs incurred plus recognized profits less recognized losses and progress billings. Amounts received before the related work is performed are included under current liabilities, and amounts billed but not yet
paid by the customer for work performed on a contract are included under current assets.



|(q) | Related party transactions
|--- | --------------------------



For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to
control the party or exercise significant influence over the party in making financial and operation decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be
individuals or other entities.



|(r) | Use of estimates
|--- | ----------------



The preparation of the Groups consolidated financial statements requires the management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses reported for the reporting period. Actual results could differ from those
estimates. Estimates are used when accounting for items and matters such as allowance for uncollectible accounts receivable, inventory obsolescence, amortization, taxes, provisions, and contingencies (see also Note 2(v) below).



|(s) | Other investments in securities
|--- | -------------------------------



| | (i) | Non-trading securities are stated in the balance sheet at fair value. Changes in fair value are recognized in the investment revaluation reserve until the security is sold,
collected, or otherwise disposed of, or until there is objective evidence that the security is impaired, at which time the relevant cumulative gain or loss is transferred from the investment revaluation reserve to the statement of operations.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In determining whether there is objective
evidence that a security is impaired, the Group considers such factors as significant deterioration in the earnings performance, business prospects, adverse changes in the regulatory, economic or technological environment, etc. to determine if the
Group expects to recover the carrying value of the security.



Transfers from the investment revaluation reserve to the statement of operations as a result of impairments are reversed when the circumstances and events that led to the impairment cease to exist and there is persuasive evidence that the
new circumstances and events will persist for the foreseeable future.



| | (ii) | Trading securities are stated in the balance sheet at fair value. Changes in fair value are recognized in the statement of operations as they arise.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------



F - 14



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(t) | Impairment of assets
|--- | --------------------



Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or
any impairment loss previously recognized no longer exists or may have decreased:



| |  |  | property, plant and equipment;
| | - |  | ------------------------------

| |  |  | programming library; and
| | - |  | ------------------------

| |  |  | goodwill.
| | - |  | ---------



If any such indication exists, the assets recoverable amount is estimated. An impairment loss is recognized in the statement of operations whenever the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount.



(i) Calculation of recoverable
amount



The recoverable amount of an asset is the greater of
its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks
specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a
cash-generating unit).



(ii) Reversals of impairment losses



In respect of assets other than goodwill, an impairment loss
is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that
is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event.



A reversal of impairment losses is limited to the assets carrying amount that would have been determined had no impairment loss been recognized in
prior years. Reversals of impairment losses are credited to the statement of operations in the year in which the reversals are recognized.



|(u) | Segment reporting
|--- | -----------------



A segment is a distinguishable component of the Group that is engaged either in providing services (business segment), or in providing services within a
particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.



Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such
intra-group balances and transactions are between group enterprises within a single segment.



Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.



Corporate items mainly financial and corporate assets, interest-bearing
borrowings and corporate and financing expenses, non-domestic television services and program licensing business..



F - 15



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



|(v) | Provisions and contingent liabilities
|--- | -------------------------------------



Provisions are recognized for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a
past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures
expected to settle the obligation.



Where it is not probable
that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose
existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.



|(w) | Employee benefits
|--- | -----------------



| | (i) | Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Group of non-monetary benefits are accrued in the year in which the associated services are rendered
by employees of the Group.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Contributions to defined contribution plans, including contributions to Mandatory Provident Funds as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are
recognized as an expense in the statement of operations as incurred, except to the extent that they are included in the cost of property, plant and equipment not yet recognized as an expense.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | When the Group grants employees options to acquire shares of the Company, no employee benefit cost or obligation is recognized at the date of grant. When the options are exercised,
equity is increased by the amount of the proceeds received.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3. Service revenues



The principal activity of
the Company is investment holding. The principal activities of the subsidiaries are set out in Note 24 to the consolidated financial statements.



Service revenues comprise principally subscription and installation fees for cable television and Internet services, Internet Protocol Point wholesale
services and also include equipment rental, advertising income net of agency deductions, marketing contributions, channel service fees, channel distribution fees, television relay service income, program licensing income, fiber network and satellite
television systems maintenance income, project management service fees, sales of satellite television systems, portal and mobile content service income, television magazine sales, late payment charges to subscribers and similar income.



F - 16



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



4. Segment information



The Companys reportable segments are strategic business units. The Company evaluates segment performance based on a number factors, of which the primary financial measures are business segment revenues and operating income/loss.



|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|--------------------------------------- |  | --------------- |  | ----------------------------- | -------------- | --------- | - |  | -------- | ------------------- |  | -------- | - |  | -------- | -
|                                        |  | Segment revenue |  |                               | Segment result |          
|                                        |  | 2002            |  | 2003                          |                | 2004      |   |  | 2002     |                     |  | 2003     |   |  | 2004     |  
|                                        |  | HK$000         |  | HK$000                       |                | HK$000   |   |  | HK$000  |                     |  | HK$000  |   |  | HK$000  |  
|Pay television                          |  | 1,710,767       |  | 1,734,208                     |                | 1,888,448 |   |  | 331,757  |                     |  | 444,138  |   |  | 468,868  |  
|Internet and multimedia                 |  | 450,021         |  | 408,605                       |                | 480,574   |   |  | 8,668    |                     |  | (84,775  | ) |  | (44,227  | )
|Corporate                               |  |                |  |                              |                | 6,133     |   |  | (113,990 | )                   |  | (108,753 | ) |  | (128,924 | )
|Inter-segment elimination               |  |                |  |                              |                | (3,428    | ) |  |         |                     |  |         |   |  |         |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|                                        |  | 2,160,788       |  | 2,142,813                     |                | 2,371,727 |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|Profit from operations                  |  |                 |  |                               |                |           |   |  | 226,435  |                     |  | 250,610  |   |  | 295,717  |  
|Interest income                         |  |                 |  |                               |                |           |   |  | 26,355   |                     |  | 8,485    |   |  | 24       |  
|Finance costs                           |  |                 |  |                               |                |           |   |  | (62,463  | )                   |  | (15,610  | ) |  | (238     | )
|Impairment loss on investments          |  |                 |  |                               |                |           |   |  | (72,870  | )                   |  |         |   |  |         |  
|Income tax                              |  |                 |  |                               |                |           |   |  |         |                     |  | (13,142  | ) |  | 42,657   |  
|Non-operating income / (expenses)       |  |                 |  |                               |                |           |   |  | (198     | )                   |  | (9,885   | ) |  | 1,499    |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|Profit attributable to shareholders     |  |                 |  |                               |                |           |   |  | 117,259  |                     |  | 220,458  |   |  | 339,659  |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  |                              
|                                        |  |                 |  | Segment assets                |                |           |   |  |          | Segment liabilities | 
|                                        |  |                 |  | 2003                          |                | 2004      |   |  |          |                     |  | 2003     |   |  | 2004     |  
|                                        |  |                 |  | HK$000                       |                | HK$000   |   |  |          |                     |  | HK$000  |   |  | HK$000  |  
|Pay television                          |  |                 |  | 1,616,550                     |                | 1,578,387 |   |  |          |                     |  | 539,354  |   |  | 527,595  |  
|Internet and multimedia                 |  |                 |  | 881,402                       |                | 803,767   |   |  |          |                     |  | 181,550  |   |  | 151,504  |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  | 2,497,952                     |                | 2,382,154 |   |  |          |                     |  | 720,904  |   |  | 679,099  |  
|                                        |  |                 |  |                               |                |          
|Corporate assets / liabilities          |  |                 |  | 182,899                       |                | 376,254   |   |  |          |                     |  | 275,299  |   |  | 196,348  |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|Consolidated total assets / liabilities |  |                 |  | 2,680,851                     |                | 2,758,408 |   |  |          |                     |  | 996,203  |   |  | 875,447  |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  |                               |                |          
|Other information on expenditure        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  |                              
|                                        |  |                 |  | Property, plant and equipment |                |           |   |  |          | Programming library | 
|                                        |  |                 |  | 2003                          |                | 2004      |   |  |          |                     |  | 2003     |   |  | 2004     |  
|                                        |  |                 |  | HK$000                       |                | HK$000   |   |  |          |                     |  | HK$000  |   |  | HK$000  |  
|Pay television                          |  |                 |  | 251,533                       |                | 243,330   |   |  |          |                     |  | 81,934   |   |  | 65,358   |  
|Internet and multimedia                 |  |                 |  | 173,992                       |                | 182,575   |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                
|                                        |  | Depreciation    |  |                               | Amortization   |          
|                                        |  | 2002            |  | 2003                          |                | 2004      |   |  | 2002     |                     |  | 2003     |   |  | 2004     |  
|                                        |  | HK$000         |  | HK$000                       |                | HK$000   |   |  | HK$000  |                     |  | HK$000  |   |  | HK$000  |  
|Pay television                          |  | 296,826         |  | 289,362                       |                | 279,263   |   |  | 152,728  |                     |  | 94,485   |   |  | 84,822   |  
|Internet and multimedia                 |  | 201,758         |  | 243,597                       |                | 247,300   |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|                                        |  | 498,584         |  | 532,959                       |                | 526,563   |   |  |          |                     |  |          |   |  |          |  
|Corporate                               |  | 5,674           |  | 5,640                         |                | 5,550     |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  
|                                        |  | 504,258         |  | 538,599                       |                | 532,113   |   |  |          |                     |  |          |   |  |          |  
|                                        |  |                 |  |                               |                |           |   |  |          |                     |  |          |   |  |          |  



F - 17



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



4. Segment information (continued)



Pay television services include cable television services, advertising services, television relay services, program licensing, satellite television systems maintenance services, project management services, sales of
satellite television systems and network rental. Internet and multimedia services include dial-up and broadband Internet access services and Internet Protocol Point wholesale services.



The Groups operating activities are primarily undertaken in one geographical area, Hong Kong.



5. Profit before taxation



Profit before taxation is stated after charging/(crediting):



|                                                                           |  |         |   |  |         |   |  |         |  
|-------------------------------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                                                                           |  | 2002    |   |  | 2003    |   |  | 2004    |  
|                                                                           |  | HK$000 |   |  | HK$000 |   |  | HK$000 |  
|Interest income                                                            |  |         |   |  |         |   |  |         |  
|                                                                           |  |         |  
|Interest income from listed investments                                    |  | (1,402  | ) |  | (205    | ) |  |        |  
|Interest income from deposits with banks and other financial institutions  |  | (24,259 | ) |  | (8,280  | ) |  | (24     | )
|Other interest income                                                      |  | (694    | ) |  |        |   |  |        |  
|                                                                           |  |         |   |  |         |   |  |         |  
|                                                                           |  | (26,355 | ) |  | (8,485  | ) |  | (24     | )
|                                                                           |  |         |   |  |         |   |  |         |  
|Finance costs                                                              |  |         |   |  |         |   |  |         |  
|                                                                           |  |         |  
|Interest expenses on bank loans and overdrafts repayable within five years |  | 1,861   |   |  | 4,843   |   |  | 238     |  
|Interest expenses on convertible bonds repayable within five years         |  | 60,602  |   |  | 10,767  |   |  |        |  
|                                                                           |  |         |   |  |         |   |  |         |  
|                                                                           |  | 62,463  |   |  | 15,610  |   |  | 238     |  
|                                                                           |  |         |   |  |         |   |  |         |  
|Other items                                                                |  |         |   |  |         |   |  |         |  
|                                                                           |  |         |  
|Depreciation:                                                              |  |         |   |  |         |   |  |         |  
|- assets held for use in operating leases                                  |  | 59,265  |   |  | 71,346  |   |  | 59,211  |  
|- others                                                                   |  | 444,993 |   |  | 467,253 |   |  | 472,902 |  
|Amortization of programming library*                                       |  | 152,861 |   |  | 95,152  |   |  | 92,860  |  
|Cost of inventories                                                        |  | 12,671  |   |  | 21,093  |   |  | 21,866  |  
|Rentals payable under operating leases in respect of land and buildings    |  | 43,271  |   |  | 42,603  |   |  | 41,160  |  
|Contribution to defined contribution plans, net of capitalized costs       |  | 35,405  |   |  | 27,110  |   |  | 26,700  |  
|Impairment loss on investments                                             |  | 72,870  |   |  |        |   |  |        |  
|Rentals receivable under operating leases in respect of:                   |  |         |   |  |         |   |  |         |  
|- subleased land and buildings                                             |  | (5,773  | ) |  | (5,392  | ) |  | (4,725  | )
|- owned plant and machinery                                                |  | (27,865 | ) |  | (55,491 | ) |  | (93,733 | )
|Net realized gain on disposal of investments                               |  | (469    | ) |  | (99     | ) |  |        |  
|                                                                           |  |         |   |  |         |   |  |         |  

---

|* | Amortization of programming library is included within programming costs in the consolidated results of the Group.
|- | ------------------------------------------------------------------------------------------------------------------



F - 18



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



5. Profit before taxation (continued)



Operating expenses are analyzed by nature in compliance with SSAP 1, Presentation of Financial Statements as follows:



|
|

|                                                                              |  |           |  |           |  |          
|----------------------------------------------------------------------------- |  | --------- |  | --------- |  | ---------
|                                                                              |  | 2002      |  | 2003      |  | 2004     
|                                                                              |  | HK$000   |  | HK$000   |  | HK$000  
|                                                                              |  |           | 
|Depreciation and amortization (including amortization of programming library) |  | 657,119   |  | 633,751   |  | 624,973  
|Staff costs                                                                   |  | 620,276   |  | 647,313   |  | 669,959  
|Other operating expenses                                                      |  | 656,958   |  | 611,139   |  | 781,078  
|                                                                              |  |           |  |           |  |          
|Total operating costs                                                         |  | 1,934,353 |  | 1,892,203 |  | 2,076,010
|                                                                              |  |           |  |           |  |          

6. Non-operating income/(expenses)



These comprise:



|                                                             |  |         |   |  |         |   |  |        
|------------------------------------------------------------ |  | ------- | - |  | ------- | - |  | -------
|                                                             |  | 2002    |   |  | 2003    |   |  | 2004   
|                                                             |  | HK$000 |   |  | HK$000 |   |  | HK$000
|Net gain/(loss) on disposal of property, plant and equipment |  | (198    | ) |  | (7,593  | ) |  | 1,499  
|Net realized exchange loss on foreign currency deposits      |  |        |   |  | (2,292  | ) |  |       
|                                                             |  |         |   |  |         |   |  |        
|                                                             |  | (198    | ) |  | (9,885  | ) |  | 1,499  
|                                                             |  |         |   |  |         |   |  |        



7. Income tax in the consolidated
statement of operations



|(a) | Taxation in the consolidated statement of operations represents:
|--- | ----------------------------------------------------------------



|                                                                     |  |         |   |  |          |   |  |         |  
|-------------------------------------------------------------------- |  | ------- | - |  | -------- | - |  | ------- | -
|                                                                     |  | 2002    |   |  | 2003     |   |  | 2004    |  
|                                                                     |  | HK$000 |   |  | HK$000  |   |  | HK$000 |  
|Current tax  Provision for Hong Kong Profits Tax                    |  |         |   |  |          |   |  |         |  
|Tax for the year                                                     |  | (10,827 | ) |  | (139,933 | ) |  |        |  
|Over/(under) provision in respect of prior year                      |  | 4       |   |  |         |   |  | (589    | )
|                                                                     |  |         |   |  |          |   |  |         |  
|                                                                     |  | (10,823 | ) |  | (139,933 | ) |  | 589     |  
|                                                                     |  |         |   |  |          |   |  |         |  
|Current tax  Overseas                                               |  |         |   |  |          |   |  |         |  
|Tax for the year                                                     |  |        |   |  | (5       | ) |  | (76     | )
|                                                                     |  |         |   |  |          |   |  |         |  
|Provision for protective assessments on leasing partnerships         |  |        |   |  |         |   |  | (17,000 | )
|                                                                     |  |         |   |  |          |   |  |         |  
|Deferred tax                                                         |  |         |   |  |          |   |  |         |  
|Benefit of previously unrecognized tax losses now recognized         |  |        |   |  |         |   |  | 94,322  |  
|Elimination of deferred tax assets                                   |  |        |   |  |         |   |  | (34,000 | )
|Reversal of temporary differences                                    |  | 10,823  |   |  | 138,683  |   |  |        |  
|Effect of increase in tax rate on deferred tax balances at January 1 |  |        |   |  | (11,887  | ) |  |        |  
|                                                                     |  |         |   |  |          |   |  |         |  
|                                                                     |  | 10,823  |   |  | 126,796  |   |  | 60,322  |  
|                                                                     |  |         |   |  |          |   |  |         |  
|Net income tax expense/(credit)                                      |  |        |   |  | (13,142  | ) |  | 42,657  |  
|                                                                     |  |         |   |  |          |   |  |         |  



All but an
insignificant portion of profit before taxation is from Hong Kong sources.



F - 19



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



7. Income tax in the consolidated statement of operations (continued)



In March 2003, the Government of Hong Kong SAR announced an increase in the Profits Tax rate applicable to the Groups operations in Hong Kong from
16% to 17.5% starting from the 2003/04 year of assessment. This increase is taken into account in the preparation of the Groups 2003 financial statements. The provision for Hong Kong Profits Tax for 2004 is calculated at 17.5% (2002: 16% and
2003: 17.5%) of the estimated assessable profits for the year. Taxation for the overseas subsidiaries is charged at the appropriate current rate of taxation ruling in the relevant country.



In 2003, a provision amounting to HK$139,933,000 was made upon the
crystallisation of a deferred tax liability provided for pursuant to a leveraged leasing arrangement the Group had entered into during 1993 to 1995 which expired in September 2003. An additional HK$11,887,000 provision was also made for the effect
of an increase in tax rate to 17.5% from 16% previously assumed in the deferred tax liabilitys original measurement.



The Group is in discussion with the Inland Revenue Department (IRD) regarding previous years tax affairs of The Cable Leasing
Partnership and The Network Leasing Partnership (the Partnerships) under the Group, pursuant to the said leveraged leasing arrangement.



To preserve its right under the dispute, the IRD has issued protective assessments up to HK$272 million against various Group entities for the period from
1995/96 to 2003/04. The Group has since objected to the assessments and the IRD has granted unconditional holdover for HK$247 million of the assessment amount, and conditional holdover for the remaining HK$25 million. For the latter, the
Partnerships have purchased HK$18 million Tax Reserve Certificates (TRCs) before December 31, 2004 and HK$7 million after year end, in satisfaction of the holdover condition.



The management is of the view that the Groups maximum tax exposure as at December 31, 2004 under the protective
assessments would amount to HK$106 million, of which up to HK$64 million would be indemnified by Wharf Communications Limited as tax liability pertaining to events occurring up to the Groups Initial Public Offering on November 1, 1999, such
that the contingent tax exposure for the Group is estimated at HK$42 million.



Although the outcome of the discussions is still uncertain, the management considers that there are grounds to contest the protective assessments and will pursue this case vigorously, unless a compromised settlement
can be reached with the IRD. Notwithstanding the foregoing, based on a counter-offer under contemplation, at the end of 2004, the management decided to make a provision of HK$12 million in 2004 (2002 and 2003: Nil) for the Groups expected
share of the tax liability. Based on a latest offer being considered after year end, management has decided to further increase the provision to HK$17 million. As part of the settlement proposal, total tax losses of HK$692 million in two group
entities have also been offered to be surrendered triggering the absorption of certain unrecognized tax losses and the recognition of an appropriate amount of deferred tax liability as disclosed under Note 20b to the financial statements.



The differences between the profits tax rate in Hong Kong and
the Groups effective tax rate were as follows for the years ended December 31, 2002, 2003 and 2004:



|                                                                                            |  |       |   |  |       |   |  |       |  
|------------------------------------------------------------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                                                                                            |  | 2002  |   |  | 2003  |   |  | 2004  |  
|                                                                                            |  | %     |   |  | %     |   |  | %     |  
|Hong Kong Profits Tax rate                                                                  |  | 16.0  |   |  | 17.5  |   |  | 17.5  |  
|Tax effect of non-deductible expenses                                                       |  | 12.2  |   |  | 1.0   |   |  | 0.2   |  
|Tax effect of non-taxable revenue                                                           |  | (13.1 | ) |  | (3.7  | ) |  | (0.3  | )
|Under provision in prior year                                                               |  |      |   |  |      |   |  | 0.2   |  
|Utilization of unrecognized tax losses of previous years                                    |  | (15.1 | ) |  | (14.3 | ) |  | (17.4 | )
|Tax effect of protective assessments on leasing partnerships                                |  |      |   |  |      |   |  | 5.7   |  
|Tax effect of previously unrecognized tax losses now recognized                             |  |      |   |  |      |   |  | (31.7 | )
|Tax effect of elimination of deferred tax assets                                            |  |      |   |  |      |   |  | 11.4  |  
|Effect of opening deferred tax balances resulting from increase in tax rate during the year |  |      |   |  | 5.1   |   |  |      |  
|                                                                                            |  |       |   |  |       |   |  |       |  
|Average effective tax rate                                                                  |  |      |   |  | 5.6   |   |  | (14.4 | )
|                                                                                            |  |       |   |  |       |   |  |       |  





F - 20



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



8. Dividends attributable to the year



|(a) | Dividends attributable to the year
|--- | ----------------------------------



|                                                                                                                                 |  |         |  |         |  |        
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  | ------- |  | -------
|                                                                                                                                 |  | 2002    |  | 2003    |  | 2004   
|                                                                                                                                 |  | HK$000 |  | HK$000 |  | HK$000
|Interim dividend declared and paid of 3 cents per share (2002 and 2003: 1.5 cents per share)                                     |  | 30,289  |  | 30,289  |  | 60,577 
|Final dividend proposed after the balance sheet date of 4.5 cents per share (2002: 1.5 cents per share; 2003: 4 cents per
share) |  | 30,289  |  | 80,769  |  | 90,866 
|                                                                                                                                 |  |         |  |         |  |        
|                                                                                                                                 |  | 60,578  |  | 111,058 |  | 151,443
|                                                                                                                                 |  |         |  |         |  |        



The final dividend
proposed after the balance sheet date has not been recognized as a liability at the balance sheet date.



|(b) | Dividend attributable to the previous financial year, approved and paid during the year
|--- | ---------------------------------------------------------------------------------------



|                                                                                                                                                                         |  |         |  |         |  |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------- |  | ------- |  | -------
|                                                                                                                                                                         |  | 2002    |  | 2003    |  | 2004   
|                                                                                                                                                                         |  | HK$000 |  | HK$000 |  | HK$000
|Final dividend in respect of the previous financial year, approved and paid during the year, of 4 cents per share (2002: 2.5 cents per share;
2003: 1.5 cents per share) |  | 50,350  |  | 30,289  |  | 80,769 
|                                                                                                                                                                         |  |         |  |         |  |        



9. Basic and diluted earnings per
share



|(a) | Basic earnings per share
|--- | ------------------------



The calculation of basic earnings per share is based on the net profit of HK$117,259,000, HK$220,458,000 and HK$339,659,000 for each of the years ended
December 31, 2002, 2003 and 2004 respectively and the weighted average of 2,016,284,165, 2,019,234,400 and 2,019,234,400 ordinary shares outstanding for each respective year.



|(b) | Diluted earnings per share
|--- | --------------------------



The calculation of diluted earnings per share is based on the net profit of HK$117,259,000, HK$220,458,000 and HK$339,659,000 for each of the years ended
December 31, 2002, 2003 and 2004 respectively and the weighted average of 2,026,931,374, 2,019,234,400 and 2,019,234,400 ordinary shares outstanding for each respective year after adjusting for the effects of all dilutive potential ordinary shares
as shown below:



F - 21



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



9. Basic and diluted earnings per share (continued)



|(c) | Reconciliations
|--- | ---------------



|                                                                                                   |  |                 |  |                 |  |                
|-------------------------------------------------------------------------------------------------- |  | --------------- |  | --------------- |  | ---------------
|                                                                                                   |  | 2002            |  | 2003            |  | 2004           
|                                                                                                   |  | Number ofshares |  | Number ofshares |  | Number ofshares
|Weighted average number of ordinary shares used in calculating basic earnings per share            |  | 2,016,284,165   |  | 2,019,234,400   |  | 2,019,234,400  
|Deemed issue of ordinary shares for no consideration pursuant to the Companys share option scheme |  | 10,647,209      |  |                |  |               
|                                                                                                   |  |                 |  |                 |  |                
|Weighted average number of ordinary shares used in calculating diluted earnings per share          |  | 2,026,931,374   |  | 2,019,234,400   |  | 2,019,234,400  
|                                                                                                   |  |                 |  |                 |  |                



The Companys
convertible bonds were all redeemed at par in 2003. During 2002, the potential issue of ordinary shares in connection with the Companys convertible bonds would not give rise to a decrease in earnings per share. Accordingly, the convertible
bonds had no dilutive effect on the calculation of diluted earnings per share in 2002 and 2003. All of the Companys share options did not have intrinsic value throughout 2003 and 2004 and had no dilutive effect on the calculation of diluted
earnings per share in both years.



Basic and diluted earnings
per ADS is calculated on the same basis based on 20 ordinary shares per ADS.



10. Inventories



|                                                       |  |         |   |  |         |  
|------------------------------------------------------ |  | ------- | - |  | ------- | -
|                                                       |  | 2003    |   |  | 2004    |  
|                                                       |  | HK$000 |   |  | HK$000 |  
|Spare parts, consumables and equipment held for resale |  | 33,487  |   |  | 36,271  |  
|Less: Provision for obsolescence                       |  | (15,976 | ) |  | (20,076 | )
|                                                       |  |         |   |  |         |  
|                                                       |  | 17,511  |   |  | 16,195  |  
|                                                       |  |         |   |  |         |  



Included in spare
parts and consumables are inventories of HK$16,195,000 (2003: HK$17,511,000) stated net of provision made in order to state these inventories at the lower of their cost and estimated net realizable value.



F - 22



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



11. Accounts receivable from trade debtors



An ageing analysis of accounts receivable from trade debtors (net of allowance for doubtful accounts of HK$12,831,000 and HK$19,534,000 at December 31, 2003 and 2004 respectively) is set out as follows:



|              |  |         |  |        
|------------- |  | ------- |  | -------
|              |  | 2003    |  | 2004   
|              |  | HK$000 |  | HK$000
|0 to 30 days  |  | 67,615  |  | 75,521 
|31 to 60 days |  | 19,526  |  | 19,612 
|61 to 90 days |  | 12,530  |  | 13,588 
|Over 90 days  |  | 12,383  |  | 9,516  
|              |  |         |  |        
|              |  | 112,054 |  | 118,237
|              |  |         |  |        



Allowance for doubtful
accounts is analyzed as follows:



|                             |  |         |   |  |         |   |  |         |  
|---------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                             |  | 2002    |   |  | 2003    |   |  | 2004    |  
|                             |  | HK$000 |   |  | HK$000 |   |  | HK$000 |  
|Balance at beginning of year |  | 12,431  |   |  | 18,054  |   |  | 12,831  |  
|Provision for the year       |  | 10,902  |   |  | 10,449  |   |  | 11,474  |  
|Written off                  |  | (4,746  | ) |  | (15,672 | ) |  | (4,771  | )
|Bad debt recovered           |  | (533    | ) |  |        |   |  |        |  
|                             |  |         |   |  |         |   |  |         |  
|Balance at end of year       |  | 18,054  |   |  | 12,831  |   |  | 19,534  |  
|                             |  |         |   |  |         |   |  |         |  



The Group has a
defined credit policy. The general credit terms allowed range from 0 to 60 days. Full provisions for doubtful debts have been made for all subscription fees overdue for more than 90 days and airtime sales overdue for more than 150 days.



12. Amounts due from fellow subsidiaries



Amounts due from fellow subsidiaries are unsecured, interest free and
repayable on demand.





F - 23



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



13. Property, plant and equipment



|                          |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|------------------------- |  | ---------------------------------------------------------- | - | -------- | -------------------------------------------------- | ---------- |  | ----------------------------------------- |  | --------------------- |  | ------- |  | ------- |  | --------- | -
|                          |  | Network,decoders,cablemodemsandtelevisionproductionsystems |   |          | Furniture,fixtures,otherequipmentand motorvehicles |            |  | Leasehold land and buildings in Hong Kong |  |                       |  |         | 
|                          |  |                                                            |   | Longterm |                                                    | Mediumterm |  | Shortterm                                 |  | Leaseholdimprovements |  | Total   | 
|                          |  | HK$000                                                    |   |          | HK$000                                            |            |  | HK$000                                   |  | HK$000               |  | HK$000 |  | HK$000 |  | HK$000   |  
|Cost                      |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|                          |  |                                                            |   |          |                                                    |            | 
|At January 1, 2004        |  | 5,093,569                                                  |   |          | 514,200                                            |            |  | 3,306                                     |  | 2,673                 |  | 70      |  | 281,209 |  | 5,895,027 |  
|Additions                 |  | 389,165                                                    |   |          | 33,329                                             |            |  |                                          |  |                      |  |        |  | 5,982   |  | 428,476   |  
|Disposals                 |  | (303,271                                                   | ) |          | (5,520                                             | )          |  |                                          |  |                      |  |        |  |        |  | (308,791  | )
|Reclassification          |  | (10,185                                                    | ) |          |                                                   |            |  |                                          |  |                      |  |        |  |        |  | (10,185   | )
|                          |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|At December 31, 2004      |  | 5,169,278                                                  |   |          | 542,009                                            |            |  | 3,306                                     |  | 2,673                 |  | 70      |  | 287,191 |  | 6,004,527 |  
|                          |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|Accumulated depreciation  |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|                          |  |                                                            |   |          |                                                    |            | 
|At January 1, 2004        |  | 3,137,606                                                  |   |          | 409,302                                            |            |  | 1,141                                     |  | 214                   |  | 70      |  | 176,965 |  | 3,725,298 |  
|Charge for the year       |  | 471,596                                                    |   |          | 34,196                                             |            |  | 76                                        |  | 67                    |  |        |  | 26,178  |  | 532,113   |  
|Impairment loss           |  | 3,236                                                      |   |          | 588                                                |            |  |                                          |  |                      |  |        |  |        |  | 3,824     |  
|Written back on disposals |  | (299,785                                                   | ) |          | (5,344                                             | )          |  |                                          |  |                      |  |        |  |        |  | (305,129  | )
|Reclassification          |  | (2,366                                                     | ) |          |                                                   |            |  |                                          |  |                      |  |        |  |        |  | (2,366    | )
|                          |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|At December 31, 2004      |  | 3,310,287                                                  |   |          | 438,742                                            |            |  | 1,217                                     |  | 281                   |  | 70      |  | 203,143 |  | 3,953,740 |  
|                          |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|Net book value            |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|                          |  |                                                            |   |          |                                                    |            | 
|At December 31, 2004      |  | 1,858,991                                                  |   |          | 103,267                                            |            |  | 2,089                                     |  | 2,392                 |  |        |  | 84,048  |  | 2,050,787 |  
|                          |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  
|At December 31, 2003      |  | 1,955,963                                                  |   |          | 104,898                                            |            |  | 2,165                                     |  | 2,459                 |  |        |  | 104,244 |  | 2,169,729 |  
|                          |  |                                                            |   |          |                                                    |            |  |                                           |  |                       |  |         |  |         |  |           |  



As at December 31,
2004, the gross carrying amounts of property, plant and equipment of the Group held for use in operating leases were HK$284,583,000 (2003: HK$331,896,000) and the related accumulated depreciation was HK$114,499,000 (2003: HK$151,377,000).



F - 24



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004

14. Programming library



|                         |  |          |  
|------------------------ |  | -------- | -
|                         |  | HK$000  |  
|Cost                     |  |          |  
|                         | 
|At January 1, 2004       |  | 432,512  |  
|Additions                |  | 78,000   |  
|Written off              |  | (121,149 | )
|                         |  |          |  
|At December 31, 2004     |  | 389,363  |  
|                         |  |          |  
|Accumulated amortization |  |          |  
|                         | 
|At January 1, 2004       |  | 290,341  |  
|Charge for the year      |  | 92,860   |  
|Written off              |  | (121,149 | )
|                         |  |          |  
|At December 31, 2004     |  | 262,052  |  
|                         |  |          |  
|Net book value           |  |          |  
|                         | 
|At December 31, 2004     |  | 127,311  |  
|                         |  |          |  
|At December 31, 2003     |  | 142,171  |  
|                         |  |          |  





F - 25



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004

15. Non-current investments



|                           |  |         |  |        
|-------------------------- |  | ------- |  | -------
|                           |  | 2003    |  | 2004   
|                           |  | HK$000 |  | HK$000
|Unlisted equity securities |  | 9,725   |  | 9,725  
|                           |  |         |  |        



16. Amounts due to trade creditors



An ageing analysis of amounts due to trade creditors is
set out as follows:



|              |  |         |  |        
|------------- |  | ------- |  | -------
|              |  | 2003    |  | 2004   
|              |  | HK$000 |  | HK$000
|0 to 30 days  |  | 17,493  |  | 5,490  
|31 to 60 days |  | 7,952   |  | 21,814 
|61 to 90 days |  | 14,125  |  | 26,989 
|Over 90 days  |  | 8,950   |  | 55,009 
|              |  |         |  |        
|              |  | 48,520  |  | 109,302
|              |  |         |  |        



17. Amounts due to fellow
subsidiaries



Amounts due to fellow subsidiaries are
unsecured, interest free, and repayable on demand.



18. Amount due from/(to)
immediate holding company



Amount due from/(to) immediate
holding company is unsecured, interest free, and has no fixed terms of repayment. The average balances due to the immediate holding company during the years ended December 31, 2003 and 2004 are HK$2,246,000 and HK$152,000, respectively.



19. Current assets and current liabilities



Amounts included under current assets and current liabilities that are
expected to be recovered/settled after more than one year are as follows:



|                                            |  |         |   |  |         |  
|------------------------------------------- |  | ------- | - |  | ------- | -
|                                            |  | 2003    |   |  | 2004    |  
|                                            |  | HK$000 |   |  | HK$000 |  
|Inventories                                 |  | 5,258   |   |  | 4,969   |  
|Accounts receivable from trade debtors      |  | 61      |   |  | 85      |  
|Deposits, prepayments and other receivables |  | 12,982  |   |  | 42,306  |  
|Amounts due from fellow subsidiaries        |  | 2,292   |   |  | 1,416   |  
|Accrued expenses and other payables         |  | (1,712  | ) |  | (1,900  | )
|Receipts in advance and customers deposits |  | (82,444 | ) |  | (84,531 | )
|Amounts due to fellow subsidiaries          |  | (44     | ) |  | (36     | )
|                                            |  |         |   |  |         |  





F - 26



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



20. Income tax in the balance sheet



|(a) | Current taxation in the balance sheet represents:
|--- | -------------------------------------------------



|                                                                      |  |         |   |  |        
|--------------------------------------------------------------------- |  | ------- | - |  | -------
|                                                                      |  | 2003    |   |  | 2004   
|                                                                      |  | HK$000 |   |  | HK$000
|Provision for Hong Kong Profits Tax for the year                      |  | 139,933 |   |  |       
|Overseas taxation                                                     |  | 5       |   |  | 22     
|Provisional Profits Tax paid                                          |  | (8,883  | ) |  |       
|Provision for protective assessments on leasing partnerships (Note 7) |  |        |   |  | 17,000 
|                                                                      |  |         |   |  |        
|                                                                      |  | 131,055 |   |  | 17,022 
|                                                                      |  |         |   |  |        



|(b) | Deferred tax assets and liabilities recognized:
|--- | -----------------------------------------------



The components of deferred tax (assets)/liabilities recognized in the consolidated balance sheet and the movements during the year are as follows:



|                                                                    |  |                                                       |   |  |            |   |  |          |  
|------------------------------------------------------------------- |  | ----------------------------------------------------- | - |  | ---------- | - |  | -------- | -
|Deferred tax arising from:                                          |  | Depreciationallowancesin excess ofrelateddepreciation |   |  | Tax losses |   |  | Total    |  
|                                                                    |  | HK$000                                               |   |  | HK$000    |   |  | HK$000  |  
|At January 1, 2003                                                  |  | 264,435                                               |   |  | (137,639   | ) |  | 126,796  |  
|Credited to consolidated statement of operations (Note 7)           |  | (13,199                                               | ) |  | (113,597   | ) |  | (126,796 | )
|                                                                    |  |                                                       |   |  |            |   |  |          |  
|At December 31, 2003                                                |  | 251,236                                               |   |  | (251,236   | ) |  |         |  
|                                                                    |  |                                                       |  
|(Credited)/charged to consolidated statement of operations (Note 7) |  | (12,361                                               | ) |  | (47,961    | ) |  | (60,322  | )
|                                                                    |  |                                                       |   |  |            |   |  |          |  
|At December 31, 2004                                                |  | 238,875                                               |   |  | (299,197   | ) |  | (60,322  | )
|                                                                    |  |                                                       |   |  |            |   |  |          |  
|                                                                    |  |                                                       |  
|                                                                    |  |                                                       |   |  | 2003       |   |  | 2004     |  
|                                                                    |  |                                                       |   |  | HK$000    |   |  | HK$000  |  
|Net deferred tax assets recognized on the balance sheet             |  |                                                       |   |  | (112,600   | ) |  | (203,285 | )
|Net deferred tax liabilities recognized on the balance sheet        |  |                                                       |   |  | 112,600    |   |  | 142,963  |  
|                                                                    |  |                                                       |   |  |            |   |  |          |  
|                                                                    |  |                                                       |   |  |           |   |  | (60,322  | )
|                                                                    |  |                                                       |   |  |            |   |  |          |  



|(c) | Deferred tax assets not recognized
|--- | ----------------------------------



The Group has not recognized deferred tax assets in respect of the following:



|                                     |  |         |  |        
|------------------------------------ |  | ------- |  | -------
|                                     |  | 2003    |  | 2004   
|                                     |  | HK$000 |  | HK$000
|Future benefit of tax losses         |  | 954,093 |  | 718,551
|Provision for obsolete inventories   |  | 35      |  | 35     
|Provision for bad and doubtful debts |  |        |  | 426    
|                                     |  |         |  |        
|                                     |  | 954,128 |  | 719,012
|                                     |  |         |  |        





F - 27



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2003



21. Share capital



|                                                                 |  |           |  |          
|---------------------------------------------------------------- |  | --------- |  | ---------
|                                                                 |  | 2003      |  | 2004     
|                                                                 |  | HK$000   |  | HK$000  
|Authorized 8,000,000,000 ordinary shares of HK$1 each            |  | 8,000,000 |  | 8,000,000
|                                                                 |  |           |  |          
|Issued and fully paid 2,019,234,400 ordinary shares of HK$1 each |  | 2,019,234 |  | 2,019,234
|                                                                 |  |           |  |          



No options were
exercised during 2003 or 2004.



22. Equity compensation benefits



Pursuant to the Companys share option scheme, the
Board of Directors is authorized to grant options to eligible employees to subscribe for ordinary shares of the Company at prices as determined by the Board of Directors in accordance with the terms of the scheme.



|(a) | Movements in share options
|--- | --------------------------



|                              |  |             |   |  |            |  
|----------------------------- |  | ----------- | - |  | ---------- | -
|                              |  | 2003        |   |  | 2004       |  
|                              |  | Number      |   |  | Number     |  
|At January 1                  |  | 58,543,600  |   |  | 28,791,500 |  
|Lapsed                        |  | (29,752,100 | ) |  | (1,079,900 | )
|                              |  |             |   |  |            |  
|At December 31                |  | 28,791,500  |   |  | 27,711,600 |  
|                              |  |             |   |  |            |  
|Options vested at December 31 |  | 10,170,300  |   |  | 15,009,600 |  
|                              |  |             |   |  |            |  



|(b) | Terms of unexpired and unexercised share options at balance sheet date
|--- | ----------------------------------------------------------------------



|                  |  |                                      |  |                |       |        |            |        |           
|----------------- |  | ------------------------------------ |  | -------------- | ----- | ------ | ---------- | ------ | ----------
|Date granted      |  | Exercise period                      |  | Exercise price |       | 2003   |            | 2004  
|                  |  |                                      |  |                |       | Number |            | Number
|February 8, 2000  |  | April 1, 2001 to December 31, 2009   |  | HK$            | 10.49 |        | 16,270,000 |        | 15,640,000
|February 19, 2001 |  | July 1, 2002 to December 31, 2005    |  | HK$            | 3.30  |        | 12,141,500 |        | 11,691,600
|October 9, 2002   |  | January 1, 2004 to December 31, 2005 |  | HK$            | 3.30  |        | 380,000    |        | 380,000   
|                  |  |                                      |  |                |       |        |            |        |           
|                  |  |                                      |  |                |       |        | 28,791,500 |        | 27,711,600
|                  |  |                                      |  |                |       |        |            |        |           



|(c) | No share options were granted or exercised during 2003 and 2004.
|--- | ----------------------------------------------------------------



F - 28



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2003



23. Special capital reserve



Pursuant to a written resolution of a subsidiary under the Group, dated November 19, 2004, and with the sanction of an Order of the High Court of the Hong Kong Special Administrative Region dated December 15, 2004 (date of the capital
reduction), the issued share capital of the subsidiary was reduced from 4,427,266,000 shares of HK$1 each to 750,000,000 shares of HK$1 each (the Capital Reduction). The credit arising from the Capital Reduction was applied to
eliminate the accumulated losses standing in the revenue reserve of the subsidiary as at September 30, 2004.



An undertaking was given to the Court by the subsidiary in connection with the Capital Reduction (the Undertaking). Pursuant to the
Undertaking, any future recoveries or reversals of provisions in respect of: 1) assets owned or held under finance and operating leases against which charges to depreciation were made as at September 30, 2004; and 2) provisions made by the
subsidiary in respect of certain assets held by the subsidiary as at September 30, 2004, collectively the relevant assets (relevant assets) to the extent that such recoveries exceed the written down amounts of the relevant assets, up to
an aggregate amount of HK$1,958,524,266, will be credited to a special capital reserve. While any debt or liability of, or claim against, the subsidiary at the date of the Capital Reduction remains outstanding and the person entitled to the benefit
thereof has not agreed otherwise, the special capital reserve shall not be treated as realized profits. The subsidiary shall be at liberty to apply the special capital reserve for the same purposes as a share premium account may be applied.



The amount to be credited to the special capital reserve is
subject to a limit (Limit), which was HK$1,958,524,266 as at the date of the capital reduction. The Limit may be reduced by the amount of any increase in the issued share capital or in the share premium account of the subsidiary
resulting from an issue of shares for cash or other consideration or upon a capitalisation of distributable reserves. The subsidiary shall be at liberty to transfer the amount so reduced to the general reserves of the subsidiary and the same shall
become available for distribution. The Limit may also be reduced after the disposal or other realisation of any of the relevant assets by the amount of the charge to depreciation or provision made in relation to such asset as at September 30, 2004
less such amount as is credited to the special capital reserve as a result of such disposal or realisation.



In the event that the amount standing to the credit of the special capital reserve exceeds the Limit, the subsidiary shall be at liberty to transfer the
amount of any such excess to the general reserves of the subsidiary, which shall become available for distribution.



As at December 31, 2004, the Limit of the special capital reserve, as reduced by HK$916,109 related to recoveries and reversals of provisions of the
relevant assets, is HK$1,957,608,157, and the amount standing to the credit of the special capital reserve is HK$3,344,694.



The Capital Reduction has no impact on the consolidated revenue reserve.



F - 29



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



24. Particulars of subsidiaries



The subsidiaries of the Company at December 31, 2004 were as follows:



|                                     |  |                                 |  |                                                                  |  |                                              |  |                                   |  |    
|------------------------------------ |  | ------------------------------- |  | ---------------------------------------------------------------- |  | -------------------------------------------- |  | --------------------------------- |  | ---
|Name of company                      |  | Place ofincorporation/operation |  | Principal activities                                             |  | Particulars of issuedcapital, all fully paid |  | Percentage of ordinaryshares held
|                                     |  |                                 |  | Directly                                                         |  | Indirectly                                  
|Apex Victory Limited                 |  | British VirginIslands           |  | Program licensing                                                |  | 500 ordinary sharesof US$1 each              |  | 100                               |  |   
|                                     |  |                                 |  |                                                                  | 
|Cable Network Communications Limited |  | Hong Kong                       |  | Investment holding                                               |  | 100 ordinary sharesof HK$1 each              |  | 100                               |  |   
|                                     |  |                                 |  |                                                                  | 
|                                     |  |                                 |  |                                                                  |  | 2 non-votingdeferred shares ofHK$1 each      |  |                                  |  |   
|                                     |  |                                 |  |                                                                  | 
|Hong Kong Cable Enterprises Limited  |  | Hong Kong                       |  | Advertising airtime,program licensing andchannel carriageservice |  | 2 ordinary sharesof HK$1 each                |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|Hong Kong Cable Television Limited   |  | Hong Kong                       |  | Pay televisionservices                                           |  | 750,000,000ordinary shares ofHK$1 each       |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|i-CABLE Cineplex Limited             |  | Hong Kong                       |  | Inactive                                                         |  | 10,000,000ordinary shares ofHK$1 each        |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|i-CABLE China Limited                |  | British VirginIslands           |  | Inactive                                                         |  | 500 ordinary sharesof US$1 each              |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|i-CABLE Enterprises Limited          |  | British VirginIslands           |  | Investment holding                                               |  | 500 ordinary sharesof US$1 each              |  | 100                               |  |   
|                                     |  |                                 |  |                                                                  | 
|i-CABLE Network Limited              |  | Hong Kong                       |  | Network operationservices                                        |  | 100 ordinary sharesof HK$1 each              |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|                                     |  |                                 |  |                                                                  |  | 2 non-votingdeferred shares ofHK$1 each      |  |                                  |  |   
|                                     |  |                                 |  |                                                                  | 
|i-CABLE Satellite Television Limited |  | Hong Kong                       |  | Non-domestictelevision servicesand program licensing             |  | 2 ordinary sharesof HK$1 each                |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|i-CABLE WebServe Limited             |  | Hong Kong                       |  | Internet andmultimedia services                                  |  | 2 ordinary sharesof HK$1 each                |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|i-CABLE Ventures Limited             |  | British VirginIslands           |  | Investment holding                                               |  | 500 ordinary sharesof US$1 each              |  | 100                               |  |   
|                                     |  |                                 |  |                                                                  | 
|Kreuger Assets Limited               |  | British VirginIslands           |  | Investment holding                                               |  | 500 ordinary sharesof US$1 each              |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|Maspon Company Limited               |  | Hong Kong                       |  | Investment holding                                               |  | 100 ordinary sharesof HK$1 each              |  |                                  |  | 100
|                                     |  |                                 |  |                                                                  | 
|                                     |  |                                 |  |                                                                  |  | 2 non-votingdeferred shares ofHK$1 each      |  |                                  |  |   





F - 30



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



24. Particulars of subsidiaries (continued)



|                                                                                                                    |  |                                  |  |                                                                        |  |                                                 |  |                                   |  |    
|------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- |  | ---------------------------------------------------------------------- |  | ----------------------------------------------- |  | --------------------------------- |  | ---
|Name of company                                                                                                     |  | Place ofincorporation /operation |  | Principal activities                                                   |  | Particulars of issued capital, all fully paid   |  | Percentage of ordinaryshares held
|                                                                                                                    |  |                                  |  | Directly                                                               |  | Indirectly                                     
|Moscan Assets Limited                                                                                               |  | British VirginIslands            |  | Investment holding                                                     |  | 500 ordinary sharesof US$1 each                 |  |                                  |  | 100
|                                                                                                                    |  |                                  |  |                                                                        | 
|New Television and Film International Limited (renamed as Hong Kong Cable News Express Limited on February 8, 2005) |  | Hong Kong                        |  | Advertising airtime                                                    |  | 2 ordinary shares ofHK$10 each                  |  |                                  |  | 100
|                                                                                                                    |  |                                  |  |                                                                        | 
|Rediffusion Engineering Limited                                                                                     |  | Hong Kong                        |  | Systems installationand operation                                      |  | 100 ordinary sharesof HK$1 each                 |  |                                  |  | 100
|                                                                                                                    |  |                                  |  |                                                                        | 
|                                                                                                                    |  |                                  |  |                                                                        |  | 2 non-votingdeferred shares ofHK$1 each         |  |                                  |  |   
|                                                                                                                    |  |                                  |  |                                                                        | 
|Rediffusion (Hong Kong) Limited                                                                                     |  | Hong Kong                        |  | Cable televisionrelay services                                         |  | 100 ordinary sharesof GBP0.50 each              |  |                                  |  | 100
|                                                                                                                    |  |                                  |  |                                                                        | 
|                                                                                                                    |  |                                  |  |                                                                        |  | 40,000 non-votingdeferred shares ofGBP0.50 each |  |                                  |  |   
|                                                                                                                    |  |                                  |  |                                                                        | 
|Rediffusion Satellite Services Limited                                                                              |  | Hong Kong                        |  | Satellite televisionsystems                                            |  | 1,000 ordinaryshares of HK$10each               |  |                                  |  | 100
|                                                                                                                    |  |                                  |  |                                                                        | 
|Riddlewood Company Limited                                                                                          |  | Hong Kong                        |  | Investment holding                                                     |  | 2 ordinary shares ofHK$1 each                   |  |                                  |  | 100
|                                                                                                                    |  |                                  |  |                                                                        | 
|Guangzhou Kuan Xun Customer Services Company Limited *                                                              |  | The PeoplesRepublic of China    |  | Technical services                                                     |  | HK$1,000,000                                    |  |                                  |  | 100
|                                                                                                                    |  |                                  |  |                                                                        | 
|Guangzhou Dong Liang Cai Movie and Television Technology Consultation Company Limited *                             |  | The PeoplesRepublic of China    |  | Market research andconsulting servicesin film andtelevision industries |  | HK$1,000,000                                    |  |                                  |  | 100



Details of
partnerships held indirectly through subsidiaries at December 31, 2004 were as follows:



|                                |  |                             |  |                      |  |                       
|------------------------------- |  | --------------------------- |  | -------------------- |  | ----------------------
|Name of partnership             |  | Law under whichincorporated |  | Principal activities |  | Percentage of interest
|The Cable Leasing Partnership   |  | Hong Kong                   |  | Inactive             |  | 100                   
|The Network Leasing Partnership |  | Hong Kong                   |  | Inactive             |  | 100                   

---

|* | English transliteration of Chinese name
|- | ---------------------------------------





F - 31



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



25. Commitments and contingencies



Commitments outstanding as at December 31, 2004 not provided for in the financial statements were as follows:



|                                       |  |         |  |        
|-------------------------------------- |  | ------- |  | -------
|                                       |  | 2003    |  | 2004   
|Capital commitments                    |  |         |  |        
|- Authorised and contracted for        |  | 78,240  |  | 17,366 
|- Authorised but not contracted for    |  | 154,487 |  | 61,313 
|                                       |  |         |  |        
|                                       |  | 232,727 |  | 78,679 
|                                       |  |         |  |        
|Programming and other commitments      |  |         |  |        
|- Authorised and contracted for        |  | 217,294 |  | 695,255
|- Authorised but not contracted for    |  | 25,652  |  | 80,835 
|                                       |  |         |  |        
|                                       |  | 242,946 |  | 776,090
|                                       |  |         |  |        
|Operating lease commitments            |  |         |  |        
|- Within one year                      |  | 31,982  |  | 25,810 
|- After one year but within five years |  | 46,235  |  | 32,126 
|- After five years                     |  |        |  | 60,608 
|                                       |  |         |  |        
|                                       |  | 78,217  |  | 118,544
|                                       |  |         |  |        
|                                       |  | 553,890 |  | 973,313
|                                       |  |         |  |        



|(a) | Significant leasing arrangements
|--- | --------------------------------



The Group leases a number of premises under operating leases for use as office premises, car parks, warehouses, district centres, retail shops, remote camera sites,
multipoint microwave distribution system transmission sites and hub sites. The terms of the leases vary and may be renewable on a monthly basis or run for an initial period of three to fifteen years, with an option to renew the lease after that date
at which time all terms are renegotiated. Lease payments are usually adjusted every two to three years to reflect market rentals. None of the leases includes contingent rentals.



Some of the leased properties have been sublet by the Group under operating leases. The terms of the subleases vary and may be renewable on
a monthly basis or run for an initial period of three years, with an option to renew the lease after that date at which time all terms are renegotiated.



The Group leases out cable modem equipment and decoders to subscribers under operating leases which are renewable on a monthly basis. None of the leases includes
contingent rentals.





F - 32



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



25. Commitments and contingencies (continued)



|(b) | Operating leases
|--- | ----------------



Future minimum lease payments, in respect of land and buildings, as of December 31, 2004 under non-cancellable operating leases having initial or
remaining lease terms of more than one year are as follows:



|                              |  |         |  |        
|----------------------------- |  | ------- |  | -------
|                              |  | 2003    |  | 2004   
|                              |  | HK$000 |  | HK$000
|Year ending December 31, 2004 |  | 30,928  |  |       
|Year ending December 31, 2005 |  | 23,651  |  | 10,297 
|Year ending December 31, 2006 |  | 9,872   |  | 10,923 
|Year ending December 31, 2007 |  | 10,092  |  | 10,295 
|Year ending December 31, 2008 |  | 2,730   |  | 6,320  
|Year ending December 31, 2009 |  |        |  | 4,587  
|Thereafter                    |  |        |  | 60,608 
|                              |  |         |  |        
|                              |  | 77,273  |  | 103,030
|                              |  |         |  |        



Total rental expenses
for each of the years ended December 31, 2002, 2003 and 2004 were HK$43,271,000, HK$42,603,000 and HK$41,160,000, respectively.



|(c) | Future operating lease income
|--- | -----------------------------



| | (i) | The total future minimum sublease payments receivable under non-cancellable subleases at December 31, 2003 and 2004 amounted to HK$6,037,000 and HK$1,635,000, respectively.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The total future minimum lease payments receivable in respect of cable modem equipment and decoders under non-cancellable operating leases are as follows:
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|                |  |         |  |        
|--------------- |  | ------- |  | -------
|                |  | 2003    |  | 2004   
|                |  | HK$000 |  | HK$000
|Within one year |  | 6,735   |  | 9,377  
|                |  |         |  |        



|(d) | License agreements
|--- | ------------------



The Group is required to pay license fees to the Government of the Hong Kong Special Administrative Region (SAR) each year for the provision
of certain services. At December 31, 2004, these comprise mainly:



| | (i) | an annual fixed domestic pay television program service license of HK$1,371,000 plus a fee of HK$4 for every subscriber to the domestic pay television program service provided under
the license;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | an annual fixed telecommunication network services (FTNS) license fee of HK$1,000,000 plus a fee of HK$700 for every 100 customer connections and spectrum utilization
annual fee based on a variable fee for every 1 kHz or part thereof of spectrum assigned;
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | an annual fixed carrier (restricted) license fee of HK$100,000 plus a fee of HK$700 for every 100 customer connections and spectrum utilization annual fee based on a variable fee
for every 1 kHz or part thereof of spectrum assigned; and
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | a satellite master antenna television (SMATV) annual license fee of HK$750 plus outlet fee of HK$700 for every 100 outlet points or part thereof.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------



The total amounts of license fees paid to the
Hong Kong SAR Government for the years ended December 31, 2002, 2003 and 2004 were HK$12,666,273, HK$12,730,473 and HK$12,997,681, respectively.





F - 33



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



25. Commitments and contingencies (continued)



|(d) | License agreements (continued)
|--- | ------------------------------



The Group has also entered into program license agreements with content providers and has commitments to pay amounts under such license agreements, which
have been negotiated on normal commercial terms. The related program costs are recognized in the period in which they are incurred and accounted for in accordance with Note 2(e).



|(e) | Other commitments
|--- | -----------------



During the year, the Group entered into a forward exchange contract with a financial institution to hedge certain firmly committed, non-Hong Kong dollar
commercial transactions in 2005. The Group had, as at December 31, 2004, an outstanding forward contract to buy foreign currency with a notional principal value of HK$101 million equivalent.



The forward contract has not been designated as a hedging instrument. The
change in the fair value of the forward contract is insignificant.



|(f) | Contingent liabilities
|--- | ----------------------



As of December 31, 2004, there were contingent liabilities in respect of the following:



| | (i) | Guarantees, indemnities and letters of awareness to banks totaling HK$662 million (2003: HK$185 million) in respect of overdraft and guarantee facilities given by those banks to the
subsidiaries. Of this amount, at December 31, 2004, HK$546 million (2003: HK$55 million) was utilized by the subsidiaries.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company has provided a guarantee to a subsidiary as an indemnification for a line of credit related to transportation of equipment, amounting to HK$2
million, which will expire in 2005. Should this subsidiary default, the Company will be obliged to cover the amount. The Company considers the likelihood of the execution of such guarantee to be remote and the amount involved, in any case, will not
have adverse impact on the financial position of the Company. Accordingly, no liability has been accrued for losses related to the Companys obligation under this guarantee arrangement.



| | (ii) | As explained in Note 7, the Group is in discussion with the Inland Revenue Department regarding previous years tax affairs of The Cable Leasing Partnership and The Network
Leasing Partnership (the Partnerships) under the Group. The management is of the view that the Groups maximum tax exposure as at December 31, 2004 under the protective assessments would amount to HK$106 million, of which up to
HK$64 million would be indemnified by Wharf Communications Limited as tax liability pertaining to events occurring up to the Groups Initial Public Offering on November 1, 1999, such that the contingent tax exposure for the Group is estimated
at HK$42 million. Based on a counter-offer under contemplation, the management decided to make a provision of HK$12 million in 2004 (2002 and 2003: Nil) for the Groups expected share of the tax liability. Based on a latest offer being
considered after year end, management has decided to further increase the provision to HK$17 million. As part of the settlement proposal, total tax losses of HK$692 million in two group entities have also been surrendered triggering the absorption
of certain unrecognized tax losses and the recognition of an appropriate amount of deferred tax liability as disclosed under Note 20b to the financial statements. The remaining maximum further liability is estimated at HK$25 million.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|





F - 34



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



26. Related party transactions



The following represent material related party transactions between the Group and related parties during the year:



|                                                                                      |  |         |   |  |         |   |  |         |  
|------------------------------------------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                                                                                      |  | 2002    |   |  | 2003    |   |  | 2004    |  
|                                                                                      |  | HK$000 |   |  | HK$000 |   |  | HK$000 |  
|Interest expenses on convertible bonds held by the Wharf group (Note(i))              |  | 60,602  |   |  | 10,767  |   |  |        |  
|Rentals payable and related management fees on land and buildings (Note(ii))          |  | 40,551  |   |  | 38,360  |   |  | 35,413  |  
|Rentals receivable on land and buildings (Note(iii))                                  |  | (4,446  | ) |  | (4,455  | ) |  | (4,467  | )
|Network repairs and maintenance services charge (Note (iv))                           |  | (20,556 | ) |  | (21,344 | ) |  | (21,191 | )
|Management fees (Note(v))                                                             |  | 13,423  |   |  | 11,634  |   |  | 11,634  |  
|Computer services (Note (vi))                                                         |  | 12,236  |   |  | 14,158  |   |  | 14,049  |  
|Leased line and PNETS charges and international bandwidth access charges (Note (vii)) |  | 23,799  |   |  | 24,496  |   |  | 24,771  |  
|Project management fees (Note (viii))                                                 |  | (7,558  | ) |  | (7,135  | ) |  | (6,512  | )
|Internet Protocol Point wholesale services charge (Note (ix))                         |  |        |   |  |        |   |  | (1,417  | )
|                                                                                      |  |         |   |  |         |   |  |         |  

---

Notes:

|(i) | This represents interest expenses on convertible bonds held by the Wharf group prior to the bonds maturity on November 23, 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(ii) | These represent rentals and related management fees paid to fellow subsidiaries in respect of office premises, car parks, warehouses, district centres, retail shops and hub sites.
As at December 31, 2004, related rental deposits amounted to HK$7,511,000 (2003: HK$7,513,000).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) | This represents rental received from a fellow subsidiary in respect of the lease of office premises.
|----- | ----------------------------------------------------------------------------------------------------

|(iv) | This represents service charges to a fellow subsidiary in relation to the operation, repair and maintenance of ducts, cables and ancillary equipment.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(v) | This represents costs incurred by a fellow subsidiary on the Groups behalf which were recharged to the Group.
|--- | --------------------------------------------------------------------------------------------------------------

|(vi) | This represents service charges paid to a fellow subsidiary for computer system maintenance and consulting services provided.
|---- | -----------------------------------------------------------------------------------------------------------------------------

|(vii) | This represents service fees paid to a fellow subsidiary in respect of the leasing of datalines, Public Non-Exclusive Telecommunications (PNETS) charges
and international bandwidth access charges incurred.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(viii) | This represents fees received from a fellow subsidiary for the provision of project management services.
|------ | --------------------------------------------------------------------------------------------------------

|(ix) | This represents service charges to a fellow subsidiary in relation to the Internet Protocol Point wholesale services.
|---- | ---------------------------------------------------------------------------------------------------------------------



F - 35



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



26. Related party transactions (continued)



Included in Note 13 were additions to property, plant and equipment totaling HK$732,000 (2003: HK$920,000) constructed by a fellow subsidiary on behalf of the Group during the year ended December 31, 2004.



During 2002, the Company redeemed at face value a portion of the
convertible bonds in the principal amount of HK$1,500 million. The early redemption was approved by independent shareholders at an extraordinary general meeting held on October 22, 2002. On November 23, 2003 the remaining portion of the convertible
bonds of HK$300 million were redeemed at their principal amount upon maturity.



The immediate holding company has issued deeds of indemnity in respect of certain litigation, taxation and costs arising in respect of the period prior to November 1, 1999. The Group is not charged for these
indemnities.



27. Post balance sheet event



After the balance sheet date the directors proposed a final dividend.
Further details are disclosed in Note 8.



28. Recently issued accounting
standards



The HKICPA has issued a number of new and
revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (new HKFRSs) which are effective for accounting periods beginning on or after January 1, 2005.



The Group has not early adopted these new HKFRSs in the financial statements
for the year ended December 31, 2004. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and
financial position.



The Group will be continuing with the
assessment of the impact of the new HKFRSs and significant changes may be identified as a result.



29. Ultimate holding company



The Directors consider the ultimate holding company at December 31, 2004 to be The Wharf (Holdings) Limited, which is incorporated in Hong Kong.



F - 36



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP



The Groups accounting policies conform with HK GAAP, which differ in certain significant respects from US GAAP. Information relating to the nature
and effect of such differences is presented below.



|(a) | Deferred pre-maturity and franchise costs
|--- | -----------------------------------------



Under HK GAAP, all pre-maturity costs incurred during the pre-maturity period of the Groups cable television operations and all pre-operating costs
incurred before the launch of the Groups cable television operations on October 31, 1993 are recognized as an expense in the period in which they are incurred.



Under US GAAP, certain pre-maturity and franchise costs are deferred and amortized on a straight-line basis over the
remaining term of the initial subscription television broadcasting license which expires on May 31, 2005. The pre-maturity period began with the first earned subscriber revenue on October 31, 1993 and was to continue until the earlier of the
attainment of a predetermined subscriber level and December 31, 1996. The pre-maturity period ended on November 30, 1996 when the predetermined subscriber level was attained. For US GAAP purposes, an adjustment has been made to reflect the
amortization of certain pre-maturity and franchise costs that have been written off under HK GAAP that were allowed to be capitalized under US GAAP.



Management has evaluated the amortization periods of pre-maturity and franchise costs and determined that no events or circumstances warrant a revision to
the estimates of useful lives. The aggregate amortization expense was HK$89,686,000 (2003 and 2002: HK$90,229,000 and HK$90,410,000 respectively) for the year. At December 31, 2004, the estimated aggregate amortization expense for the next five
succeeding fiscal years is as follows:



|     |  |        
|---- |  | -------
|Year |  | HK$000
|2005 |  | 37,360 
|2006 |  |       
|2007 |  |       
|2008 |  |       
|2009 |  |       



|(b) | Goodwill
|--- | --------



Goodwill arising on consolidation represents the excess of the cost of the acquisition over the Groups share of the fair value of the identifiable assets and liabilities acquired.



Under HK GAAP, for acquisitions before January 1, 2001, positive goodwill is
eliminated against reserves and is reduced by impairment losses. For acquisitions on or after January 1, 2001, positive goodwill is amortized to earnings on a straight-line basis over its estimated useful life. Goodwill is stated in the consolidated
balance sheet at cost less any accumulated amortization and any impairment losses.



The Group has not made any acquisitions since January 1, 2001 that would give rise to positive goodwill subject to amortization under HK GAAP.



Under US GAAP, prior to January 1, 2002, goodwill arising from the application of the purchase method of accounting was
capitalized and amortized on a straight-line basis over its estimated useful life of 12 years from the relevant acquisition date. Upon the adoption of Statement of Financial Accounting Standard (SFAS) 142, Goodwill and Other
Intangible Assets with effect from January 1, 2002, goodwill is assigned to the relevant reporting units and a transitional impairment test was conducted by reference to the carrying value of each reporting unit and their respective fair value
at January 1, 2002. Thereafter, goodwill is no longer subject to amortization, but the recorded value is subject to an annual assessment for impairment using a fair-value-based approach. An impairment loss is recorded if the recorded goodwill
exceeds its implied fair value. All reporting units to which goodwill is assigned are tested for impairment and no impairment loss was identified as of January 1, 2002, December 31, 2002, December 31, 2003 and December 31, 2004.



F - 37



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(c) | Impairment of long-lived assets
|--- | -------------------------------



Under HK GAAP, certain long-lived assets were reviewed for impairment and a provision of HK$180 million was recorded against those assets in 1995. Under
US GAAP, long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, the
Group recognizes an impairment loss. Measurement of an impairment loss for long-lived assets and certain identifiable intangibles that management expects to hold and use are based on the fair value of the asset. The fair value of an asset is the
amount at which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale.



Accordingly, under US GAAP, the provision did not meet the criteria for recognition of an impairment write-down and was reversed, with depreciation
expense recognized on the reversed amount.



|(d) | Deferred taxation
|--- | -----------------



Under HK GAAP, Statement of Standard Accounting Practice 12 (revised) (SSAP 12 (revised)) became effective for all accounting periods
beginning on or after January 1, 2003. SSAP 12 (revised) is modelled on International Accounting Standards 12 which, in all material respects as they are relevant to the Group, is similar to SFAS 109, Accounting for income taxes. SSAP 12
(revised) requires full recognition of all deferred tax liabilities and deferred tax assets to the extent there is sufficient future taxable profit against which the asset can be utilized.



Under US GAAP, a provision is made for all deferred taxes as they arise, and
a valuation allowance is provided against deferred tax assets when realization of such amounts does not meet the criterion of more likely than not. A valuation allowance on deferred tax assets is recorded if it is more likely than not
that some portion or all of the deferred tax assets will not be realized through recovery of taxes previously paid and/or future taxable income. The allowance is subject to ongoing adjustments based on changes in circumstances that affect the
Groups assessment of the realizability of the deferred tax assets. The Company has considered the scheduled reversal of deferred tax assets to the extent such assets can be realized through future reversals of existing taxable temporary
differences and projected future taxable income in making this assessment.



F - 38



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(d) | Deferred taxation (continued)
|--- | -----------------------------



The following table shows the principal items included in deferred income taxes under US GAAP:



|                                                            |  |           |   |  |           |  
|----------------------------------------------------------- |  | --------- | - |  | --------- | -
|                                                            |  | 2003      |   |  | 2004      |  
|                                                            |  | HK$000   |   |  | HK$000   |  
|Deferred tax assets:                                        |  |           |   |  |           |  
|Operating loss carryforwards                                |  | 1,205,329 |   |  | 1,017,748 |  
|Inventories                                                 |  | 35        |   |  | 35        |  
|Accounts receivable from trade debtors                      |  |          |   |  | 426       |  
|                                                            |  |           |   |  |           |  
|Installation fees, installation costs and subscription fees |  | 2,428     |   |  | 2,353     |  
|                                                            |  |           |   |  |           |  
|                                                            |  | 1,207,792 |   |  | 1,020,562 |  
|Less: Valuation allowance                                   |  | (939,882  | ) |  | (720,753  | )
|                                                            |  |           |   |  |           |  
|                                                            |  | 267,910   |   |  | 299,809   |  
|                                                            |  |           |   |  |           |  
|Deferred tax liabilities:                                   |  |           |   |  |           |  
|Deferred expenses                                           |  | (22,233   | ) |  | (6,538    | )
|Property, plant and equipment                               |  | (245,677  | ) |  | (232,949  | )
|                                                            |  |           |   |  |           |  
|                                                            |  | (267,910  | ) |  | (239,487  | )
|                                                            |  |           |   |  |           |  
|Net deferred income tax assets                              |  |          |   |  | 60,322    |  
|                                                            |  |           |   |  |           |  



Prior to January 1,
2003, under HK GAAP, the Group provided for deferred tax liabilities to the extent that there was a reasonably probability that such deferred taxes would become payable in the foreseeable future. Deferred tax benefits were not recognized unless
their realization was assured beyond reasonable doubt. Therefore, US GAAP adjustments were required to recognize all deferred tax liabilities and all deferred tax assets to the extent such amounts meet the more likely than not criterion.
During 2002, deferred tax assets of HK$107.2 million were recognized under US GAAP. This was pursuant to a change in circumstances that caused a change in management judgment about the realizability of operating loss carryforwards from losses
incurred by a subsidiary in years prior to 2002.



Upon the
adoption of SSAP 12 (revised) under HK GAAP in 2003, management re-evaluated the above subsidiarys tax position for each previous year and concluded that, based on the amounts of previously unrecognized operating loss carryforwards actually
utilized by the above subsidiary in recent years, the changes in circumstances that supported the recognition of deferred tax assets from operating loss carryforwards in 2002 under US GAAP was considered to have emerged before 2002 but of which
existence was confirmed in 2002. For the purposes of restating prior period financial statements under HK GAAP in the Groups consolidated financial statements for the year ended December 31, 2003, management considered that the above
subsidiary could have recognized deferred tax assets from operating loss carryforwards in amounts sufficient to offset the amounts of deferred tax liabilities from taxable temporary differences arising from another subsidiary within the i-CABLE
Group, beginning from the year 2001. Accordingly, in the Groups HK GAAP consolidated financial statements for the year ended December 31, 2003, a prior period adjustment was made to the consolidated opening revenue reserve at January 1, 2001,
the objective of which was to eliminate any GAAP differences on the amounts of deferred tax liabilities and deferred tax assets recognized under HK GAAP and US GAAP.



Based on the foregoing, the GAAP difference has been eliminated and therefore US GAAP adjustments are no longer required in
2003 and 2004.



During 2004, additional deferred tax assets for
tax losses were recognized pursuant to a change in circumstances that caused a change in judgment about the realizability of operating loss carryforwards incurred by a subsidiary. At December 31, 2004, the Group had operating loss carryforwards of
HK$5,815.7 million which do not expire.



The valuation
allowance at January 1, 2002 was HK$977.1 million. The valuation allowance decreased by HK$102.2 million, increased by HK$65.0 million and decreased by HK$219.1 million during 2002, 2003 and 2004, respectively.



F - 39



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(e) | Installation fees, installation costs and subscription fees
|--- | -----------------------------------------------------------



Under HK GAAP, installation fees relating to the broadband Internet access services are recognized upon completion of the installation to the extent that
they do not exceed the direct selling costs incurred. The incremental direct costs (excluding selling costs) incurred that are associated with the installation are capitalized and amortized over the estimated customer service period.



Under US GAAP, installation fees relating to the broadband Internet access
services and the related incremental direct costs (excluding selling costs) up to, but not exceeding, the amount of the installation revenue, are deferred and recognized on a straight-line basis over the estimated customer service period, which is
four years as of December 31, 2004, with respect to customers under monthly service contracts, or over the contract period, with respect to customers under 12 to 18 month service contracts. The excess of incremental direct costs (excluding selling
costs) over the related installation fees, to the extent that they are recoverable from future contractual revenues, are deferred and amortized over the contract period.



The US GAAP adjustments for installation costs represent reversal of incremental direct costs for the year capitalized under
HK GAAP not permitted to be capitalized under US GAAP to the extent that they were not recoverable from future contractual revenues, net of the current years amortization of previously deferred incremental direct costs over the estimated
customer service period or the contract period, as appropriate.



Under HK GAAP, where packaged service fees comprise a number of elements and the fees can be allocated on a reasonable basis into separate elements, revenue is recognized in accordance with the accounting policies applicable for the
respective elements. Where packaged service fees cannot be allocated into individual elements, the fees are deferred and recognized over the term of the service period.



Under US GAAP, consideration received for components of enforceable contracts involving multiple element arrangements are
accounted for as separate units only if the individual components meet all the criteria for separation accounting, and the arrangement consideration can be allocated to the individual components based on the fair value of the respective components.
Otherwise, the entire arrangement consideration is accounted for as one single unit, and is deferred and recognized over the contract period. Installation fees in certain multiple element arrangements did not meet all the criteria for separation
accounting. Accordingly, revenue that was separated and recorded as installation fees upon the completion of the installation under HK GAAP was reversed, giving rise to a corresponding increase in subscription fees to be recognized over the term of
the contract.



The US GAAP adjustments for installation fees
represent the reversal of installation fees recognized under HK GAAP at the time of installation which do not meet all the criteria for separation provision of EITF 00-21. Accordingly, such installation fees are recognized over the estimated
customer service period or the contract period, as appropriate, under US GAAP. The adjustment also includes the current years amortization of installation fees deferred under US GAAP in previous years over the contract period. The US GAAP
adjustments for subscription fees represent the portion of current years amortization of considerations received in the current and/or prior years from multiple element arrangements not meeting all criteria for separation accounting which are
considered subscription fees under US GAAP rather than installation fees under HK GAAP.



F - 40



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(f) | Valuation of cost method investments
|--- | ------------------------------------



Under HK GAAP, unlisted non-trading securities are measured at fair value in the balance sheet. Unrealized holding gains and losses on such securities are
reported in the investment revaluation reserve. To the extent such securities are deemed to be impaired under HK GAAP, the unrealized holding losses are included in earnings.



Under US GAAP, cost method investments that do not have a readily determinable market value are recorded at cost less any
decline in value deemed to be other-than-temporary. A decline in the fair value of an investment below its carrying amount that is other-than-temporary is accounted for as a realized loss, whereby the cost basis of the
investment must be written down to fair value. Under US GAAP, in 2001, the decline in fair value of a cost method investment below its carrying amount of HK$14,500,000 was deemed to be other-than-temporary and recorded as a charge to
earnings due to the stricter guidance as compared to that required under HK GAAP on determining when a decline in value should be deemed other-than-temporary. The charge was reversed from the reconciliation of net profit in 2002 upon
recognition of the same as impairment loss under HK GAAP in 2002.



|(g) | Share option scheme
|--- | -------------------



Under the Companys share option scheme, the Company may grant options to employees to purchase the ordinary shares of the Company for up to 10 per
cent of the issued share capital of the Company from time to time, excluding for this purpose shares issued pursuant to the exercise of options granted under the share option scheme.



During the year ended December 31, 2000, options to purchase a total of 22,910,000 ordinary shares at exercise price of
HK$10.49 per share were granted by the Company to eligible employees. 20 per cent of the options was to vest on or after April 1, 2001, 40 per cent on or after the date on which it is announced that the Companys audited consolidated revenue in
the preceding financial year has exceeded HK$2,300 million and the remaining 40 per cent on or after the date on which it is announced that the Companys audited consolidated revenue in the preceding financial year has exceeded HK$3,900
million. The options, to the extent not exercised, will lapse on December 31, 2009.



During the year ended December 31, 2001, options to purchase a total of 50,034,000 ordinary shares at exercise price of HK$3.30 per share were granted by the Company to eligible employees. These options were granted
with the exercise price lower than the market price of the Companys stock at the time of grant. Of the options granted, options to purchase a total of 34,813,000 ordinary shares (the former series) vested on or after July 1, 2002
(50%) and April 1, 2003 (50%) respectively while the remaining options (the latter series) vested on or after July 1, 2002 (30%), July 1, 2003 (30%) and July 1, 2004 (40%) respectively. To the extent not exercised, the options lapsed on
December 31, 2003 for the former series and will lapse on December 31, 2005 for the latter series.



F - 41



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(g) | Share option scheme (continued)
|--- | -------------------------------



During the year ended December 31, 2002, options to purchase a total of 380,000 ordinary shares at exercise price of HK$3.30 per share were granted by the
Company to an eligible employee. On the grant date, the exercise price exceeded the market price of the Companys stock. 50 per cent of the options vested on or after January 1, 2004 and 50 per cent vested on or after January 1, 2005. To the
extent not exercised, the options will lapse on December 31, 2005.



Movement of the Companys share options is as follows:



|                           |  |                  |   |      |                                          |      |                  |   |  |                                          |  |                  |   |  |                                         
|-------------------------- |  | ---------------- | - | ---- | ---------------------------------------- | ---- | ---------------- | - |  | ---------------------------------------- |  | ---------------- | - |  | ----------------------------------------
|                           |  | 2002             |   | 2003 |                                          | 2004
|                           |  | Number ofoptions |   |      | Weighted-averageexercise price per share |      | Number ofoptions |   |  | Weighted-averageexercise price per share |  | Number ofoptions |   |  | Weighted-averageexercise price per share
|                           |  |                  |   |      | HK$                                      |      |                  |   |  | HK$                                      |  |                  |   |  | HK$                                     
|Outstanding at January 1   |  | 66,843,000       |   |      | 5.34                                     |      | 58,543,600       |   |  | 5.49                                     |  | 28,791,500       |   |  | 7.36                                    
|Granted                    |  | 380,000          |   |      | 3.30                                     |      |                 |   |  |                                          |  |                 |   |  |                                         
|Exercised                  |  | (5,234,400       | ) |      | 3.30                                     |      |                 |   |  |                                          |  |                 |   |  |                                         
|Lapsed                     |  | (3,445,000       | ) |      | 5.68                                     |      | (29,752,100      | ) |  | 3.67                                     |  | (1,079,900       | ) |  | 7.49                                    
|                           |  |                  |   |      |                                          |      |                  |   |  |                                          |  |                  |   |  |                                         
|Outstanding at December 31 |  | 58,543,600       |   |      | 5.49                                     |      | 28,791,500       |   |  | 7.36                                     |  | 27,711,600       |   |  | 7.36                                    
|                           |  |                  |   |      |                                          |      |                  |   |  |                                          |  |                  |   |  |                                         
|Exercisable at December 31 |  | 18,520,500       |   |      | 4.68                                     |      | 10,170,300       |   |  | 5.60                                     |  | 15,009,600       |   |  | 4.80                                    
|                           |  |                  |   |      |                                          |      |                  |   |  |                                          |  |                  |   |  |                                         



Information in respect
of the Companys share options outstanding at December 31, 2004 is as follows:



|                                            |  |                    |  |                    |  |                   
|------------------------------------------- |  | ------------------ |  | ------------------ |  | ------------------
|Options standing at December 31,            |  | 2002               |  | 2003               |  | 2004              
|Number of options                           |  | 58,543,600         |  | 28,791,500         |  | 27,711,600        
|Range of exercise prices per share          |  | HK$3.30to HK$10.49 |  | HK$3.30to HK$10.49 |  | HK$3.30to HK$10.49
|Weighted average exercise price             |  | HK$5.49            |  | HK$7.36            |  | HK$7.36           
|Weighted average remaining contractual life |  | 4.05 years         |  | 3.76 years         |  | 2.81 years        



F - 42



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(g) | Share option scheme (continued)
|--- | -------------------------------



Under HK GAAP, no accounting entry is made upon the granting of share options to employees.



Under US GAAP, the Group applies the intrinsic value-based method for share options prescribed by Accounting Principles
Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations to account for its fixed plan stock options. Under this method, compensation expense is recognized and amortized over the
vesting period of the options concerned to the extent that the fair value of the equity instruments exceeds the exercise price of the options granted at a defined measurement date. The measurement date is the first date on which both the number of
shares that an individual employee is entitled to receive and the exercise price are known. Other than options granted to employees during the year ended December 31, 2000 which require the achievement of specific hurdles by the Company prior to
their vesting and accordingly, need to be accounted for utilizing variable plan accounting, all other options granted by the Company are accounted for utilizing fixed plan accounting under US GAAP.



Had the Company determined compensation cost based on the fair value model at
the grant date for its stock options under SFAS 123 Accounting for Stock-Based Compensation, the Companys pro forma net profit and basic and diluted earnings per share and per ADS would have been as follows:



|                                                                            |  |                                                   |   |  |             |   |  |            
|--------------------------------------------------------------------------- |  | ------------------------------------------------- | - |  | ----------- | - |  | -----------
|                                                                            |  | 2002                                              |   |  | 2003        |   |  | 2004       
|                                                                            |  | HK$000                                           |   |  | HK$000     |   |  | HK$000    
|                                                                            |  | (in thousands, except per share and per ADS data)
|Net profit as reported                                                      |  | 100,320                                           |   |  | 127,826     |   |  | 247,858    
|Add: Compensation cost recognized based on intrinsic value method           |  | 11,976                                            |   |  | 2,457       |   |  | 453        
|Less: (Compensation cost)/reversed of compensation cost based on fair value |  | (26,014                                           | ) |  | (8,411      | ) |  | 10,046     
|                                                                            |  |                                                   |   |  |             |   |  |            
|Pro forma net profit                                                        |  | 86,282                                            |   |  | 121,872     |   |  | 258,357    
|                                                                            |  |                                                   |   |  |             |   |  |            
|Basic earnings per share                                                    |  |                                                   |   |  |             |   |  |            
|- as reported                                                               |  | 5.0 cents                                         |   |  | 6.3 cents   |   |  | 12.3 cents 
|- pro forma                                                                 |  | 4.3 cents                                         |   |  | 6.0 cents   |   |  | 12.8 cents 
|                                                                            |  |                                                   |   |  |             |   |  |            
|Diluted earnings per share                                                  |  |                                                   |   |  |             |   |  |            
|- as reported                                                               |  | 4.9 cents                                         |   |  | 6.3 cents   |   |  | 12.3 cents 
|- pro forma                                                                 |  | 4.3 cents                                         |   |  | 6.0 cents   |   |  | 12.8 cents 
|                                                                            |  |                                                   |   |  |             |   |  |            
|Basic earnings per ADS*                                                     |  |                                                   |   |  |             |   |  |            
|- as reported                                                               |  | 99.5 cents                                        |   |  | 126.6 cents |   |  | 245.5 cents
|- pro forma                                                                 |  | 85.6 cents                                        |   |  | 120.7 cents |   |  | 255.9 cents
|                                                                            |  |                                                   |   |  |             |   |  |            





F - 43



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(g) | Share option scheme (continued)
|--- | -------------------------------



|                          |  |            |  |             |  |            
|------------------------- |  | ---------- |  | ----------- |  | -----------
|Diluted earnings per ADS* |  |            |  |             |  |            
|- as reported             |  | 99.0 cents |  | 126.6 cents |  | 245.5 cents
|- pro forma               |  | 85.1 cents |  | 120.7 cents |  | 255.9 cents
|                          |  |            |  |             |  |            

---

|* | 1 ADS represents 20 ordinary shares
|- | -----------------------------------



In light of the latest forecast, the management of the Company do not expect the performance criterion of achieving HK$3,900 million of audited
consolidated revenue is attainable for the final 40 per cent of the stock options granted during the year ended December 31, 2000 to vest before they lapse on December 31, 2009. Hence, the cumulative pro-forma compensation cost based on the fair
value model in respect of such stock options up to December 31, 2003 was reversed during 2004.



The weighted-average fair value of the options granted during 2002 was HK$0.86 per share (2001: HK$1.20 per share) on the date of grant estimated using the Black-Scholes option-pricing model, with the following
weighted-average assumptions:



|                        |  |                 |  |                 
|----------------------- |  | --------------- |  | ----------------
|                        |  | 2001            |  | 2002            
|Risk-free rate          |  | 5.00% per annum |  | 2.20% per annum 
|Expected dividend yield |  | 1% per annum    |  | 1% per annum    
|Expected term           |  | 2 to 4 years    |  | 1.7 to 2.7 years
|Expected volatility     |  | 30% per annum   |  | 55%per annum    



The effects of
applying SFAS 123 for disclosing compensation cost under the pronouncement may not be representative of the effects on reported net results for future years.



|(h) | Statement of cash flows
|--- | -----------------------



The Group applies SSAP 15 (revised 2001) Cash Flow Statements effective from January 1, 2002. Its objectives and principles are similar to
those set out in US GAAP SFAS 95, Statement of Cash Flows. The principal differences between the standards relate to classification and the offsetting arrangement, as discussed below.





F - 44



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(h) | Statement of cash flows (continued)
|--- | -----------------------------------



Under HK GAAP, at December 31, 2002, certain restricted bank deposits and corresponding bank loans arising in respect of the Groups leasing
partnerships were offset against each other and were not shown in the consolidated financial statements as the Group effectively had the ability to insist on net settlement of the loans and deposits.



Under US GAAP, the offsetting of such assets and liabilities in the balance
sheet is not permitted. As such, under US GAAP, the restricted bank deposits and the bank loans would be reflected separately in the consolidated balance sheet.



Under US GAAP, the summarized cash flow data by operating, investing and financing activities for the year ended December 31, 2002 in accordance with
SFAS 95 to disclose cash flows from the bank deposits and the bank loans as investing and financing activities respectively, are as follows:



|                                         |  |            |  
|---------------------------------------- |  | ---------- | -
|                                         |  | 2002       |  
|                                         |  | HK$000    |  
|Net cash inflow/(outflow) from:          |  |            |  
|Operating activities                     |  | 863,397    |  
|Investing activities                     |  | (802,257   | )
|Financing activities                     |  | (1,266,854 | )
|                                         |  |            |  
|Change in cash and cash equivalents      |  | (1,205,714 | )
|Cash and cash equivalents at January 1   |  | 1,212,410  |  
|                                         |  |            |  
|Cash and cash equivalents at December 31 |  | 6,696      |  
|                                         |  |            |  



As the bank deposits
matured and the bank loans were repaid during 2003, no US GAAP adjustments with respect to the statement of cash flows are required for 2003 and 2004.



F - 45



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(i) | Recent accounting pronouncements
|--- | --------------------------------



In December 2004, the FASB issued SFAS 123R, Share-Based Payment. This statement is a revision to SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement requires a public entity to measure
the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to
provide service, the requisite service period (usually the vesting period), in exchange for the award. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models. If an equity award is
modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. This statement is
effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Under a new US Securities and Exchange Commission rule, a company may elect to adopt the provisions of SFAS 123R at the beginning of their
first annual period beginning after June 15, 2005. Consequently, the Group has elected to defer adoption of SFAS 123R until January 1, 2006. The Group is in the process of determining the impact of the adoption of SFAS 123R. The pro forma results
disclosed are not necessarily indicative of what the impact of SFAS 123R will be upon adoption.





F - 46



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(i) | Recent accounting pronouncements (continued)
|--- | --------------------------------------------



In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. SFAS 153 addresses the
principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. This statement also eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a
broader exception for exchanges of nonmonetary assets that do not have commercial substance. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. This statement will be effective for
the Group for nonmonetary asset exchanges occurring on or after January 1, 2006. The Group does not believe that the adoption of SFAS 153 will have a significant effect on its financial position or results of operations.



|(j) | Classification of items in the statement of operations
|--- | ------------------------------------------------------



Under HK GAAP, profit or loss on disposal of long-lived assets is disclosed as a separate item after profit from operations in the consolidated statement
of operations as management considers that any such profit or loss is incidental to the core operations of the Group.



Under US GAAP, profit or loss on disposal of long-lived assets is included in the determination of profit from operations in the consolidated statement of
operations.



Set out below is a reconciliation of profit from
operations determined under HK GAAP, between the HK GAAP and the US GAAP classifications:



|                                                      |  |                         |   |  |         |   |  |        
|----------------------------------------------------- |  | ----------------------- | - |  | ------- | - |  | -------
|                                                      |  | Year ended December 31,
|                                                      |  | 2002                    |   |  | 2003    |   |  | 2004   
|                                                      |  | HK$000                 |   |  | HK$000 |   |  | HK$000
|Profit from operations determined under HK GAAP       |  |                         |   |  |         |   |  |        
|As reported, under HK GAAP classification             |  | 226,435                 |   |  | 250,610 |   |  | 295,717
|Add: Net gain/(loss) on disposal of long-lived assets |  | (198                    | ) |  | (7,593  | ) |  | 1,499  
|                                                      |  |                         |   |  |         |   |  |        
|Under US GAAP classification                          |  | 226,237                 |   |  | 243,017 |   |  | 297,216
|                                                      |  |                         |   |  |         |   |  |        





F - 47



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(k) | Summary of significant differences between HK GAAP and US GAAP
|--- | --------------------------------------------------------------



The effect on net profit/(loss) of significant differences between HK GAAP and US GAAP is as follows:



|                                                  |  |      |  |                                                      |   |  |             |   |  |             |  
|------------------------------------------------- |  | ---- |  | ---------------------------------------------------- | - |  | ----------- | - |  | ----------- | -
|                                                  |  |      |  | Year ended December 31,                              |  
|                                                  |  | Note |  | 2002                                                 |   |  | 2003        |   |  | 2004        |  
|                                                  |  |      |  | HK$000                                              |   |  | HK$000     |   |  | HK$000     |  
|                                                  |  |      |  | (in thousands except for per share and per ADS data) |  
|Net profit under HK GAAP                          |  |      |  | 117,259                                              |   |  | 220,458     |   |  | 339,659     |  
|                                                  |  |      |  |                                                     
|Adjustments:                                      |  |      |  |                                                      |   |  |             |   |  |             |  
|Deferred pre-maturity and franchise costs         |  | (a)  |  | (90,410                                              | ) |  | (90,229     | ) |  | (89,686     | )
|Depreciation on reversal of impairment write-down |  | (c)  |  | (478                                                 | ) |  | (478        | ) |  | (238        | )
|Provision for deferred tax liabilities            |  | (d)  |  | (4,800                                               | ) |  |            |   |  |            |  
|Recognition of deferred tax assets                |  | (d)  |  | 107,200                                              |   |  |            |   |  |            |  
|Installation costs                                |  | (e)  |  | (11,049                                              | ) |  | (7,584      | ) |  | (1,855      | )
|Installation fees                                 |  | (e)  |  | (29,973                                              | ) |  | (1,310      | ) |  | (145        | )
|Subscription fees                                 |  | (e)  |  | 10,047                                               |   |  | 9,426       |   |  | 576         |  
|Valuation of cost method investments              |  | (f)  |  | 14,500                                               |   |  |            |   |  |            |  
|Share option scheme                               |  | (g)  |  | (11,976                                              | ) |  | (2,457      | ) |  | (453        | )
|                                                  |  |      |  |                                                      |   |  |             |   |  |             |  
|Net profit under US GAAP                          |  |      |  | 100,320                                              |   |  | 127,826     |   |  | 247,858     |  
|                                                  |  |      |  |                                                      |   |  |             |   |  |             |  
|Earnings per share under US GAAP                  |  |      |  |                                                      |   |  |             |   |  |             |  
|                                                  |  |      |  |                                                     
|- Basic                                           |  |      |  | 5.0 cents                                            |   |  | 6.3 cents   |   |  | 12.3 cents  |  
|                                                  |  |      |  |                                                      |   |  |             |   |  |             |  
|- Diluted                                         |  |      |  | 4.9 cents                                            |   |  | 6.3 cents   |   |  | 12.3 cents  |  
|                                                  |  |      |  |                                                      |   |  |             |   |  |             |  
|Earnings per ADS under US GAAP*                   |  |      |  |                                                      |   |  |             |   |  |             |  
|                                                  |  |      |  |                                                     
|- Basic                                           |  |      |  | 99.5 cents                                           |   |  | 126.6 cents |   |  | 245.5 cents |  
|                                                  |  |      |  |                                                      |   |  |             |   |  |             |  
|- Diluted                                         |  |      |  | 99.0 cents                                           |   |  | 126.6 cents |   |  | 245.5 cents |  
|                                                  |  |      |  |                                                      |   |  |             |   |  |             |  

---

|* | 1 ADS represents 20 ordinary shares
|- | -----------------------------------





F - 48



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



30. Significant differences between HK GAAP and US GAAP (continued)



|(k) | Summary of significant differences between HK GAAP and US GAAP (continued)
|--- | --------------------------------------------------------------------------



The effect on shareholders equity of significant differences between HK GAAP and US GAAP is as follows:



|                                                                        |  |      |  |                 |   |  |           |  
|----------------------------------------------------------------------- |  | ---- |  | --------------- | - |  | --------- | -
|                                                                        |  |      |  | At December 31, |  
|                                                                        |  | Note |  | 2003            |   |  | 2004      |  
|                                                                        |  |      |  | HK$000         |   |  | HK$000   |  
|Shareholders equity under HK GAAP                                      |  |      |  | 1,684,648       |   |  | 1,882,961 |  
|                                                                        |  |      | 
|Adjustments:                                                            |  |      |  |                 |   |  |           |  
|Deferred pre-maturity and franchise costs                               |  | (a)  |  | 127,046         |   |  | 37,360    |  
|Goodwill, net of amortization                                           |  | (b)  |  | 57,491          |   |  | 57,491    |  
|Reversal of impairment write-down, net of depreciation and amortization |  | (c)  |  | 238             |   |  |          |  
|Installation costs                                                      |  | (e)  |  | (32,007         | ) |  | (33,862   | )
|Installation fees                                                       |  | (e)  |  | (33,350         | ) |  | (33,495   | )
|Subscription fees                                                       |  | (e)  |  | 19,473          |   |  | 20,049    |  
|                                                                        |  |      |  |                 |   |  |           |  
|Shareholders equity under US GAAP                                      |  |      |  | 1,823,539       |   |  | 1,930,504 |  
|                                                                        |  |      |  |                 |   |  |           |  



31. Fair value of financial
instruments



Financial assets of the Group include cash
and cash equivalents, accounts receivable, other receivables, and amounts due from related parties. Financial liabilities of the Group include amounts due to trade creditors, other payables and amounts due to related parties. It is not practicable
to estimate the fair value of the amounts due from and due to related parties without incurring excessive cost. The fair value of all other financial instruments approximate their carrying amounts due to the nature or short maturity of these
instruments.



The Group has not developed an internal valuation
model necessary to make the estimate of the fair value of amounts due from and due to related parties, as it is not considered practicable. The costs incurred in obtaining discount and borrowing rates for comparable borrowings would be excessive
based on the existing capital structure of the Group and the terms of the borrowings.



32. Concentrations of risk



(a) Business risks



The Group conducts its principal
operations in Hong Kong and, accordingly, is subject to risks not typically associated with investments in equity securities of the United States of America. These include risks associated with the political, economic and legal environment in Hong
Kong.



(b) Foreign currency risk



The Group sources its programming both locally in Hong Kong and also from
overseas content providers, some of which is not invoiced in HK dollars, the Groups functional currency. The Group is exposed to foreign currency risk should the value of the HK dollar fluctuate adversely against other foreign currencies,
which could lead to an increase in costs that the Group may not be able to recover from subscribers.





F - 49



---

##### Table of Contents

i-CABLE Communications Limited



Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2004



32. Concentrations of risk (continued)



|(c) | Credit risk
|--- | -----------



Credit risk arises from the potential for counterparties to default on their contractual obligations to the Group. The Group is exposed to credit risk in the event of nonperformance, but does not anticipate
nonperformance by any of its counterparties. The Group limits its credit risk by dealing with counterparties that are considered to be of high quality and by actively monitoring the credit exposure of the Group. The Group is also exposed to credit
risk from customers.



|(d) | Changes in television and fixed telecommunication regulations in Hong Kong
|--- | --------------------------------------------------------------------------



The Groups business is subject to extensive governmental legislation and regulatory control. Changes in legislation and regulations could affect the
Groups costs and revenues. The Group is required to maintain licenses for its subscription television business and its broadband Internet business. Should the licenses be withdrawn or not renewed upon their expiration, or should the terms be
varied, this may affect the Groups ability to continue operating its subscription television business and its broadband Internet business, which in turn may affect the recoverability of assets and its ability to generate cash flows to meet its
financial obligations.



The granting of new pay television
licenses by the Hong Kong SAR Government might lead to greater competition and the Group could face loss of customers, which in turn may affect the recoverability of assets and its ability to generate cash flows to meet its financial obligations.



|(e) | Interest rate risk
|--- | ------------------



The interest rates and terms of repayment of the Groups borrowings are set out in Notes 17 and 18.



F - 50