##### Table of Contents



UNITED
STATES 
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
  o
    
    Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934
 or
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the fiscal year ended December 31, 2005.
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 o
    
    Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 Commission file number 001-
 Focus Media Holding Limited
 (Exact Name of Registrant as Specified in Its Charter)
 Cayman Islands
(Jurisdiction of Incorporation or Organization)
 28-30/F, Zhao Feng World Trade Building
369 Jiangsu Road, Shanghai 200050, PRC
(Address of Principal Executive Offices)
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredOrdinary Shares, par value US$0.00005 per share
    
    Nasdaq National Market Inc.
   
 (Title of Class)
   
 (Title of Class)
  523,166,773 Ordinary Shares
 
  o þ
  o þ
   þ o
  o o þ
  o þ
  o þ
 (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS.)
  o o




---



##### 



FOCUS MEDIA HOLDING LIMITED
 FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2005
 Table of Contents
 PageSUPPLEMENTAL INFORMATION
    
    
    3FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED
    
    
    3PART I
    
    
    5ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    5ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    5ITEM 3. KEY INFORMATION
    
    
    5ITEM 4. INFORMATION ON THE COMPANY
    
    
    37ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    63ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    63ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    91ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    99ITEM 8. FINANCIAL INFORMATION
    
    
    108ITEM 9. THE OFFER AND LISTING
    
    
    109ITEM 10. ADDITIONAL INFORMATION
    
    
    110ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    121ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    122PART II
    
    
    122ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    122ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    122ITEM 15. CONTROLS AND PROCEDURES
    
    
    123ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    124ITEM 16B. CODE OF ETHICS
    
    
    124ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    124ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    124ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    124PART III
    
    
    125ITEM 17. FINANCIAL STATEMENTS
    
    
    125ITEM 18. FINANCIAL STATEMENTS
    
    
    125ITEM 19. EXHIBITS
    
    
    126EX-12.1 Certificate Of Our Chief Executive OfficerEX-12.2 Certificate Of Our Chief Financial OfficerEX-13.1 Certification of Periodic Financial ReportEX-13.2 Certification of Periodic Financial ReportEX-15.1 CONSENT OF CONYERS DILL & PEARMANEX-15.2 CONSENT OF GLOBAL LAW OFFICE




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##### Table of Contents



SUPPLEMENTAL INFORMATION
  
    
    the terms we, us, our company, our and Focus Media refer to Focus Media
Holding Limited, its predecessor entities and subsidiaries, and, in the context of
describing our operations, also include our affiliated Chinese entities;
    
    shares and ordinary shares refer to our ordinary shares, par value $0.00005,
ADSs refers to our American depositary shares, each of which represents ten ordinary shares, and ADRs refers to the American depositary receipts which evidence our ADSs;
    
    China and PRC refer to the Peoples Republic of China, excluding Taiwan, Hong
Kong and Macau;
    
    all references to RMB are to the legal currency of China and all references to
U.S. dollars, US$, dollars and $ are to the legal currency of the United
States. Any discrepancies in any table between the amounts identified as total amounts
and the sum of the amounts listed therein are due to rounding;
    
    Framedia refers to Infoachieve and its consolidated subsidiaries and affiliates,
which we acquired in January 2006;
    
    Target Media refers to Target Media Holdings Limited and its consolidated
subsidiaries and affiliates, which we acquired in February 2006;
    
    Focus Media Wireless refers to Dotad Media Holdings, and its consolidated
subsidiary and affiliate, which we acquired in March 2006 and renamed Focus Media
Wireless; and
    
    references to our network, our commercial location network and our superstore
network include the network of Focus Media and the network formerly owned and operated
by Target Media, whose flat-panel displays were incorporated into our network as of
March 1, 2006.
   
 FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT
MAY NOT BE REALIZED
  
    
    our goals and strategies;
 
    
    our future business development, financial condition and results of operations;
 3




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##### Table of Contents




    
    projected revenues, profits, earnings and other estimated financial information;
    
    our ability to complete acquisitions we have entered into and costs related to and
potential liabilities resulting from completing such acquisitions and integrating the
acquired companies into our business;
    
    achieving anticipated or potential synergies with companies we acquire, including
Framedia, Target Media and Focus Media Wireless;
    
    our plans to expand our advertising network into new cities and regions in China and
diversify into new networks and advertising channels such as airports, hospitals and
other possible commercial locations;
    
    the growth or acceptance of our in-store network, our outdoor LED network and
Framedias poster frame network;
    
    our plan to develop our business into a multi-platform out-of-home advertising
network, including through operation of Focus Media Wirelesss mobile phone network
advertising services;
    
    our plan to identify and create additional advertising channels that target specific
consumer demographics, which could allow us to increase our advertising revenue;
    
    competition in the PRC advertising industry;
    
    the expected growth in the urban population, consumer spending, average income
levels and advertising spending levels;
    
    PRC governmental policies and regulations relating to the advertising industry and
regulations and policies promulgated by the State Administration of Foreign Exchange;
    
    other risks outlined in our filings with the Securities and Exchange Commission,
including our registration statements on Form F-1, as amended; and
    
    those other risks identified in Item 3. Key InformationD. Risk Factors of this
annual report.
   4




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##### Table of Contents



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. Selected Financial Data
    For the year ended
    
    
    For the three monthsDecember 31,
    
    
    ended March 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2006(in thousands of U.S. dollars)Selected Consolidated Statements of
Operations Data:Net revenues:Commercial location network(1)
    
    
    
    
    
    
    
    
    
    $
    3,369
    
    
    $
    26,321
    
    
    $
    61,435
    
    
    $
    9,432
    
    
    $
    21,472In-store network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,469
    
    
    
    
    
    
    
    5,293Poster frame network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,067Advertising service revenue(1)
    
    
    
    
    
    
    
    
    
    
    3,369
    
    
    
    26,321
    
    
    
    66,904
    
    
    
    9,432
    
    
    
    32,832Advertising equipment revenue
    
    
    
    
    
    
    
    
    
    
    389
    
    
    
    2,889
    
    
    
    1,325
    
    
    
    142
    
    
    
    304
 5




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##### Table of Contents



For the year ended
    
    
    For the three monthsDecember 31,
    
    
    ended March 31,2001
    
    

2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2006(in thousands of U.S. dollars)Total net revenues
    
    
    30
    
    
    
    24
    
    
    
    3,758
    
    
    
    29,210
    
    
    
    68,229
    
    
    
    9,574
    
    
    
    33,136Cost of revenues:Net advertising service cost:Commercial location network
    
    
    
    
    
    
    
    
    
    
    1,566
    
    
    
    6,746
    
    
    
    17,943
    
    
    
    2,903
    
    
    
    8,035In-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,423
    
    
    
    286
    
    
    
    3,973Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,397Advertising service cost
    
    
    
    
    
    
    
    
    
    
    1,566
    
    
    
    6,746
    
    
    
    25,366
    
    
    
    3,189
    
    
    
    14,405Advertising equipment cost
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    1,934
    
    
    
    976
    
    
    
    71
    
    
    
    232Total cost of revenues
    
    
    
    
    
    
    
    
    
    
    1,841
    
    
    
    8,680
    
    
    
    26,342
    
    
    
    3,260
    
    
    
    14,637Gross profit
    
    
    30
    
    
    
    24
    
    
    
    1,917
    
    
    
    20,530
    
    
    
    41,887
    
    
    
    6,314
    
    
    
    18,499Operating expenses:General and administrative
    
    
    28
    
    
    
    21
    
    
    
    985
    
    
    
    3,988
    
    
    
    9,120
    
    
    
    1,881
    
    
    
    4,395Selling and marketing
    
    
    2
    
    
    
    3
    
    
    
    407
    
    
    
    3,454
    
    
    
    9,544
    
    
    
    1,492
    
    
    
    4,057Amortization of acquired intangibles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    437
    
    
    
    67
    
    
    
    999Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    30
    
    
    
    24
    
    
    
    1,392
    
    
    
    7,577
    
    
    
    19,101
    
    
    
    3,440
    
    
    
    9,451Income from operations
    
    
    
    
    
    
    
    
    
    
    525
    
    
    
    12,953
    
    
    
    22,786
    
    
    
    2,874
    
    
    
    9,048Interest income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    10
    
    
    
    1,762
    
    
    
    11
    
    
    
    916Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (4
    )
    
    
    (161
    )
    
    
    5
    
    
    
    46Change in fair value of derivative
liability
associated with Series B
convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,692
    )
    
    
    
    
    
    
    
    
    
    
    Income before income taxes and
minority interest
    
    
    
    
    
    
    
    
    
    
    517
    
    
    
    1,267
    
    
    
    24,387
    
    
    
    2,890
    
    
    
    10,010Total income taxes
    
    
    
    
    
    
    
    
    
    
    482
    
    
    
    908
    
    
    
    694
    
    
    
    248
    
    
    
    617Minority interest
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (13
    )
    
    
    145
    
    
    
    0
    
    
    
    (40
    )Equity loss of affiliates
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    $
    25
    
    
    $
    372
    
    
    $
    23,548
    
    
    $
    2,642
    
    
    $
    9,433For the year ended
    
    For the three months endedDecember 31,
    
    March 31,2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2005
    
    2006(in thousands of U.S. dollars, except share and per share data)Earnings per share
data:Deemed dividend on
Series A convertible
redeemable preference
shares(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,308
    )
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on
Series B convertible
redeemable preference
shares(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,191
    )
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on
Series C-1 convertible
redeemable preference
shares(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,356
    )
    
    
    
    
    
    
    
    
    
    
    Premium of Series B
convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,906
    
    
    
    
    
    
    
    
    
    
    
    Income (loss)
attributable to
holders of ordinary
shares
    
    $
    
    
    
    $
    
    
    
    $
    25
    
    
    $
    (10,577
    )
    
    $
    23,548
    
    
    $
    2,642
    
    
    $
    9,433Income (loss) per share
 basic
    
    $
    
    
    
    $
    
    
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    0.09
    
    
    $
    0.02
    
    
    $
    0.02Income (loss) per share
 diluted
    
    $
    
    
    
    $
    
    
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.02Shares used in
calculating basic
income per share
    
    
    
    
    
    
    
    
    
    
    144,657,600
    
    
    
    160,998,600
    
    
    
    252,128,545
    
    
    
    142,464,600
    
    
    
    438,232,094Shares used in
calculating diluted
income per share
    
    
    
    
    
    
    
    
    
    
    144,657,600
    
    
    
    160,998,600
    
    
    
    365,938,094
    
    
    
    315,212,608
    
    
    
    465,895,318
 6




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##### Table of Contents



As of December 31,
    
    As of March 31,2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006(in thousands of U.S.
dollars, except share data)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    12
    
    
    $
    15
    
    
    $
    716
    
    
    $
    22,669
    
    
    $
    36,653
    
    
    $
    41,863Other current assets(3)
    
    
    120
    
    
    
    106
    
    
    
    1,902
    
    
    
    12,713
    
    
    
    104,988
    
    
    
    83,440Non-current assets(4)
    
    
    12
    
    
    
    8
    
    
    
    2,688
    
    
    
    21,033
    
    
    
    70,713
    
    
    
    523,442Total assets
    
    
    144
    
    
    
    129
    
    
    
    5,306
    
    
    
    56,415
    
    
    
    212,354
    
    
    
    648,745Total current liabilities
    
    
    22
    
    
    
    7
    
    
    
    4,119
    
    
    
    8,634
    
    
    
    20,694
    
    
    
    92,403Minority interest
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    81
    
    
    
    245
    
    
    
    460Mezzanine equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,273
    
    
    
    
    
    
    
    Ordinary
shares (nil, nil, 200,000,000, 142,464,600, 378,306,000 and
506,457,633 shares issued and outstanding in 2001, 2002, 2003, 2004,
2005, and as of March 31, 2006, respectively)
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    7
    
    
    
    19
    
    
    
    25Other
shareholders equity (deficiency)
    
    
    122
    
    
    
    122
    
    
    
    1,173
    
    
    
    (5,580
    )
    
    
    191,396
    
    
    
    555,857Total shareholders equity (deficiency)
    
    $
    122
    
    
    $
    122
    
    
    $
    1,183
    
    
    $
    (5,573
    )
    
    $
    191,415
    
    
    $
    555,882
 As of December 31,
    
    As of March 31,2003
    
    2004
    
    2005
    
    2006Selected Operating Data:Number of displays in our commercial location network:Our direct cities
    
    
    827
    
    
    
    12,786
    
    
    
    45,049
    
    
    
    71,230Our regional distributors(5)
    
    
    201
    
    
    
    2,629
    
    
    
    3,177
    
    
    
    3,779Total
    
    
    1,028
    
    
    
    15,415
    
    
    
    48,226
    
    
    
    75,009Number of displays in our in-store network
    
    
    
    
    
    
    
    
    
    
    27,849
    
    
    
    33,765Number of stores in our in-store network
    
    
    
    
    
    
    
    
    
    
    4,130
    
    
    
    5,218Number of installed frames in our poster frame network(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,353
 For and as of the three months endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,2005
    
    2005
    
    2005
    
    2005
    
    2006Commercial Location Network(7):Number of time slots available for sale(8)
    
    
    6,010
    
    
    
    6,737
    
    
    
    8,346
    
    
    
    9,028
    
    
    
    10,717Number of time slots sold(9)
    
    
    1,998
    
    
    
    3,057
    
    
    
    4,240
    
    
    
    4,648
    
    
    
    3,904Average utilization rate(10)
    
    
    33.2
    %
    
    
    45.4
    %
    
    
    50.8
    %
    
    
    51.5
    %
    
    
    36.4
    %Average quarterly advertising service revenue
per time slot sold (US$)
    
    $
    4,721
    
    
    $
    4,573
    
    
    $
    4,077
    
    
    $
    4,461
    
    
    $
    4,882In-store Network(11):Number of time slots available for sale(8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,314Number of time slots sold(9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,498Average utilization rate(10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.2
    %Average quarterly advertising service revenue
per time slot sold (US$)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    69Poster Frame Network(12):Number of frame slots available for sale(13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,659Number of frame slots sold(14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,262Occupancy rate(15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.3
    %Average advertising service revenue per frame
slot (US$) (ASP)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    67
 
 (1)
    
    Advertising service revenue is presented net of business tax. Business tax on
advertising service revenue from our commercial location network amounted to $311,770,
$2,788,233, $5,991,497, $936,405 and $2,081,512 in 2003, 2004 and 2005 and for the three
months ended March 31, 2005 and 2006, respectively. Business tax on advertising service
revenue for our in-store network amounted to $524,271, $nil and $524,357 in 2005 and for the
three months ended March 31, 2005 and 2006. Business tax on advertising service revenue for
our poster frame network amounted to $590,972 for the three months ended March 31, 2006.
Business tax includes business tax of 5.55% and cultural industries tax of 4.0% of our gross
advertising service revenue.(2)
    
    We are no longer required to record deemed dividends prospectively following conversion at
the closing of our initial public offering of our Series A, Series B, Series C-1 and Series
C-2 convertible redeemable preference shares into ordinary shares.(3)
    
    Other current assets is equal to total current assets less cash and cash equivalents.(4)
    
    Non-current assets is equal to total assets less total current assets. 7




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##### Table of Contents



(5)
    
    Data that has been provided by our regional distributors is based on the results of surveys
we requested them to provide to us and it is possible such data is not entirely accurate or
exact.(6)
    
    Number of installed frames includes frames we currently market and frames that have been
installed, for instance, in buildings that are still under construction and which we have not
yet begun to market.(7)
    
    Starting January 1, 2006, time slot data presented for our commercial location network
includes only data related to our premier office building A channel. For the three months
ended March 31, 2006, advertising services revenues from our premier office building A channel
accounted for 91.2% of advertising service revenue for our commercial location network.(8)
    
    For our commercial location network, includes the time slots for our directly operated cities
and the time slots we are entitled to sell on the portion of our network operated by our
regional distributors. Number of time slots available refers to the number of 30-second
equivalent time slots available on our network during the period presented and is calculated
by taking the total advertising time available on our network during the period presented,
calculated in aggregate seconds, which we then divide by 30 to determine the number of
30-second equivalent time slots available. For our commercial location network, the number of
advertising time slots available for sale is determined by the number of cities in which we
directly operate, the two-ninths portion of time slots on our regional distributors networks
which we have the right to sell and the length of the advertising cycle, which is currently
twelve minutes in all of our directly operated cities. For our in- store network, the number
of advertising time slots available for sale is determined by the number of stores in which we
operate.(9)
    
    Number of time slots sold refers to the number of 30-second equivalent time slots sold during
the period presented and is calculated by taking the total advertising time we sold during the
period presented, calculated in aggregate seconds, which we then divide by 30 to determine the
number of 30-second equivalent time slots sold.(10)
    
    Utilization rate refers to total time slots sold as a percentage of total time slots
available during the relevant period.(11)
    
    We commenced operation of our in-store network in April 2005.(12)
    
    We commenced operation of our poster frame network in January 2006.(13)
    
    Includes the number of frame slots available on a monthly basis within each three month
period.(14)
    
    Includes the number of frame slots sold on a monthly basis within each three month period.(15)
    
    Occupancy rate refers to the total number of frame slots sold as a percentage of total frame
slots available during the relevant period. Consolidated Pro Forma Financial Data of Focus Media, Framedia, Target Media Holdings and
Other Acquired Entities
     8




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##### Table of Contents



Focus Media
    
    
    
    
    
    
    Framedia for
    
    
    Target MediaHolding for the
    
    
    Capital Beyond
    
    
    the year
    
    
    for the yearyear ended
    
    
    for the three
    
    
    ended
    
    
    endedDecember 31,
    
    
    months ended
    
    
    December 31,
    
    
    December
    
    
    Pro forma2005
    
    
    March 31, 2005
    
    
    2005
    
    
    31, 2005(1)
    
    
    Adjustments
    
    
    Note
    
    
    Pro Forma(in thousands of U.S. dollars, except share and per share data)Unaudited Pro Forma Condensed Consolidated
Statement of OperationsNet revenues: Commercial locations
    
    $
    61,435
    
    
    $
    
    
    
    $
    
    
    
    $
    33,693
    
    
    $
    
    
    
    
    
    
    
    $
    95,128 In-store network
    
    
    5,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,469 Poster frame network
    
    
    
    
    
    
    
    
    
    
    11,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,828Advertising Service Revenue
    
    
    6,904
    
    
    
    
    
    
    
    11,828
    
    
    
    33,693
    
    
    
    
    
    
    
    
    
    
    
    112,425Advertising Equipment Revenue
    
    
    1,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,325Total net revenues
    
    
    68,229
    
    
    
    
    
    
    
    11,828
    
    
    
    33,693
    
    
    
    
    
    
    
    
    
    
    
    113,750Cost of revenues: Commercial locations
    
    
    17,943
    
    
    
    122
    
    
    
    
    
    
    
    16,321
    
    
    
    (56
    )
    
    
    (6
    )
    
    
    34,330 In-store network
    
    
    7,423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,423 Poster frame network
    
    
    
    
    
    
    
    
    
    
    7,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,233Advertising Service Cost
    
    
    25,366
    
    
    
    122
    
    
    
    7,233
    
    
    
    16,321
    
    
    
    (56
    )
    
    
    
    
    
    
    48,986Advertising Equipment Cost
    
    
    976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    976Total cost of revenues
    
    
    26,342
    
    
    
    122
    
    
    
    7,233
    
    
    
    16,321
    
    
    
    (56
    )
    
    
    
    
    
    
    49,962Gross profit (loss)
    
    
    41,887
    
    
    
    (122
    )
    
    
    4,595
    
    
    
    17,372
    
    
    
    56
    
    
    
    
    
    
    
    63,788Operating expenses:General and administrative
    
    
    9,120
    
    
    
    1
    
    
    
    5,428
    
    
    
    1,945
    
    
    
    (308
    )
    
    
    (6
    )
    
    
    16,186Selling and marketing
    
    
    9,544
    
    
    
    
    
    
    
    3,363
    
    
    
    8,584
    
    
    
    (88
    )
    
    
    (6
    )
    
    
    21,403Amortization of acquired intangibles
    
    
    437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,202
    
    
    
    (3
    )
    
    
    4,639Total operating expenses
    
    
    19,101
    
    
    
    1
    
    
    
    8,791
    
    
    
    10,529
    
    
    
    3,806
    
    
    
    
    
    
    
    42,228Income (loss) from operations
    
    
    22,786
    
    
    
    (123
    )
    
    
    (4,196
    )
    
    
    6,843
    
    
    
    (3,750
    )
    
    
    
    
    
    
    21,560Interest income/(expenses)
    
    
    1,762
    
    
    
    0
    
    
    
    (171
    )
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    1,659Other income (expenses), net
    
    
    (161
    )
    
    
    (0
    )
    
    
    (4
    )
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    (259
    )Income (loss) before income taxes and
minority interests
    
    
    24,387
    
    
    
    (123
    )
    
    
    (4,371
    )
    
    
    6,817
    
    
    
    (3,750
    )
    
    
    
    
    
    
    22,960Income taxes:Current
    
    
    715
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    717Deferred
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Total income taxes
    
    
    694
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    696Net income (loss) after income taxes before
minority interests
    
    
    23,693
    
    
    
    (123
    )
    
    
    (4,373
    )
    
    
    6,817
    
    
    
    (3,750
    )
    
    
    
    
    
    
    22,264Minority interests
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    123Net income (loss)
    
    
    23,548
    
    
    
    (123
    )
    
    
    (4,373
    )
    
    
    6,839
    
    
    
    (3,750
    )
    
    
    
    
    
    
    22,141Deemed dividend on ordinary shares
    
    
    
    
    
    
    
    
    
    
    (15,187
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,187
    )Deemed dividend on Series A-1 convertible
redeemable preference shares  Redesignation
    
    
    
    
    
    
    
    
    
    
    (1,136
    )
    
    
    
    
    
    
    1,136
    
    
    
    (5
    )
    
    
    Deemed dividend on Series A-1 convertible
redeemable preference shares  Accretion of
redemption premium
    
    
    
    
    
    
    
    
    
    
    (379
    )
    
    
    
    
    
    
    379
    
    
    
    (5
    )
    
    
    Deemed dividend on Series A-2 convertible
redeemable preference shares  Redesignation
    
    
    
    
    
    
    
    
    
    
    (624
    )
    
    
    
    
    
    
    624
    
    
    
    (5
    )
    
    
    Deemed dividend on Series A-2 convertible
redeemable preference shares  Accretion
of redemption premium
    
    
    
    
    
    
    
    
    
    
    (208
    )
    
    
    
    
    
    
    208
    
    
    
    (5
    )
    
    
    
 9




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##### Table of Contents



Focus Media
    
    
    
    
    
    
    Framedia for
    
    
    Target MediaHolding for the
    
    
    Capital Beyond
    
    
    the year
    
    
    for the yearyear ended
    
    
    for the three
    
    
    ended
    
    
    endedDecember 31,
    
    
    months ended
    
    
    December 31,
    
    
    December
    
    
    Pro forma2005
    
    
    March 31, 2005
    
    
    2005
    
    
    31, 2005(1)
    
    
    Adjustments
    
    
    Note
    
    
    Pro Forma(in thousands of U.S. dollars, except share and per share data)Accretion to Series A redeemable convertible
preferred shares redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,288
    )
    
    
    3,288
    
    
    
    (5
    )Accretion to Series B redeemable convertible
preferred shares redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (960
    )
    
    
    960
    
    
    
    (5
    )Beneficial conversion of Series A redeemable
convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,021
    )
    
    
    
    
    
    
    
    
    
    
    (3,021
    )Beneficial conversion of Series B redeemable
convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (806
    )
    
    
    
    
    
    
    
    
    
    
    (806
    )Net income (loss) attributable to holders of
ordinary shares
    
    $
    23,548
    
    
    $
    (123
    )
    
    $
    (21,907
    )
    
    $
    (1,236
    )
    
    $
    2,846
    
    
    
    
    
    
    $
    3,127Income per share  basic
    
    $
    0.09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.01Shares used in calculating basic income per
share
    
    
    252,128,545
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    351,285,548Income per share  diluted
    
    $
    0.06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.01Shares used in calculating diluted income per
share
    
    
    365,938,094
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    465,095,097
 Focus Media Holding
    
    
    Target Media for thefor the three months
    
    
    two months ended
    
    
    Pro formaended March 31, 2006
    
    
    February 28, 2006(2)
    
    
    Adjustments
    
    
    Note
    
    
    Pro Forma(in thousand of U.S. dollars, except share and per share data)Unaudited Pro Forma Condensed Consolidated Statement of
OperationsNet Revenues: Commercial locations
    
    $
    21,472
    
    
    $
    3,068
    
    
    $
    
    
    
    
    
    
    
    $
    24,540 In-store network
    
    
    5,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,293 Poster frame network
    
    
    6,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,067Advertising Service Revenue
    
    
    32,832
    
    
    
    3,068
    
    
    
    
    
    
    
    
    
    
    
    35,900Advertising Equipment Revenue
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    304Total net revenues
    
    
    33,136
    
    
    
    3,068
    
    
    
    
    
    
    
    
    
    
    
    36,205Cost of Revenues: Commercial locations
    
    
    8,035
    
    
    
    3,793
    
    
    
    
    
    
    
    
    
    
    
    11,828 In-store network
    
    
    3,973
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,973 Poster frame network
    
    
    2,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,397Advertising Service Cost
    
    
    14,405
    
    
    
    3,793
    
    
    
    
    
    
    
    
    
    
    
    18,198Advertising Equipment Cost
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232Total cost of revenues
    
    
    14,637
    
    
    
    3,793
    
    
    
    
    
    
    
    
    
    
    
    18,430Gross profit (loss)
    
    
    18,499
    
    
    
    (725
    )
    
    
    
    
    
    
    
    
    
    
    17,774Operating expenses:General and administrative
    
    
    4,395
    
    
    
    2,541
    
    
    
    
    
    
    
    
    
    
    
    6,936Selling and marketing
    
    
    4,057
    
    
    
    3,115
    
    
    
    
    
    
    
    
    
    
    
    7,172Amortization of acquired intangibles
    
    
    999
    
    
    
    
    
    
    
    205
    
    
    
    (4
    )
    
    
    1,204Total operating expenses
    
    
    9,451
    
    
    
    5,656
    
    
    
    205
    
    
    
    
    
    
    
    15,312Income (loss) from operations
    
    
    9,048
    
    
    
    (6,380
    )
    
    
    (205
    )
    
    
    
    
    
    
    2,463Interest income/(expenses)
    
    
    916
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    893Other income (expenses), net
    
    
    46
    
    
    
    (1,755
    )
    
    
    
    
    
    
    
    
    
    
    (1,709
    )Income (loss) before income taxes and minority interests
    
    
    10,010
    
    
    
    (8,158
    )
    
    
    (205
    )
    
    
    
    
    
    
    1,647Income taxes:Current
    
    
    65
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    6Deferred
    
    
    552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552Total income taxes
    
    
    617
    
    
    
    (59
    )
    
    
    
    
    
    
    (8
    )
    
    
    558Net income (loss) after income taxes before minority
interests
    
    
    9,393
    
    
    
    (8,099
    )
    
    
    (205
    )
    
    
    
    
    
    
    1,089Minority interests
    
    
    (40
    )
    
    
    (31
    )
    
    
    
    
    
    
    
    
    
    
    (70
    )Net income (loss) attributable to holders of ordinary
shares
    
    $
    9,433
    
    
    
    (8,068
    )
    
    
    (205
    )
    
    
    
    
    
    
    1,159Income per share  basic
    
    $
    0.02
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.00Shares used in calculating basic income per share
    
    
    438,232,094
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    488,709,872Income per share  diluted
    
    $
    0.02
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.00Shares used in calculating diluted income per share
    
    
    465,895,318
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    516,373,096
 
 (1)
    
    The translations of amounts from RMB into United States dollars as of and for the
year ended December 31, 2005, are solely for the convenience of the reader and were calculated at
the rate of US$1.00 = RMB8.0702, on December 31, 2005, representing the noon buying rate in the
City of New York for cable transfers of RMB, as certified for customs purposes by the Federal
Reserve Bank of New York. 10




---



##### Table of Contents



(in thousandsof U.S. dollars)Cash consideration
    
    $
    39,600Other acquisition costs
    
    
    311Fair Value of ordinary shares issued
    
    
    54,418$
    94,329
   (in thousands
    
    
    Amortizationof U.S. dollars)
    
    
    periodNet tangible liabilities acquired
    
    
    5,684Acquired intangible assets
    
    
    12,455
    
    
    7 yearsGoodwill
    
    
    87,558Total
    
    $
    94,329
     (in thousandsofU.S. dollars)Cash consideration
    
    $
    94,000Other acquisition costs
    
    
    2,058Fair Value of ordinary shares
issued
    
    
    231,000$
    327,058
  (in thousands
    
    
    Amortizationof U.S. dollars)
    
    
    periodNet tangible assets acquired
    
    
    24,823Acquired intangible assets
    
    
    10,827
    
    
    7 yearGoodwill
    
    
    291,408Total
    
    $
    327,058
  11




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##### Table of Contents



December 31,2005
    
    March 31, 2006Shares used in calculating basic income per share on a pro forma basis:Weighted average ordinary shares outstanding used in computing basic income
per share for Focus Media Holding Limited
    
    
    252,128,545
    
    
    
    438,232,094Issuance of ordinary shares for the acquisition of Infoachieve Limited
    
    
    22,157,003
    
    
    
    Issuance of ordinary shares for the acquisition of Target Media
    
    
    77,000,000
    
    
    
    50,477,778351,285,548
    
    
    
    488,709,872
 December 31,2005
    
    March 31, 2006Shares used in calculating diluted income per share on a pro forma basis:Weighted average ordinary shares outstanding used in computing diluted
income per share for Focus Media Holding Limited
    
    
    365,938,094
    
    
    
    465,895,318Issuance of ordinary shares for the acquisition of Infoachieve Limited
    
    
    22,157,003
    
    
    
    Issuance of ordinary shares for the acquisition of Target Media
    
    
    77,000,000
    
    
    
    50,477,778465,095,097
    
    
    
    516,373,096
  Currency Translations and Exchange Rates
   12




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##### Table of Contents



RENMINBI PER U.S. DOLLAR NOON BUYING RATEAVERAGE
    
    HIGH
    
    LOW
    
    PERIOD-END2000
    
    
    8.2784
    
    
    
    8.2799
    
    
    
    8.2768
    
    
    
    8.27742001
    
    
    8.2770
    
    
    
    8.2786
    
    
    
    8.2676
    
    
    
    8.27662002
    
    
    8.2770
    
    
    
    8.2800
    
    
    
    8.2669
    
    
    
    8.28002003
    
    
    8.2770
    
    
    
    8.2800
    
    
    
    8.2272
    
    
    
    8.27692004
    
    
    8.2768
    
    
    
    8.2774
    
    
    
    8.2764
    
    
    
    8.27652005
    
    
    8.1940
    
    
    
    8.2765
    
    
    
    8.0702
    
    
    
    8.07022006January
    
    
    8.0654
    
    
    
    8.0702
    
    
    
    8.0596
    
    
    
    8.0608February
    
    
    8.0512
    
    
    
    8.0616
    
    
    
    8.0415
    
    
    
    8.0415March
    
    
    8.0350
    
    
    
    8.0505
    
    
    
    8.0167
    
    
    
    8.0167April
    
    
    8.0143
    
    
    
    8.0240
    
    
    
    8.0050
    
    
    
    8.0140May
    
    
    8.0140
    
    
    
    8.0300
    
    
    
    8.0025
    
    
    
    8.0215June (through June 23)
    
    
    8.0063
    
    
    
    8.0225
    
    
    
    7.9963
    
    
    
    7.9997
 B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Our business and operations are subject to various risks, many of which are beyond our
control. If any of the risks described below actually occurs, our business, financial condition or
results of operations could be seriously harmed.
 Risks Relating to Our Business and Industry
 We have a limited operating history, which may make it difficult for you to evaluate our business
and prospects.
  13




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##### Table of Contents



We derive a substantial majority of our revenues from the provision of advertising services,
and advertising is particularly sensitive to changes in economic conditions and advertising trends.
  
    
    a general decline in economic conditions;
    
    a decline in economic conditions in the particular cities where we conduct business;
    
    a decision to shift advertising expenditures to other available advertising media; or
    
    a decline in advertising spending in general.
  A substantial majority of our revenues is currently concentrated in four of Chinas major cities.
If any of these major cities experiences an event negatively affecting its advertising industry,
our advertising network, and our ability to generate adequate cash flow would be materially and
adversely affected.
  Our quarterly operating results are difficult to predict and may fluctuate significantly from
period to period in the future.
  The unaudited pro forma condensed consolidated financial information included in this annual report
contains financial information that has not been audited or reviewed by an independent registered
public accounting
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firm and that is derived in part by estimates, and accordingly the pro forma financial information
may differ significantly from the actual consolidated financial information.
    Our failure to maintain existing relationships or obtain new relationships with businesses that
allow us to place our flat-panel displays and advertising poster frames in their buildings and
other commercial locations and to lease outdoor LED digital billboards placed in desirable
locations would harm our business and prospects.
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
    
    in January 2006, we acquired Framedia and E-Times, providing us with our poster
frame network located primarily in residential complexes;
    
    we recently began marketing separate channels of our commercial location network,
such as our travel, fashion, elite and health-care channels, to enable advertisers to
focus on more specifically targeted consumer audiences;
    
    in March 2006, we acquired Focus Media Wireless, which operates a mobile-phone
WAP-based advertising service in China through China Mobile and China Unicoms mobile
phone networks; and
    
    in April 2006, we commenced operation of an outdoor LED network consisting of
approximately 75 leased 5 x 5 LED digital billboards installed on the street-sides in
major shopping districts and other locations with high pedestrian traffic in Shanghai.
  If we are unable to obtain or retain desirable placement locations for our flat-panel displays,
advertising poster frames and outdoor LED billboards on commercially advantageous terms or if the
supply of desirable locations diminishes or ceases to expand, we could have difficulty in
maintaining or expanding our network,
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our operating margins and earnings could decrease and our results of operations could be materially
and adversely affected.
   When our out-of-home television advertising networks reach saturation in the cities where we
operate, we may be unable to grow our revenue base or to satisfy all of our advertisers needs,
which could hamper our ability to generate higher levels of revenues over time.
  If we are unable to attract advertisers to advertise on our networks, we will be unable to maintain
or increase our advertising fees and the demand for time on our networks, which could negatively
affect our ability to grow revenues.
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We may be unable to maintain the growth of our network of flat-panel displays into hypermarkets,
supermarkets, convenience stores and other types of businesses that have control over many stores,
and our failure to maintain such growth could materially reduce the attractiveness of our network
and harm our business, reputation and results of operations.
   Our acquisitions of Framedia, Target Media, Focus Media Wireless and any future acquisitions may
expose us to potential risks and have an adverse effect on our ability to manage our business.
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There may be unknown risks inherent in our acquisitions of Framedia and Target Media.
  Our recent entry into mobile handset advertising through our acquisition of Focus Media Wireless
may expose us to risks associated with operating in the telecommunications industry in China which
could materially affect our financial condition or results of operation.
  
    
    loss or deterioration of our relationship with China Mobile or China Unicom, the two
primary mobile telecommunications operators in China that currently provide wireless
value-added services to mobile phone users;
    
    loss or deterioration of our relationship with Internet service providers who use
our WAP-based advertisement platform;
    
    failure to reach traditional advertisers and to take advantage of marketing networks
through our existing business;
    
    changes in operating policies or guidelines by mobile telecommunications operators
applicable to all wireless value-added service providers using their platforms or which
restrict content supplied by others to us;
    
    regulation of the telecommunications sector in China that could impose burdensome
approval or licensing requirements on value-added service providers such as advertising
companies that sell advertising time on mobile telecommunications networks;
    
    a decision by either or both China Mobile and China Unicom to directly enter into
the WAP-based advertising business; or
    
    consumer dissatisfaction with, or any related regulations restricting, the use or
pushing of unsolicited advertisements, commonly known as spam.
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We currently rely on a single third-party location provider to secure sites for our outdoor LED
billboard network, and any disruption in its business operations or in our relationship with it
would materially and adversely impact the operation of our outdoor LED network, resulting in the
loss of a portion of our revenue.
  One or more of our regional distributors could engage in activities that are harmful to our
reputation in the industry and to our business.
  Suodi Advertising, our network development and maintenance agent in Beijing, may have a claim
against us under the non-competition clause of our contract with it, and if Suodi Advertising were
successful in bringing a claim against us, our financial condition and results of operations may be
materially and adversely affected.
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Failure to manage our growth could strain our management, operational and other resources and we
may not be able to achieve anticipated levels of growth in the new networks and media platforms we
are beginning to operate, either of which could materially and adversely affect our business and
growth potential.
   If advertisers or the viewing public do not accept, or lose interest in, our out-of-home
advertising network, our revenues may be negatively affected and our business may not expand or be
successful.
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We depend on the leadership and services of Jason Nanchun Jiang, who is our founder, chairman,
chief executive officer and our largest shareholder, and our business and growth prospects may be
severely disrupted if we lose his services.
  We may need additional capital and we may not be able to obtain it, which could adversely affect
our liquidity and financial position.
   
    
    investors perception of, and demand for, securities of alternative advertising media companies;
    
    conditions of the U.S. and other capital markets in which we may seek to raise funds
    
    our future results of operations, financial condition and cash flows;
    
    PRC governmental regulation of foreign investment in advertising services companies in China;
    
    economic, political and other conditions in China; and
    
    PRC governmental policies relating to foreign currency borrowings.
  If we are unable to adapt to changing advertising trends and the technology needs of advertisers
and consumers, we will not be able to compete effectively and we will be unable to increase or
maintain our revenues which may materially and adversely affect our business prospects and
revenues.
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We may be subject to, and may expend significant resources in defending against, government actions
and civil suits based on the content and services we provide through our out-of-home television
advertising networks, poster frame network or mobile handset advertising network.
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We may be subject to intellectual property infringement claims, which may force us to incur
substantial legal expenses and, if determined adversely against us, may materially disrupt our
business.
  We face significant competition, and if we do not compete successfully against new and existing
competitors, we may lose our market share, and our profitability may be adversely affected.
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Our senior management and employees have worked together for a short period of time, which may make
it difficult for you to evaluate their effectiveness and ability to address challenges.
  We do not maintain any business liability disruption or litigation insurance coverage for our
operations, and any business liability, disruption or litigation we experience might result in our
incurring substantial costs and the diversion of resources.
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We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax
consequences to U.S. investors.
  Investor confidence and market price of our ADSs may be adversely impacted if we or our independent
registered public accountants are unable to attest to the adequacy of the internal controls over
our financial reporting for the fiscal year ending December 31, 2007, as required by Section 404 of
the U.S. Sarbanes-Oxley Act.
  Risks Relating to Regulation of Our Business and to Our Structure
 If the PRC government finds that the agreements that establish the structure for operating our
China business do not comply with PRC governmental restrictions on foreign investment in the
advertising industry, we could be subject to severe penalties.
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
    
    revoking the business and operating licenses of our PRC subsidiaries and affiliates;
    
    discontinuing or restricting our PRC subsidiaries and affiliates operations;
    
    imposing conditions or requirements with which we or our PRC subsidiaries and
affiliates may not be able to comply;
    
    requiring us or our PRC subsidiaries and affiliates to restructure the relevant
ownership structure or operations; or
    
    restricting or prohibiting our use of the proceeds of this offering to finance our
business and operations in China.
  We rely on contractual arrangements with our PRC operating affiliates and their subsidiaries and
shareholders for our China operations, which may not be as effective in providing operational
control as direct ownership.
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Contractual arrangements we have entered into among our subsidiaries and affiliated entities may be
subject to scrutiny by the PRC tax authorities and a finding that we owe additional taxes or are
ineligible for our tax exemption, or both, could substantially increase our taxes owed, and reduce
our net income and the value of your investment.
  We rely principally on dividends and other distributions on equity paid by our wholly-owned
operating subsidiaries to fund any cash and financing requirements we may have, and any limitation
on the ability of our operating subsidiary to pay dividends to us could have a material adverse
effect on our ability to conduct our business.
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Some of our PRC operating affiliates previously engaged in activities outside the authorized scope
of their business licenses. This could subject those companies to fines and other penalties, which
could have a material adverse effect on our business.
  Our business operations may be affected by legislative or regulatory changes.
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PRC regulation of loans and direct investment by offshore holding companies to PRC entities may
delay or prevent us from using the proceeds of this offering to make loans or additional capital
contributions to our PRC operating subsidiaries and affiliates.
  
    
    loans by us to Focus Media Technology or to Framedia Investment, each a foreign
invested enterprise, to finance its activities cannot exceed statutory limits and must
be registered with the PRC State Administration of Foreign Exchange or its local
counterpart; and
    
    loans by us to Focus Media Advertisement or its subsidiaries, which are domestic PRC
enterprises, must be approved by the relevant government authorities and must also be
registered with the PRC State Administration of Foreign Exchange or its local
counterpart.
  Risks Relating to the Peoples Republic Of China
  The PRCs economic, political and social conditions, as well as governmental policies, could affect
the financial markets in China and our liquidity and access to capital and our ability to operate
our business.
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The PRC legal system embodies uncertainties which could limit the legal protections available to
you and us.
  Recent PRC regulations relating to offshore investment activities by PRC residents may increase our
administrative burden and restrict our overseas and cross-border investment activity. If our
shareholders who are PRC residents fail to make any required applications and filings under such
regulations, we may be unable to distribute profits and may become subject to liability under PRC
laws.
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The PRC tax authorities may require us to pay additional taxes in connection with our acquisitions
of offshore entities that conducted their PRC operations through their affiliates in China.
  If any of our PRC affiliates becomes the subject of a bankruptcy or liquidation proceeding, we may
lose the ability to use and enjoy those assets, which could reduce the size of our advertising
network and materially and adversely affect our business, ability to generate revenue and the
market price of our ADSs.
  Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
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Fluctuations in exchange rates could result in foreign currency exchange losses.
   Any future outbreak of severe acute respiratory syndrome or avian flu in China, or similar adverse
public health developments, may severely disrupt our business and operations.
  Risks Relating to Our ADSs and Our Trading Markets
 The price of our ADSs has been volatile and may continue to be volatile, which may make it
difficult for holders to resell the ADSs when desired or at attractive prices.
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The sale or availability for sale of substantial amounts of our ADSs could adversely affect their
market price.
   A significant percentage of our outstanding ordinary shares is beneficially owned by Jason Nanchun
Jiang, our founder, chairman and chief executive officer, and as a result, he may have
significantly greater influence on us and our corporate actions by nature of the size of his
shareholdings relative to our public shareholders.
  Anti-takeover provisions in our charter documents may discourage our acquisition by a third party,
which could limit our shareholders opportunity to sell their shares at a premium.
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We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than under U.S. law, you may have less
protection of your shareholder rights than you would under U.S. law.
   Judgments obtained against us by our shareholders may not be enforceable.
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The voting rights of holders of ADSs are limited by the terms of the deposit agreement.
  The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares
underlying your ADSs if you do not vote at shareholders meetings, except in limited circumstances,
which could adversely affect your interests.
  
    
    we have failed to timely provide the depositary with our notice of meeting and
related voting materials;
    
    we have instructed the depositary that we do not wish a discretionary proxy to be
given;
    
    we have informed the depositary that there is substantial opposition as to a matter
to be voted on at the meeting;
    
    a matter to be voted on at the meeting would have a material adverse impact on shareholders; or
    
    voting at the meeting is made on a show of hands.
  You may not receive distributions on our ordinary shares or any value for them if it is illegal or
impractical to make them available to you.
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You may be subject to limitations on transfer of your ADSs.
  
 ITEM 4. INFORMATION ON THE COMPANY
 A. History and Development of the Company
 www.focusmedia.cn
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B. Business Overview
  
    
    our commercial location network, which refers to our network of flat-panel
television displays placed in high-traffic areas of commercial buildings, such as in
lobbies and near elevators, as well as in beauty parlors, karaoke parlors, golf country
clubs, auto shops, banks, pharmacies, hotels, airports, airport shuttle buses and
in-air flights. Our commercial location network is also marketed to advertisers as six
separate channels targeting different types of consumers: our premier A and B office
building channels, our travel channel, our fashion channel, our elite channel and our
healthcare channel;
    
    our in-store network, which refers to our network of flat-panel television displays
placed in specific product areas such as the personal care and food and beverage
sections and other store locations with high-traffic concentration such as the main
aisles and check-out lines in large-scale chain retail stores, which are referred to in
China as hypermarkets, as well as inside selected supermarkets and convenience stores;
    
    our poster frame network, which refers to our network of advertising poster frames
placed mainly in the elevators and public areas of residential complexes which we
market under the brand name Framedia;
    
    our mobile handset advertising network, which refers to our mobile handset
advertising services offered on the mobile telecommunications networks of China Mobile
Communications Corporation, or China Mobile, and China United Telecommunications
Corporation, or China Unicom; and
    
    our outdoor LED network, which refers to our network of leased 5 x 5 LED digital
billboards installed on the street-sides in major shopping districts and other
locations with high pedestrian traffic in Shanghai.
  
    
    selling advertising time slots on our commercial location, in-store and outdoor LED networks;
    
    selling frame space on our poster frame network; and
    
    selling advertisements on our WAP-based mobile handset advertising network.
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
    
    Substantially all of the content we broadcast on our flat-panel displays and place
on our advertising poster frames consists of advertisements.
    
    The advertising cycle on our out-of-home television advertising networks consists of
twelve minutes of advertising content broadcast repeatedly 60 times per day, or six
minutes broadcast repeatedly in the case of our outdoor LED network, and is sold to
advertising clients in 30-, 15- or five-second time slots.
    
    The advertising cycle of our out-of-home television advertising networks is
broadcast repeatedly, for approximately twelve-hours per day.
    
    The majority of our flat-panel displays contain a 17-inch LCD screen, while the
remainder contain larger size plasma or LCD screens.
    
    Over 74,000 450 mm x 600 mm plastic advertising poster frames have been installed in
elevators on our poster frame network.
    
    Approximately 75 5 x 5 LED digital billboards that we lease from a third party and
that are installed on the street-sides in major shopping districts and other locations
with high pedestrian traffic.
    
    A WAP-based advertising platform that delivers approximately eight million messages
per day with a customer base of over 100 wireless value-added service providers in
China and a database of over 70 million mobile handset users with WAP capability.
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For and as of the three months endedJune 30,
    
    September 30,
    
    December 31,
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,2004
    
    2004
    
    2004
    
    2005
    
    2005
    
    2005
    
    2005
    
    2006Commercial location
network:Number of displays:Our direct cities
    
    
    3,128
    
    
    
    7,476
    
    
    
    12,786
    
    
    
    16,025
    
    
    
    20,267
    
    
    
    34,079
    
    
    
    45,049
    
    
    
    71,230Our regional
distributors(1)
    
    
    1,040
    
    
    
    2,318
    
    
    
    2,629
    
    
    
    1,847
    
    
    
    2,664
    
    
    
    3,273
    
    
    
    3,177
    
    
    
    3,779Total
    
    
    4,168
    
    
    
    9,794
    
    
    
    15,415
    
    
    
    17,872
    
    
    
    22,931
    
    
    
    37,352
    
    
    
    48,226
    
    
    
    75,009Time slot data:(2)Number of time slots
available for sale
    
    
    2,347
    
    
    
    3,542
    
    
    
    5,170
    
    
    
    6,010
    
    
    
    6,737
    
    
    
    8,346
    
    
    
    9,028
    
    
    
    10,717Number of time slots sold
    
    
    832
    
    
    
    1,280
    
    
    
    2,209
    
    
    
    1,998
    
    
    
    3,057
    
    
    
    4,240
    
    
    
    4,648
    
    
    
    3,904Utilization rate(3)
    
    
    35.4
    %
    
    
    36.1
    %
    
    
    42.7
    %
    
    
    33.2
    %
    
    
    45.4
    %
    
    
    50.8
    %
    
    
    51.5
    %
    
    
    36.4
    %Average advertising service
revenue per time slot
(ASP) (US$)
    
    $
    6,607
    
    
    $
    5,506
    
    
    $
    5,018
    
    
    $
    4,721
    
    
    $
    4,573
    
    
    $
    4,077
    
    
    $
    4,461
    
    
    $
    4,882In-store network:Number of displays in our in-
store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,149
    
    
    
    12,779
    
    
    
    20,061
    
    
    
    27,849
    
    
    
    33,765Number of stores in our
in-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    423
    
    
    
    1,835
    
    
    
    2,702
    
    
    
    4,130
    
    
    
    5,218Time slot data:Number of time slots
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,314Number of time slots sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,498Utilization rate(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.2
    %Average advertising service
revenue per time slot
(ASP) (US$)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    69Poster Frame Network:Number of frames installed in
our poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,353Frame slot data:Number of frame slots
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,659Number of frame slots
sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,262Occupancy rate(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.3
    %Average advertising service
revenue per frame (US$)
(ASP)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    67
 
 (1)
    
    Data that has been provided by our regional distributors is based on the results of surveys
we requested them to provide to us and it is possible such data is not entirely accurate or
exact.(2)
    
    Starting January 1, 2006, time slot data presented for our commercial location network
includes only data related to our premier office building A channel. For the three months
ended March 31, 2006, advertising services revenues from our premier office building A channel
accounted for 91.2% of advertising service revenue for our commercial location network.(3)
    
    Utilization rate refers to total time slots sold as a percentage of total time slots
available during the relevant period.(4)
    
    Occupancy rate refers to the total frame space sold as a percentage of total frame space
available during the relevant period. Our Competitive Strengths
  Effective and Focused Advertising Network Accepted by Both Advertisers and Consumers.
  
    
    Targets Segmented Consumer Groups. Our flat-panel displays and frames are primarily
placed in venues that have a high concentration of consumers with higher-than-average
disposable incomes or that have a high concentration of consumers who are likely to be
interested in particular types of products and services. As a result, our network
enables advertisers to target consumers with demographic profiles attractive to them.
Moreover, our network allows advertisers to further segment these consumers through
separate specified advertising channels, such as our premier A and B office building
channels, our travel channel, our fashion channel, our elite channel and our healthcare
channel, which are marketed as stand-alone channels of our commercial location network.
Because our network is able to target specific consumer groups, it allows advertisers
to more cost-effectively reach consumers with demographic profiles desirable to them.
    
    Reaches Captive Viewers in Low Distraction Environments. Our flat-panel displays
are placed in lobbies, near elevator banks and in other environments where there are
few broadcast or display media competing for viewers attention, which we believe
increases the effectiveness of our network. In
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addition, the advertising poster frames on our poster frame network are placed primarily
in elevators of residential complexes presenting advertisements to viewers in what we
believe is a relatively captive and low-distraction environment.
  The Largest Out-of-home Television Advertising Network in China with Nation-wide Coverage
  
    
    71,230 flat-panel displays installed in 50 cities in China, and through our regional
distributors, we also operated approximately 3,780 flat-panel displays in 36 cities in
China; and
    
    33,765 flat-panel displays installed in 809 hypermarkets, 1,126 supermarkets and
3,283 convenience stores in cities in China.
 Out-of-home Advertising Network with Multiple Media Platforms Provides Advertisers with
Complementary and Reinforcing Methods of Reaching Targeted Consumers
  Sustainable Competitive Advantages through the Size of Our Network and Our Exclusive, Renewable
Agreements.
  
    
    Early Market Presence and Coverage in Many of the Most Desirable Locations. We were
one of the first companies to establish a large-scale out-of-home television
advertising network in commercial buildings and other commercial locations in China. By
recognizing this market opportunity and entering this sector early, we have occupied
many of the most desirable locations and have grown the size of our network, which we
believe has created high barriers to entry for potential competitors. We believe that
we have secured a high percentage of the most desirable locations in many of Chinas
major urban centers, and that this early market presence advantage is important because
landlords and building managers typically permit only one out-of-home television
advertising network operation in each building. We believe that, through our
acquisition of Target Media, we have enhanced these advantages. Through our acquisition
of Framedia, we also gain a strong market presence in the poster frame advertising
market in residential complexes. We also believe we have established the first outdoor
LED digital billboard advertising network in China, currently comprising approximately
75 5' x 5' LED digital billboards placed in high pedestrian traffic outdoor locations
in Shanghai that we lease from a third-party location provider.
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
    
    Large-scale Network that Attracts Advertising Clients. Our multi-platform
out-of-home advertising network includes flat-panel displays located in a wide range of
commercial, retail locations and in-store locations in over 80 cities in China, poster
frames placed in residential complexes in cities in China, LED digital billboards
placed in high pedestrian curbside locations in Shanghai, and advertising services
provided to mobile handset users. We believe the extent of our network coverage makes
us more attractive to advertising clients than competing networks. Through the number
of advertising media platforms we operate and the national scope of our network, we
enable advertising clients to reach a wide audience in urban consumer markets across
China. We believe the size and scope of our network has attained a scale that draws
advertising clients to our network and gives us a competitive edge over competing
networks as well as over many traditional advertising media.
    
    Exclusive and Renewable Display Placement Agreements. As of March 31, 2006, the
majority of our display placement agreements on our out-of-home television advertising
networks give us the exclusive right to place our flat-panel displays in the elevator
and lobby areas of the locations in which we operate and, in the cities we operate
directly, give us the right to renew the contract under terms that are no less
favorable than those offered by competing bidders, enabling us to maintain exclusive
coverage of many of the most desirable locations in our network for significant lengths
of time.
  Our Brand Name And Reputation Have Attracted A Large Base Of Leading Advertising Clients.
   Strong Management and Sales Team with Extensive Industry Experience.
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Our Strategies
  Enhance Our Market Position and Revenues by Expanding Our Networks.
  
    
    Increase the Number of Locations and Flat-Panel and Poster Frame Displays in Our
Network. We intend to aggressively enter into new display and poster frame placement
agreements to increase the number of locations in which we install our flat-panel
displays and poster frames in order to enhance our current position in many of the most
desirable locations in key urban areas in China.
    
    Expand into New Cities including through Strategic Acquisitions of Important
Regional Distributors. We expect to continue to acquire certain of our regional
distributors as a means to expand the size and scope of our network. Pursuant to our
arrangements with our regional distributors, they are licensed to use our technology,
and bear all of the revenues, profits or losses of their operations. This method
enables us to evaluate the potential profitability of executing our business model in a
specific city and expanding the size of the network before we incur the expense of
operating in the city directly. As of March 31, 2006, we have successfully acquired 17
of our regional distributors. We will continue to pursue this strategy as a means of
expanding our national coverage and offering advertising clients wider distribution of
their advertising content.
 Identify And Create New Networks and Advertising Channels that Target Specific Consumer
Demographics and Expands Network Capacity.
 In-store Network
 Targeted Advertising Channels
 43




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##### Table of Contents



Complementary Advertising Media Platforms
 Promote Our Brand Name and Augment Our Service Offerings to Attract a Wider Client Base and
Increase Revenues.
  Continue to Explore New Digital Media Opportunities to Target Segmented Consumer Groups.
  Our Network
  
    
    commercial locations, which consists of our premier A and B office building, travel,
fashion, elite and healthcare channels, each of which can be marketed separately to
advertisers;
    
    supermarkets, convenience stores and large-scale chain retail stores, which we refer
to as hypermarkets, comprising our in-store network;
    
    our poster frame network of advertising poster frames placed primarily in elevators
and public areas of residential complexes and marketed under the brand name Framedia;
    
    as of March 2006, our mobile handset advertising network offered on China Mobiles
and China Unicoms mobile telecommunications networks; and
    
    as of April 2006, approximately 75 leased LED digital billboards installed on the
street-sides in major shopping districts and other locations with high pedestrian
traffic in Shanghai.
  44




---



##### Table of Contents



Commercial Location Network
   Our Direct Operations
 Our Regional Distributors
 
    
    We provide training, operational and logistical instructions to our regional
distributors and allow them to use our brand name, all at no cost.
    
    We also sell our flat-panel displays to our regional distributors.
    
    Each regional distributor is responsible for signing display placement agreements
with commercial locations to establish and grow a network presence in the city in which
they operate.
    
    Each regional distributor is responsible for selling advertising time slots to
advertisers and for maintenance, monitoring and other client services.
    
    Our regional distributors have the right to sell seven-ninths of the cycle time,
while we retain the right to sell two-ninths of the cycle time on the portion of the
network for which they are responsible. This gives us the flexibility to sell those
time slots directly to advertisers or to sell the time to the regional distributor.
    
    We do not share any of the revenues, profits or losses of our regional distributors.
 45




---



##### Table of Contents



In-store Network
  Poster Frame Network
  Mobile Handset Advertising Network
  Outdoor LED Network
  46




---



##### Table of Contents



Advertising Clients, Sales and Marketing
 Our Advertising Clients
   Sales
 Advertising Contracts
    47




---



##### Table of Contents



Network Monitoring and Evaluation
  Market Research
 Programming
    48




---



##### Table of Contents



Pricing
 Commercial Location Network
  
    
    the number of advertising time slots that we have available to sell, which is
determined by the number of cities in which we directly operate, our expansion into
additional cities, the two- ninths portion of cycle time available on our regional
distributors networks and the length of the advertising cycle, which is currently
twelve minutes except in some cities operated by our regional distributors that use a
nine minute cycle. We calculate the number of time slots available by taking the total
advertising time available on our network during a particular period, calculated in
aggregate seconds, which we then divide by 30 to determine the number of 30-second
equivalent time slots available. We can increase the number of advertising time slots
that we have available to sell by expanding into additional cities or acquiring our
regional distributors, which provides us with the remaining seven-ninths of the time
slots per cycle operated by the regional distributor. The length of our advertising
cycle can potentially be extended to longer durations depending on demand in each city.
The twelve-minute advertising cycle amounts to the equivalent of 24 30-second time
slots per week. In cities where our regional distributors use a nine-minute advertising
cycle, the cycle amounts to the equivalent of 18 30-second time slots per week; and
    
    the average price we charge for our advertising time slots, which we calculate by
dividing our advertising service revenue by the number of 30-second equivalent time
slots sold during that period, after taking into account any discount offered.
 In-store Network
  
    
    the number of advertising time slots that we have available to sell, which is
determined by the number of stores in which we operate, our expansion into additional
stores, and the length of the advertising cycle, which is currently twelve minutes, or
24 30-second equivalent time slots. As with our commercial location network, for our
in-store network we calculate the number of time slots according to the number of
30-second equivalent time slots available. The length of our advertising cycle can
potentially be extended to longer durations depending on demand in each city; and
    
    the average price we charge for our advertising time slots, which we calculate by
dividing our advertising service revenue by the number of 30-second equivalent time
slots sold during that period, after taking into account any discount offered.
 Poster Frame Network
  
    
    the number of frames in our poster frame network. We sell frame space on our poster
frame network on a per frame basis. Increasing the number of residential and other
locations on our poster frame network allows us to increase the number of frames on our
network, thereby increases the available frame space for sale to advertisers. We
currently place up to three advertising poster frames in each elevator where we deploy
frames; and
    
    the average price we charge for frame space on a per frame basis, after taking into
account any discount offered.
 49




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##### Table of Contents



Mobile Handset Advertising Network
  
    
    the number of messages we deliver to WAP users. We agree to send WAP message
advertisements to WAP users from approximately 100 WAP service providers, and we charge
fees based on the number of successfully delivered messages; and
    
    the average price we charge per message.
  Relationships with Location Providers
     50




---



##### Table of Contents



Technology and Suppliers
   Competition
   Facilities
 51




---



##### Table of Contents



Regulatory Matters
   Limitations on Foreign Ownership in the Advertising Industry
  
    
    The Catalogue for Guiding Foreign Investment in Industry (2004); and
    
    The Administrative Regulations on Foreign-invested Advertising Enterprises (2004).
   
    
    we are able to exert effective control over our PRC operating affiliates and their
respective subsidiaries;
    
    a substantial portion of the economic benefits of our PRC operating affiliates and
their respective subsidiaries will be transferred to us; and
    
    we have an exclusive option to purchase all or part of the equity interests in our
PRC operating affiliates and all or part of the equity interests in Focus Media
Advertisements subsidiaries that are owned by Focus Media Advertisement or its nominee
holders, as well as all or a part of the assets of our PRC operating affiliates, in
each case when and to the extent permitted by PRC law.
 52




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##### Table of Contents




    
    the respective ownership structures of Focus Media, Framedia, Focus Media Wireless
and their respective PRC affiliates and subsidiaries are in compliance with existing
PRC laws and regulations;
    
    the contractual arrangements (i) among Focus Media, Framedia, Focus Media Wireless
and their respective PRC affiliates, subsidiaries and PRC shareholders, in each case
governed by PRC law are valid, binding and enforceable, and will not result in any
violation of PRC laws or regulations currently in effect; and
    
    the PRC business operations of Focus Media, Framedia, Focus Media Wireless and their
respective affiliates and subsidiaries as described in this annual
report, are in
compliance with existing PRC laws and regulations in all material respects.
  Regulation of Advertising Services
 Business License for Advertising Companies
  
    
    The Advertising Law (1994);
    
    The Advertising Administrative Regulations (1987); and
    
    The Implementing Rules for the Advertising Administrative Regulations (2004).
  53




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##### Table of Contents



Advertising Content
    Outdoor Advertising
  
    
    utilize traffic safety facilities and traffic signs;
    
    impede the use of public facilities, traffic safety facilities and traffic signs;
    
    obstruct commercial and public activities or create an eyesore in urban areas;
    
    be placed in restrictive areas near government offices, cultural landmarks or
historical or scenic sites; and
    
    be placed in areas prohibited by the local governments from having outdoor
advertisements.
 54




---



##### Table of Contents



Print Advertising
  Regulation of Telecommunications Value-added Service Providers
  C. Organizational Structure
  55




---



##### Table of Contents



Our Corporate Structure and Contractual Arrangements
  
    
    with regard to the operation of our out-of-home television networks, through Focus
Media Technology, our indirect wholly-owned subsidiaries in China, Focus Media Digital,
a 90%-owned subsidiary of Focus Media Technology, and New Focus Media Advertisement, a
90%-owned subsidiary of Focus Media Digital, and through our contractual arrangements
with several of our consolidated affiliated entities in China, including Focus Media
Advertisement, and its subsidiaries. Focus Media Advertisement owns the remaining 10%
equity interest in Focus Media Digital and New Focus Media Advertisement;
    
    with regard to the operation of our poster frame network, through Framedia
Advertisement, Guangdong Framedia and New Structure Advertisement, each of which is 90%
owned by Focus Media Advertisement and 10% owned by Focus Media Advertising Agency,
respectively; and
    
    with regard to the operation of our mobile handset advertising network, through
Focus Media Wireless, which is 90% owned by Focus Media Advertisement and 10% owned by
Focus Media Advertising Agency, respectively.
   
 56




---



##### Table of Contents



(1)
    
    Loans used to capitalize our PRC operating companies and to facilitate our control over
them.(2)
    
    Agreements that give us effective control over Focus Media Advertisement and its
subsidiaries, as described in Item 7.B Major Shareholders and Related Party
TransactionsRelated Party Transactions.(3)
    
    Agreement that transfer a substantial portion of the economic benefits of Focus Media
Advertisement and its subsidiaries to us, as described in Related Party Transactions.(4)
    
    Agreements that give Framedia Investment effective control over the PRC-based operations of
Framedia, as described in Item 7.B Major Shareholders and Related Party TransactionsRelated
Party Transactions.(5)
    
    The remaining equity interests in Focus Media Advertisements subsidiaries are held by Jimmy
Wei Yu, Focus Media Advertising Agency or unrelated third parties.(6)
    
    Agreements that give Dotad Technology effective control over the PRC-based operations of
Focus Media Wireless, as described in Item 7.B Major Shareholders and Related Party
TransactionsRelated Party Transactions.(7)
    
    Our out-of-home television network operations comprises our commercial location, in-store and
outdoor LED networks.    57




---



##### Table of Contents




    
    we are able to exert effective control over our PRC operating affiliates;
    
    a substantial portion of the economic benefits of our PRC operating affiliates will
be transferred to us; and
    
    each of our wholly-foreign owned entities or their respective designees has an
exclusive option to purchase all or part of the equity interests in our PRC affiliated
entities or their respective nominee holders, or, in some cases, all or part of the
assets of our PRC affiliated entities, in each case when and to the extent permitted by
PRC law.
   
    
    the respective ownership structures of Focus Media, Framedia, Focus Media Wireless
and their respective PRC operating affiliates and subsidiaries are in compliance with
existing PRC laws and regulations;
    
    the contractual arrangements among Focus Media, Framedia, Focus Media Wireless and
their respective PRC operating affiliates, subsidiaries and shareholders, in each case
governed by PRC law are valid, binding and enforceable, and will not result in any
violation of PRC laws or regulations currently in effect; and
    
    the PRC business operations of Focus Media, Framedia, Focus Media Wireless and their
respective PRC operating affiliates and subsidiaries as described in this annual report,
are in compliance with existing PRC laws and regulations in all material respects.
  Subsidiaries of Focus Media Holding Limited
 58




---



##### Table of Contents



Place of
    
    PercentageSubsidiary
    
    Incorporation
    
    of ownershipFocus Media (China) Holding Ltd.
    
    Hong Kong
    
    
    100
    %Focus Media Technology (Shanghai) Co., Ltd.
    
    PRC
    
    
    100
    %Perfect Media Holding Ltd.
    
    British Virgin Islands
(BVI)
    
    
    100
    %Focus Media Qingdao Holding Ltd.
    
    BVI
    
    
    100
    %Focus Media Dalian Holding Ltd.
    
    BVI
    
    
    100
    %Focus Media Changsha Holding Ltd.
    
    BVI
    
    
    100
    %Focus Media Digital Information Technology (Shanghai) Co., Ltd.
    
    PRC
    
    
    100
    %New Focus Media Technology (Shanghai) Co., Ltd.
    
    PRC
    
    
    100
    %Sorfari Holdings Limited
    
    BVI
    
    
    100
    %Focus Media Tianjin Limited
    
    BVI
    
    
    80
    %Capital Beyond Limited
    
    BVI
    
    
    100
    %Shanghai New Focus Media Advertisement Co
    
    PRC
    
    
    90
    %Infoachieve Limited
    
    BVI
    
    
    100
    %Shanghai Framedia Investment Consultation Co., Ltd.
    
    PRC
    
    
    100
    %Target Media Holdings Limited
    
    Cayman Islands
    
    
    100
    %Target Media Multi-Media Technology (Shanghai) Co., Ltd.
    
    PRC
    
    
    100
    %Dotad Holdings Limited
    
    BVI
    
    
    100
    %
 Subsidiaries of Focus Media Advertisement
  Focus MediaAdvertisements
    
    Region ofOwnership Percentage
    
    Operations
    
    Primary BusinessShenzhen Bianjie Building
Advertisement Co., Ltd.
    
    90.0%(2)
    
    Shenzhen
    
    Operation and
maintenance of
frame advertising
networkShanghai Focus Media Advertising Co.,
Ltd.
    
    90.0%(1)
    
    Shanghai
    
    Advertising agencyShanghai Perfect Media Advertising
Agency Co., Ltd.
    
    90.0%(1)
    
    Shanghai
    
    Advertising company
that operates advertising
services network on
shoe-shining
machinesQingdao Fukesi Advertisement Co., Ltd.
    
    90.0%(1)
    
    Qingdao
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Changsha Focus Media Shiji
Advertisement Co., Ltd.
    
    90.0%(1)
    
    Changsha
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Dalian Focus Media Advertising Co., Ltd.
    
    90.0%(1)
    
    Dalian
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shanghai Qianjian Advertising Co., Ltd.
    
    90.0%(1)
    
    Shanghai
    
    Operation and
maintenance of
out-of-home
television
advertising network
in banking
locations
 59




---



##### Table of Contents



Focus MediaAdvertisements
    
    Region ofOwnership Percentage
    
    Operations
    
    Primary BusinessGuangzhou Framedia Advertising Company
Ltd.
    
    90.0%(1)
    
    Guangzhou
    
    Operation and
maintenance of
out-of-home
television
advertising networkZhuhai Focus Media Culture and
Communication Company Ltd.
    
    90.0%(1)
    
    Zhuhai
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Hebei Tianma Weiye Advertising Company
Ltd.
    
    90.0%(2)
    
    Hebei
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Xiamen Focus Media Advertising Company
Ltd.
    
    90.0%(2)
    
    Xiamen
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Sichuan Focus Media Advertising
Communications Co., Ltd.
    
    90.0%(3)
    
    Chengdu
    
    Operation and
maintenance of
out-of-home
television
advertising networkShanghai New Structure Advertisement
Co., Ltd.
    
    90.0%(2)
    
    Shanghai
    
    Technical and
business
consultancy for
poster frame
networkShanghai Framedia Advertising
Development Co., Ltd.
    
    90.0%(2)
    
    Shanghai
    
    Operation and
maintenance of
advertising poster
frame networkGuangzhou Shiji Shenghuo Advertisement
Co., Ltd.
    
    90.0%(2)
    
    Guangzhou
    
    Operation and
maintenance of
advertising poster
frame networkNanjing Focus Media Advertising Co.,
Ltd.
    
    90.0%(3)
    
    Nanjing
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Hefei Fukesi Advertising Co. Ltd.
    
    90.0%(2)
    
    Hefei
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Jinan Focus Media Advertising Co., Ltd.
    
    90.0%(2)
    
    Jinan
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shenzhen E-Times Consulting Co.,
Ltd
    
    90.0%(2)
    
    Shenzhen
    
    Operation and
maintenance of
advertising poster
frame networkShanghai Target Media Co.,
Ltd.
    
    90.0%(2)
    
    Shanghai
    
    Dormant (Former
operation and
maintenance of
Target Medias
out-of-home
television
advertising network)
 60




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##### Table of Contents



Focus MediaAdvertisements
    
    Region ofOwnership Percentage
    
    Operations
    
    Primary BusinessShenyang Target Media Ltd.
    
    90.0%(2)
    
    Shenyang
    
    Dormant (Former
operation and
maintenance of
Target Medias
out-of-home
television
advertising network)Fuzhou Hengding United Media
Ltd.
    
    90.0%(2)
    
    Fuzhou
    
    Dormant (Former
operation and
maintenance of
Target Medias
out-of-home
television
advertising network)Shanghai New Target Media Co.,
Ltd.
    
    90.0%(2)
    
    Shanghai
    
    Dormant (Former
operation and
maintenance of
Target Medias
out-of-home
television
advertising network)Beijing Focus Media Wireless Co.,
Ltd.
    
    90.0%(2)
    
    Beijing
    
    Operation of mobile
handset advertising
service networkYunnan Focus Media Co., Ltd.
    
    89.5%(3)
    
    Kunming
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Tianjin Focus Tongsheng Advertising
Company Ltd.
    
    80.0%(3)
    
    Tianjin
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Zhejiang Ruihong Focus Media
Advertising Communications Co., Ltd.
    
    80.0%(3)
    
    Hangzhou
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Wuhan Geshi Focus Media Advertising
Co., Ltd.
    
    75.0%(3)
    
    Wuhan
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Xian Focus Media Advertising &
Information Company Ltd.
    
    70.0%(3)
    
    Xian
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shenyang Focus Media Advertising Co.,
Ltd.
    
    70.0%(3)
    
    Shenyang
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Fuzhou Focus Media Advertising Co., Ltd.
    
    70.0%(3)
    
    Fuzhou
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)
 61




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##### Table of Contents



Focus MediaAdvertisements
    
    Region ofOwnership Percentage
    
    Operations
    
    Primary BusinessChongqing Geyang Focus Media Culture &
Broadcasting Co., Ltd.
    
    60.0%(3)
    
    Chongqing
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shanghai On-Target Advertisement Co.,
Ltd.
    
    60.0%(3)
    
    Shanghai
    
    Advertising agencyNew Focus Media Advertisement Co.,
Ltd.
    


19%(4)

    
    Shanghai
    
    Sells advertising
time slots on our
out-of-home television
advertising
networks
 
 (1)
    
    The remaining equity interest is held by Jimmy Wei Yu as our nominee holder.(2)
    
    The remaining equity interest is held by Focus Media Advertising Agency.(3)
    
    The remaining equity interest in this entity is owned by unrelated third paries.(4)
    
    The remaining equity interest in this entity is owned by Focus Media Digital. 62




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##### Table of Contents



D. Property, Plants and Equipment
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  Overview
    
    
    Overall economic growth in China, which we expect to contribute to an increase in
advertising spending in major urban areas in China where consumer spending is
concentrated;
    
    The expansion of our commercial location network since we completed our acquisition
of Target Media;
    
    Our ability to expand our network into new locations and additional cities;
    
    Our ability to expand our sales force and engage in increased sales and marketing efforts;
    
    Our ability to increase sales of advertising time slots and extend the duration of
our advertising cycle on our commercial location and in-store networks;
    
    Our ability to expand our client base through promotion of our services and
cross-selling;
    
    Our ability to successfully operate and expand our poster frame network, which we
acquired from Framedia in January 2006, including increasing the number of residential
complexes in which we place advertising poster frames;
 63




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##### Table of Contents




    
    Our ability to expand our in-store network which commenced operation in April 2005;
    
    Our ability to integrate Target Medias former out-of-home television advertising
networks into our commercial location network and in-store network;
    
    Our ability to identify and create new advertising channels by establishing separate
advertising networks that enable advertisers to target a diverse range of consumer
groups with specific demographic profiles. Our commercial location network is currently
marketed as six separate channels targeting different types of consumers: our premier A
and B office building channels, our travel channel, our fashion channel, our elite
channel and our healthcare channel;
    
    Our ability to successfully enter into the mobile handset network advertising
business, in part through our recent acquisition of Focus Media Wireless;
    
    Our ability to successfully operate and market our new outdoor LED network; and
    
    Our ability to acquire companies that operate advertising businesses complementary
to our existing operations.
    Revenues
  64




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##### Table of Contents



For the year ended December 31,
    
    
    For the three months ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Net revenues:Commercial location
network(1)
    
    $
    3,369
    
    
    
    89.6
    %
    
    $
    26,321
    
    
    
    90.1
    %
    
    $
    61,435
    
    
    
    90.0
    %
    
    $
    9,432
    
    
    
    98.5
    %
    
    $
    21,472
    
    
    
    64.8
    %In-store
network:(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,469
    
    
    
    8.0
    %
    
    
    
    
    
    
    
    
    
    
    5,293
    
    
    
    16.0
    %Poster frame
network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,067
    
    
    
    18.3
    %Advertising service
revenue
    
    
    3,369
    
    
    
    89.6
    %
    
    
    26,321
    
    
    
    90.1
    %
    
    
    66,904
    
    
    
    98.1
    %
    
    
    9,432
    
    
    
    98.5
    %
    
    
    32,832
    
    
    
    99.1
    %Advertising
equipment
revenue
    
    
    389
    
    
    
    10.4
    %
    
    
    2,889
    
    
    
    9.9
    %
    
    
    1,325
    
    
    
    1.9
    %
    
    
    142
    
    
    
    1.5
    %
    
    
    304
    
    
    
    0.9
    %Total revenues
    
    $
    3,758
    
    
    
    100.0
    %
    
    $
    29,210
    
    
    
    100.0
    %
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    9,574
    
    
    
    100.0
    %
    
    $
    33,136
    
    
    
    100.0
    %
 
 (1)
    
    Advertising service revenue is presented net of business tax. Business tax on advertising
service revenue from our commercial location network amounted to $311,770, $2.8 million, $6.0
million, $936,405 and $2.1 million in 2003, 2004 and 2005, and for the three months ended
March 31, 2005 and 2006, respectively. Business tax on advertising service revenue for our
in-store network amounted to $524,271, $nil and $524,357 in 2005 and for the three months
ended March 31, 2005 and 2006. Business tax on advertising service revenue for our poster
frame network amounted to $590,972 for the three months ended March 31, 2006. Business tax
includes business tax of 5.55% and cultural industries tax of 4.0%.  For the year ended December 31,
    
    

For the three months ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Gross Advertising
ServiceRevenue:Commercial Locations Unrelated parties
    
    $
    2,581
    
    
    
    68.7
    %
    
    $
    25,322
    
    
    
    86.7
    %
    
    $
    62,633
    
    
    
    91.8
    %
    
    $
    9,234
    
    
    
    96.5
    %
    
    $
    21,400
    
    
    
    64.6
    % Related parties
    
    
    1,099
    
    
    
    29.2
    %
    
    
    3,788
    
    
    
    13.0
    %
    
    
    4,793
    
    
    
    7.0
    %
    
    
    1,134
    
    
    
    11.8
    %
    
    
    2,154
    
    
    
    6.5
    %Total Commercial
Locations
    
    
    3,680
    
    
    
    97.9
    %
    
    
    29,109
    
    
    
    99.7
    %
    
    
    67,426
    
    
    
    98.8
    %
    
    
    10,368
    
    
    
    108.3
    %
    
    
    23,554
    
    
    
    71.1
    %In-store Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,475
    
    
    
    8.0
    %
    
    
    
    
    
    
    
    
    
    
    5,215
    
    
    
    15.7
    % Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518
    
    
    
    0.8
    %
    
    
    
    
    
    
    
    
    
    
    602
    
    
    
    1.8
    %Total in-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,993
    
    
    
    8.8
    %
    
    
    
    
    
    
    
    
    
    
    5,818
    
    
    
    17.5
    %Poster Frame Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,658
    
    
    
    20.1
    % Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Poster Frame
Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,658
    
    
    
    20.1
    %Gross Advertising
ServicesRevenue:
    
    
    3,680
    
    
    
    97.9
    %
    
    
    29,109
    
    
    
    99.7
    %
    
    
    73,419
    
    
    
    107.6
    %
    
    
    10,368
    
    
    
    108.3
    %
    
    
    36,030
    
    
    
    108.7
    %Less: Sales taxes:Commercial
Locations
    
    
    311
    
    
    
    8.3
    %
    
    
    2,788
    
    
    
    9.6
    %
    
    
    5,991
    
    
    
    8.7
    %
    
    
    936
    
    
    
    9.8
    %
    
    
    2,082
    
    
    
    6.2
    %In-store Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    0.8
    %
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    1.6
    %Poster Frame
Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    592
    
    
    
    1.8
    %Total sales taxes
    
    
    311
    
    
    
    8.3
    %
    
    
    2,788
    
    
    
    9.6
    %
    
    
    6,515
    
    
    
    9.5
    %
    
    
    936
    
    
    
    9.8
    %
    
    
    3,198
    
    
    
    9.6
    %Net Advertising Service
Revenue
    
    
    3,369
    
    
    
    89.6
    %
    
    
    26,321
    
    
    
    90.1
    %
    
    
    66,904
    
    
    
    98.1
    %
    
    
    9,432
    
    
    
    98.5
    %
    
    
    32,832
    
    
    
    99.1
    %Add: AdvertisingEquipment Revenue:
    
    
    389
    
    
    
    10.4
    %
    
    
    2,889
    
    
    
    9.9
    %
    
    
    1,325
    
    
    
    1.9
    %
    
    
    142
    
    
    
    1.5
    %
    
    
    304
    
    
    
    0.9
    %Net revenues:
    
    $
    3,758
    
    
    
    100.0
    %
    
    $
    29,210
    
    
    
    100.0
    %
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    9,574
    
    
    
    100.0
    %
    
    $
    33,136
    
    
    
    100.0
    %
 65




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##### Table of Contents



Advertising Service Revenue
    Factors that Affect Our Advertising Service Revenue.
  
    
    the number of advertising time slots that we have available to sell, which is
determined by the number of cities in which we directly operate, our expansion into
additional cities, the two- ninths portion of cycle time available on our regional
distributors networks and the length of the advertising cycle, which is currently
twelve minutes except in some cities operated by our regional distributors that use a
nine minute cycle. We calculate the number of time slots available by taking the total
advertising time available on our network during a particular period, calculated in
aggregate seconds, which we then divide by 30 to determine the number of 30-second
equivalent time slots available. We can increase the number of advertising time slots
that we have available to sell by expanding into additional cities or acquiring our
regional distributors, which provides us with the remaining seven-ninths of the time
slots per cycle operated by the regional distributor. The length of our advertising
cycle can potentially be extended to longer durations depending on demand in each city.
The twelve-minute advertising cycle amounts to the equivalent of 24 30-second time
slots per week. In cities where our regional distributors use a nine-minute advertising
cycle, the cycle amounts to the equivalent of 18 30-second time slots per week; and
    
    the average price we charge for our advertising time slots, which we calculate by
dividing our advertising service revenue by the number of 30-second equivalent time
slots sold during that period, after taking into account any discount offered. We
calculate average quarterly advertising service revenue for our Tier I, Tier II cities
and as a blended average of all cities each quarter.
 66




---



##### Table of Contents




    
    the number of advertising time slots that we have available to sell, which is
determined by the number of stores in which we operate, our expansion into additional
stores, and the length of the advertising cycle, which is currently twelve minutes, or
24 30-second equivalent time slots. As with our commercial location network, for our
in-store network we calculate the number of time slots according to the number of
30-second equivalent time slots available. The length of our advertising cycle can
potentially be extended to longer durations depending on demand in each city; and
    
    the average price we charge for our advertising time slots, which we calculate by
dividing our advertising service revenue by the number of 30-second equivalent time
slots sold during that period, after taking into account any discount offered. Our
revenues are also affected by the average quarterly advertising service revenue we
derive per 30-second equivalent time slot sold per quarter.
 Poster frame network
 
    
    the number of frames in our poster frame network. We sell frame space on our poster
frame network on a per frame basis. Increasing the number of residential and other
locations on our poster frame network allows us to increase the number of frames on our
network, thereby increases the available frame space for sale to advertisers. We
generally place up to three advertising poster frames in each elevator where we deploy
frames per display; and
    
    the average price we charge for frame space on a per frame basis, after taking into
account any discount offered.
 Mobile handset advertising network
 
    
    the number of messages we deliver to WAP users. We send WAP message advertisements
to WAP users from approximately 100 WAP service providers, and we charge fees based on
the number of successfully delivered messages; and
    
    the average price we charge per message.
  Network Expansion
 67




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##### Table of Contents



Seasonality
 Revenue Recognition
   Advertising Equipment Revenue
  68




---



##### Table of Contents



Cost of Revenues
   For the year endedDecember 31,
    
    
    For the three months ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Total revenues
    
    $
    3,758
    
    
    
    100.0
    %
    
    $
    29,210
    
    
    
    100.0
    %
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    9,574
    
    
    
    100.0
    %
    
    $
    33,136
    
    
    
    100.0
    %Cost of revenues:Net advertising
service cost:Commercial
location network
    
    
    1,566
    
    
    
    41.7
    %
    
    
    6,746
    
    
    
    23.1
    %
    
    
    17,943
    
    
    
    26.3
    %
    
    
    2,903
    
    
    
    30.3
    %
    
    
    8,035
    
    
    
    24.3
    %In-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,423
    
    
    
    10.9
    %
    
    
    286
    
    
    
    3.0
    %
    
    
    3,973
    
    
    
    12.0
    %Poster frame
network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,397
    
    
    
    7.2
    %Advertising
service cost
    
    
    1,566
    
    
    
    41.7
    %
    
    
    6,746
    
    
    
    23.1
    %
    
    
    25,366
    
    
    
    37.2
    %
    
    
    3,189
    
    
    
    33.3
    %
    
    
    14,405
    
    
    
    43.5
    %Net advertising
equipment cost
    
    
    275
    
    
    
    7.3
    %
    
    
    1,934
    
    
    
    6.6
    %
    
    
    976
    
    
    
    1.4
    %
    
    
    71
    
    
    
    0.7
    %
    
    
    232
    
    
    
    0.7
    %Total cost of
revenues
    
    
    1,841
    
    
    
    49.0
    %
    
    
    8,680
    
    
    
    29.7
    %
    
    
    26,342
    
    
    
    38.6
    %
    
    
    3,260
    
    
    
    34.0
    %
    
    
    14,637
    
    
    
    44.2
    %Gross profit
    
    
    1,917
    
    
    
    51.0
    %
    
    
    20,530
    
    
    
    70.3
    %
    
    
    41,887
    
    
    
    61.4
    %
    
    
    6,314
    
    
    
    66.0
    %
    
    
    18,499
    
    
    
    55.8
    %
 Net Advertising Service Costs
   
    
    rental fees and one-time signing payments we pay to landlords, property managers and
stores pursuant to the display placement agreements we enter into with them;
    
    commissions and public relations expenses we incur in connection with developing and
maintaining relationships with landlords and property managers; and
    
    maintenance fees for keeping our displays in proper operating condition.
 69




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##### Table of Contents



Net Advertising Equipment Cost
  Operating Expenses and Net Income
  70




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##### Table of Contents



For the year ended December 31,
    
    
    For the three months ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    % of total
    
    
    
    
    
    
    % of total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Gross profit
    
    $
    1,917
    
    
    
    51.0
    %
    
    $
    20,530
    
    
    
    70.3
    %
    
    $
    41,887
    
    
    
    61.4
    %
    
    $
    6,314
    
    
    
    65.9
    %
    
    $
    18,499
    
    
    
    55.8
    %Operating expenses:General and
administrative
    
    
    985
    
    
    
    26.2
    %
    
    
    3,988
    
    
    
    13.7
    %
    
    
    9,120
    
    
    
    13.4
    %
    
    
    1,881
    
    
    
    19.6
    %
    
    
    4,395
    
    
    
    13.3
    %Selling and
marketing
    
    
    407
    
    
    
    10.8
    %
    
    
    3,454
    
    
    
    11.8
    %
    
    
    9,544
    
    
    
    14.0
    %
    
    
    1,492
    
    
    
    15.6
    %
    
    
    4,057
    
    
    
    12.2
    %Amortization of
acquired
intangibles
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    0.3
    %
    
    
    437
    
    
    
    0.6
    %
    
    
    67
    
    
    
    0.7
    %
    
    
    999
    
    
    
    3.0
    %Goodwill impairment
loss
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    0.2
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    Total
    
    
    1,392
    
    
    
    37.0
    %
    
    
    7,577
    
    
    
    26.0
    %
    
    
    19,101
    
    
    
    28.0
    %
    
    
    3,440
    
    
    
    35.9
    %
    
    
    9,451
    
    
    
    28.5
    %Income from
operations
    
    
    525
    
    
    
    14.0
    %
    
    
    12,953
    
    
    
    44.3
    %
    
    
    22,786
    
    
    
    33.4
    %
    
    
    2,874
    
    
    
    30.0
    %
    
    
    9,048
    
    
    
    27.3
    %
 General and Administrative
 Share-based Compensation Relating to General and Administrative
 Selling and Marketing
 Amortization of Acquired Intangibles
 Critical Accounting Policies
 71




---



##### Table of Contents



Share-based Compensation
   Income Taxes
  Goodwill and Acquisition Impairment
  72




---



##### Table of Contents



Taxation
 Cayman Islands, the British Virgin Islands and Hong Kong.
  PRC
   73




---



##### Table of Contents



74




---



##### Table of Contents



Recently Issued Accounting Standards
     75




---



##### Table of Contents



Acquisitions
    
    
    Infoachieve, for the periods ended, and as of, December 31, 2003, 2004 and 2005;
    
    Target Media Holdings, for the periods ended, and as of, December 31, 2004 and 2005;
    
    Perfect Media Holding Ltd. for the periods ended, and as of, December 31, 2003 and
September 30, 2004;
    
    Focus Media Changsha Holding Ltd., Focus Media Qingdao Holding Ltd. and Focus Media
Dalian Holding Ltd. for the period ended, and as of, October 31, 2004; and
    
    Capital Beyond Limited for the periods ended, and as of, December 31, 2004 and March
31, 2005, respectively,
  Quarterly Results of Operation
  76




---



##### Table of Contents



For the three months endedConsolidated Statement
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,of Operations Data
    
    2004
    
    
    2004
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2006(in thousands of U.S. dollars)Net revenues:Commercial location network(1)
    
    $
    5,495
    
    
    $
    7,049
    
    
    $
    11,083
    
    
    $
    9,432
    
    
    $
    13,981
    
    
    $
    17,287
    
    
    $
    20,735
    
    
    $
    21,472In-store network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339
    
    
    
    1,813
    
    
    
    3,317
    
    
    
    5,293Poster frame network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,067Total advertising service
revenue
    
    
    5,495
    
    
    
    7,049
    
    
    
    11,083
    
    
    
    9,432
    
    
    
    14,320
    
    
    
    19,100
    
    
    
    24,052
    
    
    
    32,832Advertising equipment revenue
    
    
    905
    
    
    
    863
    
    
    
    683
    
    
    
    142
    
    
    
    264
    
    
    
    366
    
    
    
    553
    
    
    
    304Total revenues
    
    
    6,400
    
    
    
    7,912
    
    
    
    11,766
    
    
    
    9,574
    
    
    
    14,584
    
    
    
    19,466
    
    
    
    24,605
    
    
    
    33,136Cost of revenues:Commercial location network
    
    
    1,372
    
    
    
    1,655
    
    
    
    2,680
    
    
    
    3,189
    
    
    
    4,066
    
    
    
    4,943
    
    
    
    6,031
    
    
    
    8,035In-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,365
    
    
    
    2,606
    
    
    
    3,165
    
    
    
    3,973Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,397Advertising service cost:
    
    
    1,372
    
    
    
    1,655
    
    
    
    2,680
    
    
    
    3,189
    
    
    
    5,431
    
    
    
    7,549
    
    
    
    9,196
    
    
    
    14,405Advertising equipment cost
    
    
    722
    
    
    
    668
    
    
    
    242
    
    
    
    71
    
    
    
    189
    
    
    
    285
    
    
    
    432
    
    
    
    232Total cost of revenues
    
    
    2,094
    
    
    
    2,323
    
    
    
    2,922
    
    
    
    3,260
    
    
    
    5,620
    
    
    
    7,834
    
    
    
    9,628
    
    
    
    14,637Gross profit
    
    
    4,306
    
    
    
    5,589
    
    
    
    8,844
    
    
    
    6,314
    
    
    
    8,964
    
    
    
    11,632
    
    
    
    14,977
    
    
    
    18,499Operating expenses:General and administrative
    
    
    500
    
    
    
    1,105
    
    
    
    2,005
    
    
    
    1,881
    
    
    
    2,346
    
    
    
    2,337
    
    
    
    2,585
    
    
    
    4,395Selling and marketing
    
    
    704
    
    
    
    936
    
    
    
    1,497
    
    
    
    1,492
    
    
    
    1,954
    
    
    
    2,703
    
    
    
    3,366
    
    
    
    4,057Amortization of acquired
intangibles
    
    
    5
    
    
    
    10
    
    
    
    62
    
    
    
    67
    
    
    
    123
    
    
    
    120
    
    
    
    128
    
    
    
    999Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                            
    
    
    
    Total operating expenses
    
    
    1,209
    
    
    
    2,051
    
    
    
    3,623
    
    
    
    3,440
    
    
    
    4,423
    
    
    
    5,160
    
    
    
    6,079
    
    
    
    9,451Income from operations
    
    
    3,097
    
    
    
    3,538
    
    
    
    5,221
    
    
    
    2,874
    
    
    
    4,541
    
    
    
    6,472
    
    
    
    8,898
    
    
    
    9,048Interest income
    
    
    1
    
    
    
    1
    
    
    
    5
    
    
    
    11
    
    
    
    20
    
    
    
    791
    
    
    
    940
    
    
    
    916Other income (expenses), net
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    5
    
    
    
    (3
    )
    
    
    8
    
    
    
    (171
    )
    
    
    46Change in fair value of
derivative liability associated
with Series B convertible
redeemable preference shares
    
    
    
    
    
    
    (3,166
    )
    
    
    (8,526
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income
taxes
and minority interest
    
    
    3,098
    
    
    
    373
    
    
    
    (3,302
    )
    
    
    2,890
    
    
    
    4,558
    
    
    
    7,271
    
    
    
    9,667
    
    
    
    10,010Total income taxes
    
    
    (1,065
    )
    
    
    (1,382
    )
    
    
    1,922
    
    
    
    (248
    )
    
    
    (155
    )
    
    
    (87
    )
    
    
    (204
    )
    
    
    (617
    )Minority interest
    
    
    (49
    )
    
    
    10
    
    
    
    54
    
    
    
    0
    
    
    
    (55
    )
    
    
    (52
    )
    
    
    (38
    )
    
    
    40Equity income (loss) of
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    1,984
    
    
    
    (999
    )
    
    
    (1,326
    )
    
    
    2,642
    
    
    
    4,348
    
    
    
    7,132
    
    
    
    9,425
    
    
    
    9,433Deemed dividend on Series A
convertible redeemable
preference shares
    
    
    (8,308
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on Series B
convertible redeemable
preference shares
    
    
    (2,191
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on Series C-1
convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    (13,356
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Premium of Series B convertible
redeemable preference shares
    
    
    
    
    
    
    
    
    
    
    12,906
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) attributable to
holders of ordinary shares
    
    $
    (8,515
    )
    
    $
    (999
    )
    
    $
    (1,776
    )
    
    $
    2,642
    
    
    $
    4,348
    
    
    $
    7,132
    
    
    $
    9,425
    
    
    $
    9,433
 
 (1)
    
    Advertising service revenue is presented net of business tax. Business tax on advertising
service revenue from our commercial location network amounts to, $574,729, $714,647, $1.6
million, $936,405, $1.4 million, $1.8 million, $1.9 million and $2.1 million for the three
months ended June 30, 2004, September 30, 2004, December 31, 2004, March 31, 2005, June 30,
2005, September 30, 2005, December 31, 2005 and March 31, 2006, respectively. Business tax on
advertising service revenue for our in-store network amounted to $31,927, $187,515, $301,828
and $524,357 for the three months ended June 30, 2005, September 30, 2005, December 31, 2005
and March 31, 2006. Business tax on advertising service revenue for our poster frame network
amounted to $590,972 for the three months ended March 31, 2006. Business tax includes business
tax of 5.55% and cultural industries tax of 4.0%. Consolidated
    
    For the three months endedStatement of
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,Operations Data
    
    2004
    
    2004
    
    2004
    
    2005
    
    2005
    
    2005
    
    2005
    
    2006(in thousands of U.S. dollars)Net revenues:Commercial location
network(1)
    
    
    85.9
    %
    
    
    89.1
    %
    
    
    94.2
    %
    
    
    98.5
    %
    
    
    95.9
    %
    
    
    88.8
    %
    
    
    84.3
    %
    
    
    64.8
    %In-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.3
    %
    
    
    9.3
    %
    
    
    13.5
    %
    
    
    16.0
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.3
    %Advertising
equipment revenue
    
    
    14.1
    %
    
    
    10.9
    %
    
    
    5.8
    %
    
    
    1.5
    %
    
    
    1.8
    %
    
    
    1.9
    %
    
    
    2.2
    %
    
    
    0.9
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues:
 77




---



##### Table of Contents



Consolidated
    
    For the three months endedStatement of
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,Operations Data
    
    2004
    
    2004
    
    2004
    
    2005
    
    2005
    
    2005
    
    2005
    
    2006(in thousands of U.S. dollars)Net advertising
service cost:Commercial location
network
    
    
    21.4
    %
    
    
    20.9
    %
    
    
    22.8
    %
    
    
    33.3
    %
    
    
    27.9
    %
    
    
    25.4
    %
    
    
    24.5
    %
    
    
    24.3
    %In-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.4
    %
    
    
    13.4
    %
    
    
    12.9
    %
    
    
    12.0
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.2
    %Net advertising
equipment cost
    
    
    11.3
    %
    
    
    8.5
    %
    
    
    2.1
    %
    
    
    0.7
    %
    
    
    1.3
    %
    
    
    1.5
    %
    
    
    1.8
    %
    
    
    0.7
    %Total cost of revenues
    
    
    32.7
    %
    
    
    29.4
    %
    
    
    24.9
    %
    
    
    34.0
    %
    
    
    38.6
    %
    
    
    40.3
    %
    
    
    39.2
    %
    
    
    44.2
    %Gross profit
    
    
    67.3
    %
    
    
    70.6
    %
    
    
    75.1
    %
    
    
    66.0
    %
    
    
    61.4
    %
    
    
    59.7
    %
    
    
    60.8
    %
    
    
    55.8
    %Operating expenses:General and
administrative
    
    
    7.8
    %
    
    
    14.0
    %
    
    
    17.0
    %
    
    
    19.7
    %
    
    
    16.1
    %
    
    
    12.0
    %
    
    
    10.5
    %
    
    
    13.3
    %Selling and marketing
    
    
    11.0
    %
    
    
    11.8
    %
    
    
    12.7
    %
    
    
    15.6
    %
    
    
    13.4
    %
    
    
    13.9
    %
    
    
    13.7
    %
    
    
    12.2
    %Intangible
amortization
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.5
    %
    
    
    0.7
    %
    
    
    0.8
    %
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    3.0
    %Goodwill impairment
loss
    
    
    
    
    
    
    
    
    
    
    0.5
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating
expenses
    
    
    18.9
    %
    
    
    25.9
    %
    
    
    30.7
    %
    
    
    36.0
    %
    
    
    30.3
    %
    
    
    26.5
    %
    
    
    24.6
    %
    
    
    28.5
    %Income from operations
    
    
    48.4
    %
    
    
    44.7
    %
    
    
    44.4
    %
    
    
    30.0
    %
    
    
    31.1
    %
    
    
    33.2
    %
    
    
    36.2
    %
    
    
    27.3
    %Interest income
    
    
    
    
    
    
    
    
    
    
    0.04
    %
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    4.1
    %
    
    
    3.8
    %
    
    
    2.8
    %Other expenses, net
    
    
    
    
    
    
    
    
    
    
    (0.01
    )%
    
    
    
    
    
    
    
    
    
    
    0.1
    %
    
    
    (0.7
    )%
    
    
    0.1
    %Change in fair value
of derivative
liability associated
with Series B
convertible
redeemable preference
shares
    
    
    
    
    
    
    (40.0
    )%
    
    
    (72.5
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before
income taxes and
minority interest
    
    
    48.4
    %
    
    
    4.7
    %
    
    
    (28.1
    )%
    
    
    30.1
    %
    
    
    31.2
    %
    
    
    37.4
    %
    
    
    39.3
    %
    
    
    30.2
    %Total income taxes
    
    
    (16.6
    )%
    
    
    (17.4
    )%
    
    
    16.3
    %
    
    
    (2.6
    )%
    
    
    (1.0
    )%
    
    
    (0.4
    )%
    
    
    (0.8
    )%
    
    
    (1.9
    )%Minority interest
    
    
    (0.8
    )%
    
    
    0.1
    %
    
    
    0.5
    %
    
    
    0
    
    
    
    (0.4
    )%
    
    
    (0.3
    )%
    
    
    (0.2
    )%
    
    
    0.1
    %Equity income (loss)
of
affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    31.0
    %
    
    
    (12.6
    )%
    
    
    (11.3
    )%
    
    
    27.6
    %
    
    
    29.8
    %
    
    
    36.7
    %
    
    
    38.3
    %
    
    
    28.5
    %Deemed dividend on
Series A convertible
redeemable preference
shares
    
    
    (129.8
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on
Series B convertible
redeemable preference
shares
    
    
    (34.2
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on
Series C-1
convertible
redeemable preference
shares
    
    
    
    
    
    
    
    
    
    
    113.5
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Premium of Series B
convertible
redeemable preference
shares
    
    
    
    
    
    
    
    
    
    
    109.7
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss)
attributable to
holders of ordinary
shares
    
    
    (133.0
    )%
    
    
    (12.6
    )%
    
    
    (15.1
    )%
    
    
    27.6
    %
    
    
    29.8
    %
    
    
    36.7
    %
    
    
    38.3
    %
    
    
    28.5
    %
 
 (1)
    
    Advertising service revenue is presented net of business tax. Business tax on advertising
service revenue from our commercial location network represents 9.0%, 9.0%, 13.6%, 9.8%, 9.5%,
9.1%, 7.6% and 6.3% of total revenues for the three months ended June 30, 2004, September 30,
2004, December 31, 2004, March 31, 2005, June 30, 2005, September 30, 2005, December 31, 2005
and March 31, 2006, respectively. Business tax on advertising service revenue for our in-store
network represented 0.2%, 1.0%, 1.2% and 1.6% of total revenues for the three months ended
June 30, 2005, September 30, 2005, December 31, 2005 and March 31, 2006. Business tax on
advertising service revenue for our poster frame network represented 1.8% of total revenues
for the three months ended March 31, 2006. Business tax includes business tax of 5.55% and
cultural industries tax of 4.0%. A. Operating Results
 Results of Operations
 78




---



##### Table of Contents



Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
 Total Revenues
  Commercial location network
 
    
    Our network reach increased from 44 cities as of March 31, 2005, including 22 cities
directly operated by our company and 22 cities operated by our regional distributors,
to 86 cities as of March 31, 2006, including 50 cities directly operated by our company
and 36 cities operated by our regional distributors;
    
    We gained an additional seven minutes of advertising cycle time from each of the
four regional distributors we acquired during the period between April 1, 2005 and
March 31, 2006;
    
    On July 1, 2005, we extended the cycle time in our directly operated Tier II cities
from nine minutes to twelve minutes;
    
    On February 28, 2006, we completed our acquisition of Target Media and integrated
its network into our out-of-home television networks, increasing the number of cities
in which we operate and increasing the overall number of time slots available and sold
on our network; and
    
    On March 1, 2006, we launched several additional channels, which enable advertisers
to reach targeted consumer groups under our commercial location network.
 In-store network
 Poster frame network
 79




---



##### Table of Contents



Advertising equipment revenue
 Cost of Revenues
 
    
    Net advertising service cost  commercial location network. Our net advertising
services cost for our commercial location network increased substantially from $3.2
million for the three months ended March 31, 2005 to $8.0 million for the three months
ended March 31, 2006. This increase was due to (i) the substantial increase in our
advertising service business on our commercial location network between these two
periods including substantial increases in our location costs due to a substantial
increase in the number of commercial locations where we entered into display placement
agreements, (ii) an increase in flat-panel display depreciation costs as a result of an
increase in the number of flat-panel displays we own and operate directly from 16,025
as of March 31, 2005 to 71,230 as of March 31, 2006 and to our acquisition of four
regional distributors during this period and (iii) an increase in other direct costs
associated with maintaining the network.
    
    Net advertising service cost  in-store network. We began incurring net advertising
service cost relating to our in-store network in the first quarter of 2005 as we began
to install flat- panel displays in stores, although we did not commence commercial
operations of the network until April 2005. We incurred $nil in net advertising service
cost for our in-store network for the three months ended March 31, 2005 compared to
$4.0 million for the three months ended March 31, 2006, consisting of location costs
and depreciation costs relating to the installation and maintenance of our in-store
network.
    
    Net advertising service cost  poster frame network. We began incurring net
advertising service cost relating to our poster frame network in January 2006 after
acquiring Framedia and E-Times. We incurred $2.4 million in net advertising service
cost for our poster frame network for the three months ended March 31, 2006, consisting
of location costs and depreciation costs relating to the installation and maintenance
of poster frames on our network.
    
    Net advertising equipment cost. We incurred net advertising equipment costs of
$70,571 for the three months ended March 31, 2005 compared to $231,814 for the three
months ended March 31, 2006, which directly related to the number of displays we sold
to our regional distributors.
 Gross Profit
 Operating Expenses
 80




---



##### Table of Contents




    
    General and Administrative. General and administrative expenses increased
substantially from $1.9 million for the three months ended March 31, 2005 to $4.4
million for the three months ended March 31, 2006 mainly due to an increase in the size
of our administrative staff and corresponding increases in expenses for salary and
benefits as our operations have grown, increases in share-based compensation expense
and increases in costs associated with being a publicly listed company.
    
    Selling and Marketing. Selling and marketing expenses increased substantially from
$1.5 million for the three months ended March 31, 2005 to $4.1 million for the three
months ended March 31, 2006 due to increases in marketing and promotional expenses by
our sales force, and in salary and benefits associated with the expansion of our sales
force as well as share-based compensation expenses.
    
    Amortization of acquired intangibles. Amortization of acquired intangibles
increased substantially from $67,352 for the three months ended March 31, 2005 to $1.0
million for the three months ended March 31, 2006 due to several significant
acquisitions we completed during the first quarter of 2006, namely our acquisitions of
Framedia, Target Media and E-Times.
 Income from Operations
 Income Before Income Taxes and Minority Interest
 
    
    Interest Income. Interest income increased from $10,895 for the three months ended
March 31, 2005 to $915,952 for the three months ended March 31, 2006. This interest
income was the result of a significant increase in our cash and cash equivalents
balances resulting from our initial public offering and follow-on public offering.
    
    Income Taxes. Our income taxes were $248,801 for the three months ended March 31,
2005 with an effective tax rate of 9.0% compared to $616,790 for the three months ended
March 31, 2006 with an effective tax rate of 6.2%. The increase resulted from a change
in deferred tax assets.
 Net Income
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Total Revenues
  Commercial location network
 
    
    an increase in the number of 30-second-equivalent advertising time slots we sold on
our commercial location network from 4,723 in 2004 to 13,943 in 2005 and partially
offset by a decrease in the average selling price per time slot sold from $5,573 in
2004 to $4,461 in 2005. Total network capacity, measured by number of available time
slots, also increased from 5,170 as of December 31, 2004 to
 81




---



##### Table of Contents



9,028 as of December 31, 2005. The increase in the number of 30-second-equivalent
advertising time slots sold between these two periods is due primarily to the following
factors:
    
    Our network reach increased from 34 cities as of December 31, 2004, including 11
cities directly operated by our company and 23 cities operated by our regional
distributors, to 58 cities as of December 31, 2005, including 26 cities directly
operated by our company and 32 cities operated by our regional distributors;
    
    We gained an additional seven minutes of advertising cycle time from each of our
regional distributors after we acquired them between January 1, 2005 and December 31,
2005; and
    
    On July 1, 2005, we extended the cycle time in our directly operated Tier II cities
from nine minutes to twelve minutes.
    
    The increase in the number of 30-second-equivalent advertising time slots sold on
our commercial location network was also attributable to increased acceptance of our
network among our advertising clients, which we believe is primarily due to the
increased coverage and effectiveness of our network that grew from 15,415 flat-panel
displays as of December 31, 2004 to 48,226 displays as of December 31, 2005, including
our regional distributors.
    
    The decrease in the average selling price was largely due to growth in sales of time
slots with lower selling prices in our Tier II cities, while the average selling price
of our advertising services in our Tier I cities increased between these two periods.
 In-store network
  Cost of Revenues
 
    
    Net advertising service cost  commercial location network. Our net advertising
services cost for our commercial location network increased substantially from $6.7
million in 2004 to $17.9 million in 2005. This increase was due to the substantial
increase in our advertising service business on our commercial location network between
these two periods. Our location costs increased substantially from $4.6 million in 2004
to $11.3 million in 2005 due to a substantial increase in the number of commercial
locations where we entered into display placement agreements. Our rental fees increased
as a percentage of total revenues between these two periods as a result of (1) a
significant increase in the number of locations in our commercial location network (2)
increased rental payments for the renewal of display placement agreements in the more
desirable locations on our commercial location network offset in part by lower rental
payments paid for new locations in our commercial location network because of a further
reduction in the number of available desirable locations that command more expensive
rental fees. Flat-panel display depreciation costs increased from $774,375 in 2004 to
$3.4 million in 2005, as a result of an increase in the number of flat-panel displays
we own and operate directly from 12,786 as of December 31, 2004 to 45,049 as of
December 31, 2005 and to our
 82




---



##### Table of Contents



acquisition of 14 regional distributors during this period. Other cost of revenues
related to net advertising service cost increased from $1.4 million in 2004 to $3.2
million in 2005 as a result of (1) an increase in the volume of CF cards we purchased
even as the per-unit cost of CF cards decreased and (2) an increase in salary and
benefit expenses for personnel responsible for location relations and display placement
agreements with landlords and property managers and for maintaining and monitoring our
network.
    
    Net advertising service cost  in-store network. We began incurring net advertising
service cost relating to our in-store network in April 2005 when we launched our
in-store network. We incurred $7.4 million in net advertising service cost for our
in-store network in 2005, consisting of location costs and depreciation costs relating
to the installation and maintenance of our in-store network.
    
    Net advertising equipment cost. We incurred net advertising equipment costs of $1.9
million in 2004 compared to $975,747 in 2005, which decrease reflects the fact that we
have acquired many of our fastest-growing regional distributors. We expect net
advertising equipment costs to continue to decrease.
 Gross Profit
 Operating Expenses
 
    
    General and Administrative. General and administrative expenses increased
substantially from $4.0 million in 2004 to $9.1 million in 2005 mainly due to an
increase in the size of our administrative staff and corresponding increases in
expenses for salary and benefits as well as accounting and administrative costs
relating to being a public company. In addition, in connection with the options granted
to our directors, employees and consultants since July 2004, we recorded stock based
compensation of $726,503 in 2005.
    
    Selling and Marketing. Selling and marketing expenses increased substantially from
$3.5 million in 2004 to $9.5 million in 2005 due to increases in marketing and
promotional expenses by our sales force, and in salary and benefits associated with the
expansion of our sales force.
 Income from Operations
 Income Before Income Taxes and Minority Interest
 
    
    Interest Income. Interest income increased from $9,739 in 2004 to $1.8 million in
2005. This interest income was the result of a significant increase in our cash and
cash equivalents balances resulting from cash payments collected from our advertising
operations, sales of our preference shares and proceeds from our initial public
offering.
    
    Other Expense. We recorded other expense of $3,843 in 2004 compared to other
expense of $161,148 in 2005.
    
    Change in Fair Value of Series B Convertible Redeemable Preferred Shares. We
incurred a change in fair value of series B convertible redeemable preferred shares of
$11.7 million in 2004. Upon the
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occurrence of our initial public offering in July 2005, all outstanding preference
shares were converted into ordinary shares, and accordingly we did not incur any change
in fair value of series B convertible redeemable preferred shares in 2005.
    
    Income Taxes. Our income taxes were $907,550 in 2004 compared to $694,453 in 2005,
which decrease resulted from the fact that in 2005, we derived most of our revenue from
Focus Media Advertising Agency, which had no tax liability during this period, whereas
during 2004, we derived most of our revenues from Focus Media Advertisement, which had
tax liability.
    
    Minority Interest. We had minority interest expense of $13,516 and $144,434 in 2004
and 2005, respectively, in connection with the pro rata income attributable to minority
shareholders of four of our subsidiaries.
 Net Income
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Total Revenues
  
    
    the fact that we commenced our advertising network operations in May 2003 and
therefore derived no revenues from the sale of time slots on our advertising network
for the first five months of 2003;
    
    an increase in the number of 30-second-equivalent advertising time slots we sold
from 415 in 2003 to 4,723 in 2004, which increase was slightly offset by a decrease in
the average selling price per time slot sold from $8,088 in 2003 to $5,573 in 2004. The
increase in the number of 30-second-equivalent advertising time slots sold between
these two periods is due primarily to the following factors:
    
    we expanded our network to include an additional 24 cities in 2004, including eleven
cities operated by our company and 23 cities operated by our regional distributors;
    
    we gained an additional seven minutes of advertising cycle time from each of our
regional distributors after we acquired them in 2004; and
    
    we extended the cycle time from nine minutes in 2003 to twelve minutes in 2004 in
our Tier I cities.
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Cost of Revenues
 
    
    Net Advertising Service Cost. Our net advertising services cost increased
substantially from $1.6 million in 2003 to $6.7 million in 2004. This increase was due
to the substantial increase in our advertising service business between these two
periods.
    
    Our location costs increased substantially from $1.2 million in 2003 to $4.6 million
in 2004 due to a substantial increase in the number of commercial locations where we
entered into display placement agreements from 754 in 2003 to 8,866 in 2004. Despite
the increase in our rental expense between these two periods, our rental fees decreased
as a percentage of total revenues in 2004 as a result of (i) the increase in our
advertising services revenue significantly outpacing the increase in rental payments
due to the increase in the number of display placement agreements we entered into and
(ii) lower rental payments paid for new locations because many of the most desirable
and expensive locations had been occupied either by us or our competitors.
    
    Flat-panel display depreciation costs increased from $148,701 in 2003 to $774,375 in
2004, as a result of an increase in the number of flat-panel displays we own and
operate directly from 827 as of December 31, 2003 to 12,786 as of December 31, 2004.
This increase in our depreciation costs was also attributable to our acquisition of
eight regional distributors during this period. Flat-panel display depreciation costs
decreased as a percentage of total revenues, however, because the growth in our
advertising services revenue significantly outpaced our purchase of flat-panel displays
and corresponding depreciation costs.
    
    Other cost of revenues related to net advertising service cost increased
significantly from $257,574 in 2003 to $1.4 million in 2004. This was primarily a
result of (i) an increase in the volume of DVDs we purchased even as the per-unit cost
of DVDs decreased and (ii) an increase in salary and benefit expenses for personnel
responsible for location relations and display placement agreements with landlords and
property managers and for maintaining and monitoring our network. Other cost of
revenues related to net advertising service cost decreased as a percentage of total
revenues between these two periods as a result of the increase in advertising service
revenue significantly outpacing the increase in other cost of revenues.
    
    Net Advertising Equipment Cost. We incurred net advertising equipment costs of
$275,360 in 2003 compared to $1.9 million in 2004, reflecting our cost for flat-panel
displays we sold to our regional distributors. We did not commence our regional
distributor relationships until November 2003 and, accordingly, we recorded
significantly lower costs related to such sales in 2003. We expect net advertising
equipment costs to decrease as our purchase of flat-panel displays for resale to
regional distributors decreases as a result of our ongoing acquisition of our regional
distributors.
 Gross Profit
 Operating Expenses
 
    
    General and Administrative. General and administrative expenses increased
substantially from $1.0 million in 2003 to $4.0 million in 2004 due to an increase in
the size of our administrative staff and corresponding increases in expenses for salary
and benefits of $435,665 as our operations have grown, an increase in our office rental
payments of $292,078 as we established branch offices in a number of new cities, and
increases in public relations expenses, communications and travel expenses and fees for
professional services of $170,898. General and administrative expenses, however,
decreased as a percentage of total revenues from 26.2% to 13.7% due to (i) the overall
growth of our total revenues
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which outpaced these expenses and (ii) our establishment of a dedicated sales force in
2004 and assignment of sales, maintenance and location relationship personnel previously
included within our administrative department, respectively, to our newly established
sales and location relationship and maintenance departments. Our general and
administrative expenses in 2004 include share-based compensation. We incurred
share-based compensation expense of $488,711 in 2004 relating to the issuance of options
to purchase 25,208,200 of our ordinary shares that were granted to certain directors,
officers, employees and individual consultants and advisers in July and August 2004. We
did not incur share-based compensation expense in 2003.
    
    Selling and Marketing. Selling and marketing expenses increased substantially from
$406,634 in 2003 to $3.5 million in 2004 due to increases in marketing and promotional
expenses by our sales force, and in salary and benefits associated with the creation
and expansion of our sales force. Marketing and promotional expenses, for which we
budget 10% of our advertising revenues, increased significantly from $355,398 in 2003
to $2.8 million in 2004 as a result of increased sales and promotional activities
relating to the increase in our advertising services revenue between these two periods.
Salary expenses in connection with our sales force increased from $49,870 in 2003 to
$471,723 in 2004 because, prior to 2004, we did not have a dedicated sales force and
for prior periods all salary expenses of our employees were classified under general
and administrative expenses. Our salary expenses increased slightly as a percentage of
total revenues between these two periods because we hired additional sales staff to
meet the growth in our advertising business.
    
    Goodwill Impairment Loss. We incurred a one-time goodwill impairment loss of
$58,397 in 2004 in connection with our acquisition of Perfect Media. This goodwill
impairment loss represents the difference between the amount we paid to acquire Perfect
Media on September 22, 2004 and the fair market value of Perfect Media. In conducting
our annual impairment test, we undertook a valuation of Perfect Media using the
expected present value of cash flow and the income approach valuation methods, which
resulted in a goodwill impairment loss of $58,397 in 2004, indicating that the value of
Perfect Media was less than what we paid at the time we acquired it.
 Income from Operations
 Income Before Income Taxes and Minority Interest
 
    
    Interest Income. Interest income increased from $1,005 in 2003 to $9,739 in 2004.
This interest income was the result of a significant increase in our cash and cash
equivalents balances resulting from cash payments collected from our advertising
operations and sales of our preference shares.
    
    Change in Fair Value of Derivative Liability Associated with Series B Convertible
Redeemable Preference Shares. We recorded a one-time non-cash charge to reflect the
change in fair value of derivative liability associated with Series B convertible
redeemable preference shares of $11.7 million in 2004, which, under applicable
accounting rules required us to mark to market the conversion feature of our Series B
convertible redeemable preference shares because they may be net settled in cash upon
conversion. We will not incur any such charges commencing January 1, 2005 as the
redemption feature of our Series B convertible redeemable preference shares was removed
prior to December 31, 2004.
    
    Other Income (Expense). We recorded other expense of $9,364 in 2003 compared to
other expense of $3,843 in 2004.
    
    Income Taxes. Our income taxes increased from $481,505 in 2003 to $907,550 in 2004
increased taxable income by certain of our consolidated entities that are subject to
PRC income tax.
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
    
    Minority Interest. We had minority interest income of $8,360 and $13,516 in 2003
and 2004, respectively in connection with the pro rata loss attributable to four
affiliates in which we hold a minority interest.
 Net Income
 B. Liquidity and Capital Resources
 Liquidity and Capital Resources
 Cash Flows and Working Capital
    For the three months endedFor the year ended December 31,
    
    March 31,2003
    
    2004
    
    2005
    
    2005
    
    2006(in thousands of U.S. dollars)Net cash provided by (used in) operating
activities
    
    $
    1,320
    
    
    $
    4,045
    
    
    $
    11,269
    
    
    $
    (877
    )
    
    $
    4,766Net cash used in investing activities
    
    
    (2,706
    )
    
    
    (11,070
    )
    
    
    (117,667
    )
    
    
    (6,678
    )
    
    
    (66,073
    )Net cash provided by financing
activities
    
    
    2,125
    
    
    
    28,978
    
    
    
    119,169
    
    
    
    
    
    
    
    66,091Net increase (decrease) in cash and cash
equivalents
    
    
    701
    
    
    
    21,953
    
    
    
    13,984
    
    
    
    (7,555
    )
    
    
    5,210
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For the three months endedFor the year ended December 31,
    
    March 31,2003
    
    2004
    
    2005
    
    2005
    
    2006(in thousands of U.S. dollars)Cash and cash equivalents at beginning of
period
    
    
    15
    
    
    
    716
    
    
    
    22,669
    
    
    
    22,669
    
    
    
    36,653Cash and cash equivalents at end of
period
    
    $
    716
    
    
    $
    22,669
    
    
    $
    36,653
    
    
    $
    15,114
    
    
    $
    41,863
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Transactions with Related Parties
  Capital Expenditures
  For the year ended December 31,
    
    For the three months ended March 31,2003
    
    2004
    
    2005
    
    2005
    
    2006(in thousands of U.S. dollars)Total capital
expenditures
    
    $
    1,468
    
    
    $
    6,373
    
    
    $
    36,765
    
    
    $
    3,621
    
    
    $
    8,354
  Restricted Net Assets
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C. Research, Development, Patents and Licenses, Etc.
 Research and Development
  Patents and Trademarks
  D. Trend Information
  E. Off-balance Sheet Arrangements
  F. Tabular Disclosure of Contractual Obligations
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Payments due March 31TOTAL
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter(in thousands of U.S. dollars)Display and poster frame
placement agreement
obligations
    
    $
    115,263
    
    
    $
    41,468
    
    
    $
    32,225
    
    
    $
    21,429
    
    
    $
    14,159
    
    
    $
    5,982Office premise lease
obligations
    
    
    3,365
    
    
    
    1,878
    
    
    
    806
    
    
    
    420
    
    
    
    50
    
    
    
    211Short-term debt(1)
    
    
    8,024
    
    
    
    8,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual
obligations
    
    $
    126,652
    
    
    $
    51,370
    
    
    $
    33,031
    
    
    $
    21,849
    
    
    $
    14,209
    
    
    $
    6,193
 
 (1)
    
    Includes interest.   
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
  Name
    
    Age
    
    PositionJason Nanchun Jiang
    
    
    33
    
    
    Chairman of the Board of Directors and
Chief Executive OfficerDavid Feng Yu(1)
    
    
    44
    
    
    Co-chairman of the Board of Directors and
PresidentJimmy Wei Yu
    
    
    33
    
    
    DirectorFumin Zhuo(2)
    
    
    54
    
    
    DirectorNeil Nanpeng Shen(2)
    
    
    38
    
    
    DirectorCharles Chao(2)
    
    
    40
    
    
    DirectorDaqing Qi(3)
    
    
    43
    
    
    DirectorDaniel Mingdong Wu
    
    
    39
    
    
    Chief Financial OfficerDiana Congrong Chen
    
    
    38
    
    
    Chief Marketing OfficerJuly Lilin Wang
    
    
    34
    
    
    Chief Accounting OfficerCindy Yan Chan
    
    
    40
    
    
    Chief Strategy OfficerErgo Xueyuan Liu
    
    
    35
    
    
    Vice President  Commercial Location NetworkAcer Jiawei Zhang
    
    
    29
    
    
    Vice President  In-store Network
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##### Table of Contents



(1)
    
    Mr. Yu was appointed as co-chairman of the board of directors and President of Focus
Media on February 28, 2006 pursuant to the terms of the share purchase agreement between us and
Target Media in connection with our acquisition of Target Media.(2)
    
    Independent director and a member of our audit committee, compensation committee and
nomination committee.(3)
    
    Mr. Qi was appointed as an independent director on February 28, 2006 by the seller parties
of Target Media pursuant to the terms of the share purchase agreement between us and Target Media
in connection with our acquisition of Target Media. Jason Nanchun Jiang
 David Feng Yu
 Jimmy Wei Yu
 Fumin Zhuo
 Neil Nanpeng Shen
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Charles Chao
 Daqing Qi
 Daniel Mingdong Wu
 Diana Congrong Chen
 July Lilin Wang
 Cindy Yan Chan
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##### Table of Contents



Ergo Xueyuan Liu
 Acer Jiawei Zhang
  Duties Of Directors
   
    
    convening shareholders meetings and reporting its work to shareholders at such meetings;
    
    implementing shareholders resolutions;
    
    determining our business plans and investment proposals;
    
    formulating our profit distribution plans and loss recovery plans;
    
    determining our debt and finance policies and proposals for the increase or decrease
in our registered capital and the issuance of debentures;
    
    formulating our major acquisition and disposition plans, and plans for merger,
division or dissolution;
    
    proposing amendments to our amended and restated memorandum and articles of
association; and
    
    exercising any other powers conferred by the shareholders meetings or under our
amended and restated memorandum and articles of association.
 B. Compensation
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Share Option Plans
    
    
    In July and August 2004, we granted:
 
    
    options to purchase 12,181,600 shares, representing 3.7% of our pre-offering diluted
share capital, to certain members of our board of directors and our management group. Each of these
options has an exercise price of $0.24 per share. 8,460,800 of these options vest over three years
while the remaining 3,720,800 options vest over one year.
    
    options to purchase 8,461,800 shares, representing 2.5% of our pre-offering
diluted share capital, to members of our staff. Each of these options has an
exercise price of $0.24 per share. 2,159,800 of these options vest over three years
while the remaining 6,302,000 options vest over one year.
    
    options to purchase 4,564,800 shares, representing 1.4% of our pre-offering
diluted share capital, to third-party consultants and advisors. Each of these
options have an
    
    exercise price of $0.24 per share. 1,310,400 of these options vest over three
years while the remaining 3,254,400 options vest over one year.
  
    
    In January 2005, we granted additional options to
purchase 1,200,000 of our ordinary shares to some of our directors with an exercise price of $0.58 per share. All of these
options vest over three years.
    
    In February 2005, we granted:
 
    
    options to purchase 2,000,000 and 2,100,000 of our ordinary shares with an
exercise price of $0.58 and $0.75, respectively, to certain of our executive
officers and options to purchase 720,000 of our ordinary shares with an exercise
price of $0.75 to certain of our employees. All of these options vest over three
years.
    
    options to purchase 1,240,000 of our ordinary shares to third-party consultants
and advisors with an exercise price of $0.75. All of these options vest over three
years.
 
    
    In July 2005, we granted:
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##### Table of Contents




    
    options to purchase 11,683,630 of our ordinary shares with an exercise price of
$1.70, to certain of our executive officers and employees. All of these options
vest over three years.
    
    options to purchase 100,000 of our ordinary shares to a third-party consultant
with an exercise price of $1.70. All of these options vest over three years.
  
    
    options to purchase 800,000 of our ordinary shares with an exercise price of
$2.60, to certain of our executive officers and employees. All of these options
vest over three years.
    
    options to purchase 4,000,000 of our ordinary shares with an exercise price of
$2.70, to certain of our executive officers and employees. All of these options
vest over three years.
 
    
    In March 2006, we granted options to purchase 3,000,000 of our ordinary shares with
an exercise price of $5.09, to certain of our executive officers, employees and
directors. All of these options vest over three years.
      Number of ordinaryshares to be issued upon
    
    Exercise price perName
    
    exercise of options
    
    ordinary share
    
    Date of grant
    
    Date of expiration(in U.S. dollars)Jason Nanchun Jiang
    
    
    5,882,000
    
    
    $
    0.24
    
    
    August 25, 2004
    
    August 24, 2014David Feng Yu
    
    
    *
    
    
    
    5.09
    
    
    March 10, 2006
    
    March 9, 2016Jimmy Wei Yu
    
    
    *
    
    
    $
    0.24
    
    
    July 5, 2004
    
    July 4, 2014Jimmy Wei Yu
    
    
    *
    
    
    $
    0.24
    
    
    August 25, 2004
    
    August 24, 2014Jimmy Wei Yu
    
    
    *
    
    
    $
    1.70
    
    
    July 13, 2005
    
    July 13, 2015Fuming Zhuo
    
    
    *
    
    
    $
    0.24
    
    
    August 10, 2004
    
    August 9, 2014Neil Nanpeng Shen
    
    
    *
    
    
    $
    0.58
    
    
    January 1, 2005
    
    December 31, 2014Charles Chao
    
    
    *
    
    
    
    2.60
    
    
    November 2, 2005
    
    November 1, 2015Daqing Qi
    
    
    *
    
    
    
    5.09
    
    
    March 10, 2006
    
    March 9, 2016Daniel Mingdong Wu
    
    
    *
    
    
    $
    0.58
    
    
    February 2, 2005
    
    February 1, 2015Daniel Mingdong Wu
    
    
    *
    
    
    $
    0.75
    
    
    February 2, 2005
    
    February 1, 2015
 96




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Number of ordinaryshares to be issued upon
    
    Exercise price perName
    
    exercise of options
    
    ordinary share
    
    Date of grant
    
    Date of expiration(in U.S. dollars)Daniel Mingdong Wu
    
    
    *
    
    
    $
    1.70
    
    
    July 13, 2005
    
    July 13, 2015July Lilin Wang
    
    
    *
    
    
    $
    0.75
    
    
    February 2, 2005
    
    February 1, 2015Ergo Xueyuan Liu
    
    
    *
    
    
    $
    0.24
    
    
    July 5, 2004
    
    July 4, 2014Acer Jiawei Zhang
    
    
    *
    
    
    $
    0.75
    
    
    February 2, 2005
    
    February 1, 2015Diana Congrong Chen
    
    
    *
    
    
    $
    1.70
    
    
    July 13, 2005
    
    July 13, 2015Cindy Yan Chan
    
    
    *
    
    
    $
    1.70
    
    
    July 13, 2005
    
    July 13, 2015
 
 *
    
    Upon exercise of all options granted, would beneficially own less than 1% of our outstanding
ordinary shares, assuming all of our outstanding preference shares are converted into our
ordinary shares. C. Board Practices
  Board Committees
  Audit Committee.
  
    
    recommending to our shareholders, if appropriate, the annual re-appointment of our
independent auditors and pre-approving all auditing and non-auditing services permitted
to be performed by the independent auditors;
    
    annually reviewing an independent auditors report describing the auditing firms
internal quality-control procedures, any material issues raised by the most recent
internal quality control review, or peer review, of the independent auditors and all
relationships between the independent auditors and our company;
    
    setting clear hiring policies for employees or former employees of the independent
auditors;
    
    reviewing with the independent auditors any audit problems or difficulties and
managements response;
    
    reviewing and approving all proposed related-party transactions, as defined in Item
404 of Regulation S-K under the U.S. securities laws;
    
    discussing the annual audited financial statements with management and the
independent auditors;
    
    discussing with management and the independent auditors major issues regarding
accounting principles and financial statement presentations;
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
    
    reviewing reports prepared by management or the independent auditors relating to
significant financial reporting issues and judgments;
    
    reviewing with management and the independent auditors the effect of regulatory and
accounting initiatives, as well as off-balance sheet structures on our financial
statements;
    
    discussing policies with respect to risk assessment and risk management;
    
    reviewing major issues as to the adequacy of our internal controls and any special
audit steps adopted in light of material control deficiencies;
    
    timely reviewing reports from the independent auditors regarding all critical
accounting policies and practices to be used by our company, all alternative treatments
of financial information within U.S. GAAP that have been discussed with management and
all other material written communications between the independent auditors and
management;
    
    establishing procedures for the receipt, retention and treatment of complaints
received from our employees regarding accounting, internal accounting controls or
auditing matters and the confidential, anonymous submission by our employees of
concerns regarding questionable accounting or auditing matters;
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
    
    such other matters that are specifically delegated to our audit committee by our
board of directors from time to time;
    
    meeting separately, periodically, with management, the internal auditors and the
independent auditors; and
    
    reporting regularly to the full board of directors.
 Compensation Committee.
  
    
    determining and recommending the compensation of our chief executive officer;
    
    reviewing and making recommendations to our board of directors regarding our
compensation policies and forms of compensation provided to our directors and officers;
    
    reviewing and determining bonuses for our officers;
    
    reviewing and determining share-based compensation for our directors and officers;
    
    administering our equity incentive plans in accordance with the terms thereof; and
    
    such other matters that are specifically delegated to the compensation committee by
our board of directors from time to time.
 Nominations Committee.
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##### Table of Contents



D. Employees
  Number ofemployees(1)
    
    
    PercentageSales and marketing
    
    
    744
    
    
    
    23
    %Operations
    
    
    1,871
    
    
    
    58
    %Management and administration
    
    
    635
    
    
    
    19
    %Total number of employees
    
    
    3,250
    
    
    
    100
    %
 
 (1)
    
    This excludes employees our regional distributors and agents who are not directly under our
employ.   E. Share Ownership
  
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
  
    
    each person known to us to own beneficially more than 5% of our ordinary shares and
    
    each of our directors and executive officers who beneficially own our ordinary shares.
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Shares beneficially ownedNAME
    
    Number
    
    PercentPrincipal ShareholdersJJ Media Investment Holding Ltd./Jason
Nanchun
Jiang(1)
    
    
    87,635,759
    
    
    
    16.63
    %David Feng Yu
    
    
    35,584,287
    
    
    
    6.80
    %Directors and Executive Officers(2)JJ Media Investment Holding Ltd./Jason Nanchun Jiang(3)
    
    
    87,635,759
    
    
    
    16.63
    %David Feng Yu
    
    
    35,584,287
    
    
    
    6.80
    %Jimmy Wei Yu(4)
    
    
    2,131,925
    
    
    
    *Neil Nanpeng Shen
    
    
    
    
    
    
    *Charles Chao
    
    
    
    
    
    
    Fumin Zhuo
    
    
    
    
    
    
    *Daqing Qi
    
    
    
    
    
    
    *Daniel Mingdong Wu
    
    
    
    
    
    
    *Diana Congrong Chen
    
    
    
    
    
    
    July Lilin Wang
    
    
    
    
    
    
    *Cindy Yan Chan
    
    
    
    
    
    
    Ergo Xueyuan Liu
    
    
    
    
    
    
    *Acer Jiawei Zhang
    
    
    
    
    
    
    *
 
 *
    
    Upon exercise of all options currently exercisable or vesting within 60 days of the
date of this annual
report, would beneficially own less than 1% of our ordinary shares.(1)
    
    Includes 83,959,509 ordinary shares owned by JJ Media Investment Holding Ltd. and
3,151,000 and 525,250 options to purchase our ordinary shares owned by Target Sales
International Limited and Target Management Group Limited. All of these entities are 100%
owned by Jason Nanchun Jiang, our founder, chairman and chief executive officer.(2)
    
    The address of our current directors and executive officers is c/o 28F, Zhao Feng World
Trade Building, 369 Jiangsu Road, Shanghai 200050, China.(3)
    
    See note 1.(4)
    
    Represents 56,250, 496,256, 306,925, 1,237,500 and 78,825 options to purchase our ordinary shares owned by Multimedia Park Venture Capital Ltd., United
Capital Investment Group Limited, Media Investment Consulting Limited, Universal Media
Consulting Limited and Union Enterprises Group Limited, respectively. These entities are
collectively referred to in this annual report as the UCI Entities.Jimmy Wei Yu, one of our directors, has the sole investment and voting power over the
shares owned by the UCI Entities, except with respect to the shares owned by KTB/UCI, for
which Jimmy Wei Yu shares the investment and voting power with Wonho Hong. The address of the
UCI Entities is TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands.
Jimmy Wei Yu disclaims beneficial ownership of the shares owned by the UCI Entities except to
the extent of his pecuniary interest therein.   100




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B. Related Party Transactions
  Agreements among Us, Focus Media Technology, Focus Media Digital, New Focus Media Advertisement,
Focus Media Advertisement and its Subsidiaries
  Transfer of Ownership When Permitted By Law
  Voting Arrangement
  Equity Pledge Agreement
  101




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Equity Trust Agreement
  Trademark License Agreement
  Cooperation Agreements
  Asset Transfer Agreement
  Technology Transfer Agreement
  102




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##### Table of Contents



Advertisement Dissemination Agreement
  Agreements Among Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment,
Framedia Advertisement, Guangdong Framedia and New Structure Advertisement
  Transfer of Ownership When Permitted By Law
  Voting Arrangement
  Equity Pledge Agreement
  103




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Agreements Among Focus Media Advertisement, Focus Media Advertising Agency, Focus Media Wireless
and Dotad Technology
  Transfer of Ownership When Permitted By Law
  Voting Arrangement
  Equity Pledge Agreement
  Other Related Party Transactions
 104




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Shareholders Agreement
  
    
    any of our shareholders representing a majority of the ordinary shares converted
from the Series A convertible redeemable preference shares;
    
    any of our shareholders representing a majority of the ordinary shares converted
from the Series B convertible redeemable preference shares; or
    
    any of our shareholders who are former Target Media shareholders representing 25% of
the ordinary shares issued to them as a group as consideration in connection with our
acquisition of Target Media;
       105




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Loans to Jason Nanchun Jiang and Jimmy Wei Yu
  Loan from Relative of Jason Nanchun Jiang
  Transactions with Everease
  Asset and Business Purchase Agreement
  Transfer Agreement
  106




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Everease Non-Competition Agreement
  Cooperation and Transfer Agreements
  Advertising Services Provided to Everease
  Transactions with Entities Affiliated with Jimmy Wei Yu
   Transactions with Ctrip.com International
  C. Interests of Experts and Counsel
  107




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ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Statements and Other Financial Information
  Legal Proceedings
   Dividend Policy
   B. Significant Changes
  108




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
    
    On January 1, 2006, we completed our acquisition of Framedia, which operates a
network of Framedia. Under the terms of the transaction we acquired Framedia from the
seller parties for $39.6 million in cash and 22,157,003 of our ordinary shares, subject
to an earnout payment and other adjustments.
    
    On January 1, 2006, we entered into a share purchase agreement with Shenzhen E-Times
Advertising Company and Skyvantage Group Limited, which owns and operates an
in-elevator poster frame advertising network placed in commercial and residential
buildings mainly in Shenzhen and Guangzhou, China. Shenzhen E-times poster frame
network will be combined with Framedias existing poster frame networks.
    
    On February 28, 2006, we completed our acquisition of Target Media Holdings, its
affiliated PRC entity Shanghai Target Media and its subsidiary Target Multi-Media, by
purchasing 100% of the shares of Target Media Holdings from its shareholders.
    
    In January and February 2006, we and certain of our pre-IPO shareholders
successfully completed a secondary offering. In this offering, including the
over-allotment option exercised by the underwriters, we sold 1,500,000 ADSs and the
selling shareholders sold an additional 5,915,389 ADSs to the public.
    
    In March 2006, we acquired Dotad Mobile Holdings, which we subsequently renamed
Focus Media Wireless Co., Ltd., or Focus Media Wireless, which is a provider of mobile
phone advertising services delivered to mobile wireless phone users accessed through
wireless service providers in China.
    
    In April 2006, we commenced operation of our new outdoor LED network, which consists
of 5 x 5 LED digital billboards installed on the street-sides in major shopping
districts and other locations with high pedestrian traffic in Shanghai and which
displays commercials on a repeating six-minute cycle.
    
    On June 21, 2006, we and certain of our pre-IPO shareholders successfully completed
a follow-on public offering. In this offering, including the over-allotment option
exercised by the underwriters, we sold 1,600,000 ADSs and the selling shareholders sold
an additional 6,100,000 ADSs to the public.
  
 ITEM 9. THE OFFER AND LISTING
 A. Offer and Listing Details
 Market Price Information for Our American Depositary Shares
  SALE PRICEHIGH
    
    LOWUS$
    
    US$MONTHLY HIGHS AND LOWS2005(from July 13)July (from July 13 until July 31)
    
    
    21.00
    
    
    
    17.60August
    
    
    22.09
    
    
    
    18.25September
    
    
    27.00
    
    
    
    18.25October
    
    
    27.31
    
    
    
    22.50November
    
    
    31.94
    
    
    
    26.00December
    
    
    35.30
    
    
    
    29.70
 109




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SALE PRICEHIGH
    
    LOWUS$
    
    US$2006January
    
    
    53.34
    
    
    
    34.51February
    
    
    56.95
    
    
    
    47.71March
    
    
    59.99
    
    
    
    50.00April
    
    
    65.15
    
    
    
    54.00May
    
    
    69.95
    
    
    
    60.14June (through June 23)
    
    
    68.69
    
    
    
    50.84
  B. Plan of Distribution
  C. Markets
  D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION
 A.
Share Capital
  B. Memorandum and Articles of Association
  110




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C. Material Contracts
  E-Times
  Framedia
  Share Purchase Agreement
   Structure
 Purchase Price
 111




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Representations and Warranties
 Covenants
  Voting Rights
 Indemnification
  Control Over Framedia
  Target Media
  112




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Purchase Price
 Focus Media Options
 Representations and Warranties
 Covenants
  Indemnification
  113




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Focus Media Wireless
  D. Exchange Controls
  114




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
    
    prior to establishing or assuming control of an offshore company for the purpose of
financing that offshore company with assets or equity interests in an onshore
enterprise in the PRC, each PRC resident, whether a natural or legal person, must
complete the overseas investment foreign exchange registration procedures with the
relevant local SAFE branch;
    
    an amendment to the registration with the local SAFE branch is required to be filed
by any PRC resident that directly or indirectly holds interests in that offshore
company upon either (1) the injection of equity interests or assets of an onshore
enterprise to the offshore company, or (2) the completion of any overseas fund raising
by such offshore company; and
    
    an amendment to the registration with the local SAFE branch is also required to be
filed by such PRC resident when there is any material change involving a change in the
capital of the offshore company, such as (1) an increase or decrease in its capital,
(2) a transfer or swap of shares, (3) a merger or division, (4) a long term equity or
debt investment, or (5) the creation of any security interests over the relevant assets
located in China.
    115




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E. Taxation
 Cayman Islands Taxation
       United States Federal Income Taxation
  
    
    a bank;
    
    a dealer in securities or currencies;
    
    a financial institution;
    
    a regulated investment company;
    
    a real estate investment trust;
    
    an insurance company;
    
    a tax-exempt organization;
 116




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
    
    a person holding our ADSs as part of a hedging, integrated or conversion
transaction, a constructive sale or a straddle;
    
    a trader in securities that has elected the mark-to-market method of accounting for your securities;
    
    a person liable for alternative minimum tax;
    
    a person who owns 10% or more of our voting stock;
    
    a partnership or other pass through entity for United States federal income tax purposes; or
    
    a person whose functional currency is not the United States dollar.
 IF YOU ARE CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF OUR ADSS, YOU SHOULD
CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO YOU
IN LIGHT OF YOUR PARTICULAR SITUATION AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
  
    
    an individual citizen or resident of the United States;
    
    a corporation (or other entity treated as a corporation for United States federal
income tax purposes) created or organized in or under the laws of the United States,
any state thereof or the District of Columbia;
    
    an estate the income of which is subject to United States federal income taxation
regardless of its source; or
    
    a trust which either (1) is subject to the primary supervision of a court within the
United States and one or more United States persons have the authority to control all
substantial decisions of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a United States person.
  ADSs
   117




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Taxation of Dividends
    
    
    the fair market value of the rights is less than 15 percent of the fair market value
of the old ADSs at the time of distribution, unless you elect to determine the basis of
the old ADSs and of the rights by allocating the adjusted basis of the old ADSs between
the old ADSs and the rights, or
    
    the rights are not exercised and thus expire.
 Passive Foreign Investment Companies
   
    
    at least 75% of our gross income is passive income, or
 118




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##### Table of Contents




    
    at least 50% of the value (determined on a quarterly basis) of our assets is
attributable to assets that produce or are held for the production of passive income.
    
    
    the excess distribution or gain will be allocated ratably over your holding period
for the ADSs,
    
    the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a PFIC, will be treated as ordinary income, and
    
    the amount allocated to each other year will be subject to tax at the highest tax
rate in effect for that year and the interest charge applicable to underpayments of tax
will be imposed on the resulting tax attributable to each such year.
     119




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Taxation of Capital Gains
  Information Reporting and Backup Withholding
    F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
   120




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http://www.sec.gov
   I. Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Risk
  Inflation
  121




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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 A.
Modifications of Rights
  
    
    any of our shareholders representing a majority of the ordinary shares converted
from the Series A convertible redeemable preference shares;
    
    any of our shareholders representing a majority of the ordinary shares converted
from the Series B convertible redeemable preference shares;
    
    any of our shareholders representing 20% of the ordinary shares converted from the
Series C convertible redeemable preference shares; and
    
    since the closing of our acquisition of Target Media, any of the former Target Media
shareholders representing 25% of the ordinary shares issued to them as a group as
consideration in connection with our acquisition of Target Media;
   E. Use of Proceeds
  
    
    the registration statement on Form F-1 (File No. 333-125785) (the IPO Registration
Statement) for our initial public offering of 7,757,500 ADSs, for an aggregate
offering price of $131,877,500, which
 122




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IPO Registration Statement was declared effective
by the SEC on July 12, 2005 and was terminated after all of the registered securities
were sold;
    
    the registration statements on Form F-1 (File No. 333-131065) (the Follow-on
Registration Statement) and on Form F-1MEF (File No. 333-131312 (the 462(b)
Registration Statement) for our follow-on public offering of 1,500,000 ADSs, for an
aggregate offering price of $65,250,000, which Follow-on Registration Statement was
declared effective by the SEC on January 26, 2006 and which 462(b) Registration
Statement was effective upon filing on January 27, 2006 and each of which was
terminated after all of the registered securities were sold; and
    
    the registration statement on Form F-1 (File No. 333-134714) (the Second Follow-on
Registration Statement) and on Form F-1MEF (File No. 333-135062) (the Second 462(b)
Registration Statement) for our second follow-on offering of 1,600,000 ADSs, for an
aggregate offering price of $86,400,000, which Second Follow-on Registration Statement
was declared effective by the SEC on June 15, 2006 and which Second 462(b) Registration
Statement was effective on filing on June 16, 2006, and each of which was terminated
after all of the securities were sold.
        
 ITEM 15. CONTROLS AND PROCEDURES
  123




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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the year ended December 31,2004
    
    2005$
    
    $(in thousands)Audit Fees (1)
    
    
    300,000
    
    
    
    711,000Audit-related Fees (2)
    
    
    
    
    
    
    Tax Fees (3)
    
    
    14,000
    
    
    
    46,000All Other Fees (4)
    
    
    
    
    
    
    Total
    
    
    314,000
    
    
    
    757,000
 
 (1)
    
    Audit fees consist of fees associated with the annual audit, the reviews of our
quarterly financial statements and statutory audits required internationally. They also
include fees billed for those services that are normally provided by the independent
accountants in connection with statutory and regulatory filings.(2)
    
    Audit-related fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of our financial
statements but not described in footnote (1) above. These services include consultations
concerning [financial accounting and reporting standards and review of capitalization of
retained earnings, financial covenants in loan agreements, and our affiliates financial
information].(3)
    
    Tax fees include fees billed for professional services rendered by Deloitte Touche
Tohmatsu CPA Ltd., primarily in connection with our tax compliance activities.(4)
    
    All other fees comprise fees for all other services provided by Deloitte Touche
Tohmatsu CPA Ltd., other than those services covered in footnotes (1) to (3) above.  
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  124




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PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
 The following is a list of the audited financial statements and report of independent
registered public accounting firm included in this annual report beginning on page F-1.
 PageFinancial Statements of Focus Media Holding LimitedReport of Independent Registered Public Accounting
    
    F-2Consolidated Balance Sheets as of December 31, 2004 and 2005 and as of March 31, 2006 (unaudited)
    
    F-3Consolidated Statements of Operations for each of the years ended December 31, 2003, 2004 and
2005 and for the three month period ended March 31, 2005 (unaudited) and 2006 (unaudited)
    
    F-4Consolidated Statements of Changes in Shareholders Equity (Deficiency) and Comprehensive Income
(Loss) for the years ended December 31, 2003, 2004 and 2005 and for the three month period ended
March 31, 2006 (unaudited)
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005 and
for the three month period ended March 31, 2005 (unaudited) and 2006 (unaudited)
    
    F-6Notes to the Consolidated Financial Statements
    
    F-8
 125




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ITEM 19. EXHIBITS
 ExhibitNumber
    
    Description of Exhibits1.1*
    
    Form of Underwriting Agreement.3.1
    
    Amended and Restated Memorandum and Articles of Association of Focus Media Holding Limited.4.1
    
    Specimen Ordinary Share Certificate.4.2
    
    Amended and Restated Shareholders Agreement of Focus Media Holding Limited, dated December 2,
2004, among Focus Media Holding Limited, its subsidiaries, its ordinary shareholders, its
preferred shareholders and the investors named therein.4.3
    
    Deposit Agreement dated July 18, 2005 among the Registrant, Citibank, N.A. and holders of the
American Depositary Receipts (incorporated by reference to the registration statement on Form F-6
(File No. 333-126011) filed with the Securities and Exchange Commission with respect to American
Depositary Shares representing ordinary shares).5.1*
    
    Form of opinion of Conyers, Dill & Pearman, Cayman Islands special counsel to the registrant,
regarding the validity of the ordinary shares being registered.5.2*
    
    Form of opinion of Global Law Office, counsel as to PRC law to the registrant, regarding the
validity of (i) the corporate structure of Focus Media Technology (Shanghai) Co., Ltd. and
Shanghai Focus Media Advertisement Co., Ltd. and contractual arrangements among Focus Media
Technology (Shanghai) Co., Ltd., Shanghai Focus Media Advertisement Co., Ltd. and its
subsidiaries, Jason Nanchun Jiang and Jimmy Wei Yu, (ii) the corporate structure of Framedia
Investment and Shanghai Framedia Advertisement Development Co., Ltd. and contractual arrangements
among Framedia Investment and Shanghai Framedia Advertisement Development Co., Ltd. and its
subsidiaries, Jason Nanchun Jiang and Jimmy Wei Yu and (iii) the corporate structure of Shanghai
Focus Media Advertisement Co., Ltd., Shanghai Focus Media Advertising Agency Co., Ltd., Beijing
Dotad Technology Co., Ltd., Beijing Focus Media Wireless Technology Co., Ltd., Jason Nanchun Jiang
and Jimmy Wei Yu.8.1*
    
    Form of opinion of Conyers, Dill & Pearman, special Cayman Islands tax counsel to the registrant,
regarding tax matters.8.2*
    
    Form of opinion of Simpson Thacher & Bartlett LLP regarding United States federal taxation matters.10.1
    
    Rules of the 2003 Employee Share Option Scheme and form of grant letter.10.2
    
    Technology License and Service Agreement, dated March 28, 2005, by and among Focus Media Digital
Information Technology (Shanghai) Co., Ltd., Shanghai Focus Media Advertisements Co., Ltd. and the
subsidiaries of Shanghai Focus Media Advertisement Co., Ltd.10.3
    
    Business Cooperation Agreement, dated March 28, 2005, by and among Shanghai Focus Media
Advertisement Co., Ltd., Shanghai Focus Media Advertising Agency Co., Ltd. and the subsidiaries of
Shanghai Focus Media Advertisement Co., Ltd.10.4
    
    Equity Pledge Agreement, dated March 28, 2005, by and among Jason Nanchun Jiang, Jimmy Wei Yu,
Shanghai Focus Media Advertisement Co., Ltd., Focus Media Technology (Shanghai) Co., Ltd., Focus
Media Digital Information Technology (Shanghai) Co., Ltd. and the subsidiaries of Shanghai Focus
Media Advertisement Co., Ltd.10.5
    
    Call Option Agreement, dated March 28, 2005, among Jason Nanchun Jiang, Jimmy Wei Yu, Shanghai
Focus Media Advertisement Co., Ltd. and Focus Media Technology (Shanghai) Co., Ltd.10.6
    
    Shareholders Voting Rights Proxy Agreement, dated March 28, 2005, among Jason Nanchun Jiang,
Jimmy Wei Yu, Shanghai Focus Media Advertisement Co., Ltd., Focus Media Technology (Shanghai) Co.,
Ltd. and the subsidiaries of Shanghai Focus Media Advertisement Co., Ltd.10.7
    
    Trust Agreement, dated March 28, 2005, by and between Shanghai Focus Media Advertisement Co., Ltd.
and Focus Media Technology (Shanghai) Co., Ltd.10.8
    
    Trademark License Agreement, dated March 28, 2005, by and among Focus Media Technology (Shanghai)
Co., Ltd., Shanghai Focus Media Advertisement Co., Ltd. and its subsidiaries.10.9
    
    Loan Agreement, dated June 10, 2003, among Focus Media Holding Limited, Jason Nanchun Jiang, Jimmy
Wei Yu, Yuanzhe Fu, Yibing Zhou and Yiqing Hou.10.10
    
    Loan Agreement, dated March 28, 2005, by and between Jason Nanchun Jiang and Focus Media
Technology (Shanghai) Co., Ltd.10.11
    
    Loan Agreement, dated March 28, 2005, by and among Jimmy Wei Yu, Focus Media Technology (Shanghai)
Co., Ltd. and Shanghai Focus Media Advertisement Co., Ltd.10.12
    
    Form of Employment Agreement of Focus Media Technology (Shanghai) Co., Ltd.
 126




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.13
    
    Manager Non-Competition Agreement entered into by Focus Media Holding Limited and Jason Nanchun
Jiang on November 29, 2004.10.14
    
    Technology Transfer Agreement entered into by Jimmy Wei Yu and Focus Media Digital Information
(Shanghai) Co., Ltd., dated November 1, 2004.10.15
    
    Asset and Business Acquisition Agreement between Shanghai Everease Communication Company and
Shanghai Focus Media Advertisement Co., Ltd. dated July 1, 2003.10.16
    
    Everease Non-competition Agreement between Focus Media Holding Limited and Shanghai Everease
Communication Company, dated as of November 2004.10.17
    
    Sales Contract between Shanghai Everease Communication Company and Shanghai Focus Media
Advertisement Co., Ltd., dated May 2003.10.18
    
    Project Cooperation Framework Agreement between Shanghai Everease Communication Company and
Beijing Suodi Advertising Co., Ltd., dated February, April and June 2003.10.19
    
    Transfer Agreement on Project Cooperation Framework Agreement between Shanghai Focus Media
Advertisement Co., Ltd. and Beijing Suodi Advertising Co., Ltd., dated August 28, 2003.10.20
    
    Business Agency Agreement between Shanghai On-Target Advertising Co., Ltd. and Shanghai Focus
Media Advertisement Co., Ltd.10.21
    
    Agreement between Shanghai On-Target Advertising Co., Ltd., Jimmy Wei Yu, Shanghai Focus Media
Advertisement Co., Ltd., Union Enterprise Holding Co., Ltd. and Shenlong Lin, dated October 15,
2003.10.22
    
    Acknowledgement Letter entered into as of March 28, 2005 by and among Shanghai Focus Media
Advertisement Co., Ltd., Focus Media Technology (Shanghai) Co., Ltd., Focus Media Digital
Information Technology (Shanghai) Co., Ltd. and subsidiaries of Shanghai Focus Media Advertisement
Co., Ltd.10.23
    
    Share Option Plan 2005.10.24
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Fuzhou Fukesi Advertisement Co., Ltd.10.25
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Hefei Fukesi Advertisement Co., Ltd.10.26
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated January 13, 2006, of
Shanghai Focus Media Co., Ltd. and Hefei Fukesi Advertisement Co., Ltd.10.27
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Shenyang Focus Media Advertisement Co., Ltd.10.28
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Shenzhen Bianjie Building Advertisement Co., Ltd.10.29
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated January 13, 2006, of
Shanghai Focus Media Co., Ltd. and Shenzhen Bianjie Building Advertisement Co., Ltd.10.30
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Fuzhou Fukesi Advertisement Co., Ltd.10.31
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Hefei Fukesi Advertisement Co., Ltd.10.32
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated January 13, 2006, of
Shanghai Focus Media Co., Ltd. and Hefei Fukesi Advertisement Co., Ltd.10.33
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Shenyang Focus Media Advertisement Co., Ltd.10.34
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated January 13, 2006, of
Shanghai Focus Media Advertisement Co., Ltd. and Shenzhen Bianjie Building Advertisement Co., Ltd.10.35
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated January 13, 2006, of
Shanghai Focus Media Co., Ltd. and Shenzhen Bianjie Building Advertisement Co., Ltd.10.36
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights Proxy Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and Fuzhou Fukesi Advertisement
Co., Ltd.10.37
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights Proxy Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and Hefei Fukesi Advertisement
Co., Ltd.10.38
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights Proxy Agreement, dated
January 13, 2006, of Shanghai Focus Media Co., Ltd. and Hefei Fukesi Advertisement Co., Ltd.10.39
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights Proxy Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and Shenyang Focus Media
Advertisement Co., Ltd.
 127




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.40
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights Proxy Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and Shenzhen Bianjie Building
Advertisement Co., Ltd.10.41
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights Proxy Agreement, dated
January 13, 2006, of Shanghai Focus Media Co., Ltd. and Shenzhen Bianjie Building Advertisement
Co., Ltd.10.42
    
    Equity Pledge Agreement, dated January 13, 2006, by and among Shanghai Focus Media Advertisement
Co., Ltd., Shanghai Focus Media Co., Ltd., Shanghai Framedia Investment Consultancy Co., Ltd. and
the Local Advertisement Companies named therein.10.43
    
    Call Option Agreement, dated January 13, 2006, by and among Shanghai Focus Media Advertisement
Co., Ltd., Shanghai Focus Media Co., Ltd., Shanghai Framedia Investment Consultancy Co., Ltd. and
the Local Advertisement Companies named therein.10.44
    
    Shareholders Voting Rights Proxy Agreement, dated January 13, 2006, by and among Shanghai Focus
Media Advertisement Co., Ltd., Shanghai Focus Media Co., Ltd., Shanghai Framedia Investment
Consultancy Co., Ltd. and the Local Advertisement Companies named therein.10.45
    
    Equity Pledge Agreement, dated January 13, 2006, by and among Lei Liu, Yong Shi, Shanghai Framedia
Investment Consultancy Co., Ltd. and Guangdong Century Shenghuo Advertisement Co., Ltd.10.46
    
    Call Option Agreement, dated January 13, 2006, by and among Lei Liu, Yong Shi, Shanghai Framedia
Investment Consultancy Co., Ltd. and Guangdong Century Shenghuo Advertisement Co., Ltd.10.47
    
    Shareholders Voting Rights Proxy Agreement, dated January 13, 2006, by and among Lei Liu, Yong
Shi, Shanghai Framedia Investment Consultancy Co., Ltd. and Guangdong Century Shenghuo
Advertisement Co., Ltd.10.48
    
    Share Purchase Agreement, dated October 15, 2005, as amended and supplemented, among Focus Media
Holding Limited, Infoachieve Limited, Total Team Investments Limited and the other Infoachieve
parties named therein.10.49
    
    Share Purchase Agreement, dated as of January 7, 2006, among Focus Media Holding Limited, Target
Media Holdings Limited and Its Shareholders.10.50
    
    Asset Transfer Agreement, dated December 31, 2005, by and between Focus Media Digital Information
Technology (Shanghai) Co., Ltd. and Shanghai New Focus Media Advertisement Co., Ltd.10.51*
    
    Share Purchase Agreement, dated March 7, 2006, by and among Focus Media Holding Limited and Dotad
Wireless Holdings Co., Ltd.10.52*
    
    Equity Pledge Agreement, dated May 22, 2006, by and among Shanghai Focus Media Advertisement Co.,
Ltd., Shanghai Focus Media Advertising Agency Co., Ltd., Beijing Dotad Technology Co., Ltd and
Beijing Focus Media Wireless Co., Ltd.10.53*
    
    Call Option Agreement, dated May 22, 2006, by and among Shanghai Focus Media Advertisement Co.,
Ltd., Shanghai Focus Media Advertising Agency Co., Ltd., Beijing Dotad Technology Co., Ltd and
Beijing Focus Media Wireless Co., Ltd.10.54*
    
    Shareholders Voting Rights Proxy Agreement, dated May 22, 2006, by and among Shanghai Focus Media
Advertisement Co., Ltd., Shanghai Focus Media Advertising Agency Co., Ltd., Beijing Dotad
Technology Co., Ltd and Beijing Focus Media Wireless Co., Ltd.10.55*
    
    Equity Pledge Agreement, dated May 22, 2006, by and among Shanghai Focus Media Advertisement Co.,
Ltd., Shanghai Focus Media Advertising Agency Co., Ltd., Shanghai Framedia Investment Consulting
Co., Ltd. and Guandong Shiji Shenghuo Advertisement Co., Ltd.10.56*
    
    Call Option Agreement, dated May 22, 2006, by and among Shanghai Focus Media Advertisement Co.,
Ltd., Shanghai Focus Media Advertising Agency Co., Ltd., Shanghai Framedia Investment Consulting
Co., Ltd. and Guandong Shiji Shenghuo Advertisement Co., Ltd.10.57*
    
    Shareholders Voting Rights Proxy Agreement, dated May 22, 2006, by and among Shanghai Focus Media
Advertisement Co., Ltd., Shanghai Focus Media Advertising Agency Co., Ltd., Shanghai Framedia
Investment Consulting Co., Ltd. and Guandong Shiji Shenghuo Advertisement Co., Ltd.10.58*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shanghai New Focus Media Advertisement Co., Ltd.10.59*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shanghai
New Focus Media Advertisement Co., Ltd.10.60*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shanghai New Focus Media Advertisement Co., Ltd.
 128




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.61*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shanghai New Focus Media Advertising Agency Co., Ltd.10.62*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shanghai
New Focus Media Advertising Agency Co., Ltd.10.63*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shanghai New Focus Media Advertising Agency Co., Ltd.10.64*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shanghai Target Media Co., Ltd.10.65*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shanghai
Target Media Co., Ltd.10.66*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shanghai Target Media Co., Ltd.10.67*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Dongguan Focus Media Advertisement Co., Ltd.10.68*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Dongguan
Focus Media Advertisement Co., Ltd.10.69*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Dongguan Focus Media Advertisement Co., Ltd.10.70*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of Fuzhou
Fukesi Advertising Co., Ltd.10.71*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Fuzhou
Fukesi Advertising Co., Ltd.10.72*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Fuzhou Fukesi Advertising Co., Ltd.10.73*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of Hefei
Fukesi Advertising Co., Ltd.10.74*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Hefei
Fukesi Advertising Co., Ltd.10.75*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Hefei Fukesi Advertising Co., Ltd.10.76*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shanghai On-Target Advertisement Co., Ltd.10.77*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shanghai
On-Target Advertisement Co., Ltd.10.78*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shanghai On-Target Advertisement Co., Ltd.10.79*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shanghai Jiefang Focus Media Advertisement Co., Ltd.10.80*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shanghai
Jiefang Focus Media Advertisement Co., Ltd.10.81*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shanghai Jiefang Focus Media Advertisement Co., Ltd.10.82*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shanghai Perfect Media Advertising Agency Co., Ltd.10.83*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shanghai
Perfect Media Advertising Agency Co., Ltd.10.84*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shanghai Perfect Media Advertising Agency Co., Ltd.10.85*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shenzhen E-Time Commercial Consulting Co., Ltd.10.86*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shenzhen
E-Time Commercial Consulting Co., Ltd.10.87*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shenzhen E-Time Commercial Consulting Co., Ltd.10.88*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shenzhen Bianjie Building Advertisement Co., Ltd.
 129




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.89*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shenzhen
Bianjie Building Advertisement Co., Ltd.10.90*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shenzhen Bianjie Building Advertisement Co., Ltd.10.91*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated May 22, 2006, of
Shenyang Focus Media Advertising Co., Ltd.10.92*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated May 22, 2006, of Shenyang
Focus Media Advertising Co., Ltd.10.93*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights Proxy Agreement, dated May
22, 2006, of Shenyang Focus Media Advertising Co., Ltd.10.94*
    
    Cooperation Agreement, dated May 22, 2006, by and among Shanghai Focus Media Advertisement Co.
Ltd. and its local advertising subsidiaries named therein and Shanghai New Focus Media
Advertisement Co. Ltd.10.95*
    
    Technology Transfer Agreement, dated as of May 22, 2006, by and between Focus Media Digital
Information Technology (Shanghai) Co., Ltd. and Shanghai New Focus Media Advertisement Co., Ltd.10.96*
    
    Advertisement Dissemination Agreement, dated May 22, 2006, by and between Shanghai Focus Media
Advertising Agency Co., Ltd. and Shanghai New Focus Media Advertisement Co., Ltd.12.1
    
    Certificate of Chief Executive
Officer.12.2
    
    Certificate of Chief Financial
Officer.13.1
    
    Certification of Periodic Financial
Report.13.2
    
    Certification of Periodic Financial Report.15.1
    
    Consent of Conyers, Dill & Pearman.15.2
    
    Consent of Global Law Office.21.1*
    
    List of Subsidiaries.23.4*
    
    Consent of Simpson Thacher & Bartlett LLP (included in Exhibit 8.2).
 
 *
    
    Previously filed with the Registrants registration statement on Form F-1 (File No. 333-134714).
    
    Previously filed with the Registrants registration statement on Form F-1 (File No. 333-125785).
    
    Previously filed with the Registrants registration statement on Form F-1 (File No. 333-131065). 130




---



##### Table of Contents

\

SIGNATURES
  Focus Media Holding LimitedBy:
    
    /s/ Jason Nanchun JiangName:
    
    Jason Nanchun JiangTitle:
    
    Chairman and Chief Executive Officer
  131




---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

|                                                                                                                                                                                                                            |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                                                                            |  | Page |    
|                                                                                                                                                                                                                            |  |      |    
|Report of
    Independent Registered Public Accounting Firm                                                                                                                                                                 |  |      | F-2 | 
|Consolidated
    balance sheets as of December 31, 2003, 2004 and 2005 and
    as of March 31, 2006 (unaudited)                                                                                                             |  |      | F-3 | 
|Consolidated
    statements of operations for the years ended December 31,
    2003, 2004 and 2005 and for the three months ended
    March 31, 2005 (unaudited) and 2006 (unaudited)                                       |  |      | F-4 | 
|Consolidated
    statements of shareholders equity (deficiency) and
    comprehensive income (loss) for the years ended
    December 31, 2003, 2004 and 2005 and for the three months
    ended March 31, 2006 (unaudited) |  |      | F-5 | 
|Consolidated
    statements of cash flows for the years ended December 31,
    2003, 2004 and 2005 and for the three months ended
    March 31, 2005 (unaudited) and 2006 (unaudited)                                       |  |      | F-6 | 
|Notes to the
    consolidated financial statements                                                                                                                                                                          |  |      | F-8 | 

F-1



---



##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

FOCUS MEDIA HOLDING LIMITED

We have audited the accompanying consolidated balance sheets of
Focus Media Holding Limited and its subsidiaries (the
Group) as of December 31, 2003 and 2004 and
2005 and the related consolidated statements of operations,
shareholders equity (deficiency) and comprehensive
income (loss), and cash flows for the years ended
December 31, 2003 and 2004 and 2005, and related financial
schedule included in Schedule 1. These financial statements
and related financial statement schedule are the responsibility
of the Groups management. Our responsibility is to express
an opinion on these consolidated financial statements and
related financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Group is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Groups internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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, such consolidated financial statements present
fairly, in all material respects, the financial position of
Focus Media Holding Limited and its subsidiaries as of
December 31, 2003 and 2004 and 2005 and the results of its
operations and its cash flows for the above stated years in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set
forth therein.

/s/ Deloitte Touche Tohmatsu CPA Ltd.



Shanghai, China

June 2, 2006

F-2



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED





CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |             |  |   |             |             | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | --------- | --------- | --------- | - | ----------- | ----------- |  | - | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           | December 31,                         |           |           |          
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           | March 31, |  
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           | 2003                                 |           |           | 2004      |   |             | 2005        |  |   | 2006        |            
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             | (Unaudited) | 
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           | (In U.S. Dollars, except share data) |          
|Assets                                                                                                                                                                                                                                                                                                                                                            
|Current assets:                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |             |  |   |             |            
|                                                                                                                                                                                                                                                                                                                                                                   | Cash and cash equivalents                                                                                                                                                 |                                      | $         | 716,388   |           |   | $           | 22,669,106  |  |   | $           | 36,653,180  |  |   | $           | 41,862,726  | 
|                                                                                                                                                                                                                                                                                                                                                                   | Investment in available-for-sale
    securities                                                                                                                           |                                      |           |          |           |   |             |            |  |   |             | 34,835,850  |  |   |             | 34,792,100  | 
|                                                                                                                                                                                                                                                                                                                                                                   | Accounts receivable, net of
    allowance for doubtful accounts of $nil, $173,837, $396,657 and
    $782,210 in 2003, 2004, 2005 and as of March 31, 2006
    (unaudited) |                                      |           | 1,409,461 |           |   |             | 6,619,949   |  |   |             | 22,235,408  |  |   |             | 37,250,248  | 
|                                                                                                                                                                                                                                                                                                                                                                   | Inventories                                                                                                                                                               |                                      |           | 90,950    |           |   |             | 1,243,140   |  |   |             | 479,529     |  |   |             | 605,290     | 
|                                                                                                                                                                                                                                                                                                                                                                   | Prepaid expenses and other current
    assets                                                                                                                             |                                      |           | 148,906   |           |   |             | 2,109,468   |  |   |             | 45,363,833  |  |   |             | 7,810,070   | 
|                                                                                                                                                                                                                                                                                                                                                                   | Amounts due from related parties                                                                                                                                          |                                      |           | 252,576   |           |   |             | 2,740,032   |  |   |             | 2,073,329   |  |   |             | 2,982,256   | 
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            
|                                                                                                                                                                                                                                                                                                                                                                   | Total current assets                                                                                                                                                      |                                      |           | 2,618,281 |           |   |             | 35,381,695  |  |   |             | 141,641,129 |  |   |             | 125,302,690 | 
|Rental deposits                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                           |                                      | 570,904   |           |           |   | 1,606,378   |             |  |   | 11,819,095  |             |  |   | 13,245,315  |            
|Equipment, net                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                           |                                      | 1,978,399 |           |           |   | 9,197,143   |             |  |   | 43,694,888  |             |  |   | 70,993,193  |            
|Acquired intangible assets, net                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                           |                                      |          |           |           |   | 708,306     |             |  |   | 1,157,920   |             |  |   | 30,881,195  |            
|Goodwill                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                           |                                      |          |           |           |   | 9,058,086   |             |  |   | 13,298,072  |             |  |   | 406,790,780 |            
|Long-term investments                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                           |                                      | 12,082    |           |           |   | 12,088      |             |  |   |            |             |  |   | 1,117,843   |            
|Other long term assets                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                           |                                      |          |           |           |   |            |             |  |   |            |             |  |   | 220,553     |            
|Deferred tax assets                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                           |                                      | 126,769   |           |           |   | 450,963     |             |  |   | 742,914     |             |  |   | 193,506     |            
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            
|Total assets                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                           | $                                    | 5,306,435 |           |           | $ | 56,414,659  |             |  | $ | 212,354,018 |             |  | $ | 648,745,075 |            
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            
|                                                                                                                                                                                                                                                                                                                                                                  
|Liabilities, mezzanine equity
    and shareholders equity (deficiency)                                                                                                                                                                                                                                                                                           
|Current liabilities:                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |             |  |   |             |            
|                                                                                                                                                                                                                                                                                                                                                                   | Short-term bank loans                                                                                                                                                     |                                      | $         |          |           |   | $           |            |  |   | $           | 991,301     |  |   | $           | 1,247,349   | 
|                                                                                                                                                                                                                                                                                                                                                                   | Other short-term loans                                                                                                                                                    |                                      |           |          |           |   |             |            |  |   |             |            |  |   |             | 6,776,335   | 
|                                                                                                                                                                                                                                                                                                                                                                   | Accounts payable                                                                                                                                                          |                                      |           | 436,244   |           |   |             | 607,091     |  |   |             | 5,847,530   |  |   |             | 8,279,605   | 
|                                                                                                                                                                                                                                                                                                                                                                   | Accrued expenses and other current
    liabilities                                                                                                                        |                                      |           | 561,234   |           |   |             | 6,591,435   |  |   |             | 11,746,902  |  |   |             | 71,414,099  | 
|                                                                                                                                                                                                                                                                                                                                                                   | Amounts due to related parties                                                                                                                                            |                                      |           | 2,013,898 |           |   |             |            |  |   |             |            |  |   |             | 2,496,212   | 
|                                                                                                                                                                                                                                                                                                                                                                   | Short-term loan from a shareholder                                                                                                                                        |                                      |           | 500,000   |           |   |             |            |  |   |             |            |  |   |             |            | 
|                                                                                                                                                                                                                                                                                                                                                                   | Income taxes payable                                                                                                                                                      |                                      |           | 608,275   |           |   |             | 1,435,486   |  |   |             | 2,108,071   |  |   |             | 2,188,412   | 
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            
|                                                                                                                                                                                                                                                                                                                                                                   | Total current
    liabilities                                                                                                                                             |                                      |           | 4,119,651 |           |   |             | 8,634,012   |  |   |             | 20,693,804  |  |   |             | 92,402,012  | 
|Commitments (Note 20)                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |             |  |   |             |            
|                                                                                                                                                                                                                                                                                                                                                                   | Minority interest                                                                                                                                                         |                                      |           | 3,722     |           |   |             | 80,692      |  |   |             | 245,563     |  |   |             | 459,758     | 
|Mezzanine equity                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |             |  |   |             |            
|Series A convertible
    redeemable preference shares ($0.00005 par value;
    41,967,400 shares authorized and nil, 41,967,400, nil and
    nil shares issued and outstanding in 2003, 2004, 2005 and as of
    March 31, 2006 (unaudited), respectively)                                                                                                         |                                                                                                                                                                           |                                      |          |           |           |   | 6,295,110   |             |  |   |            |             |  |   |            |            
|Series B convertible
    redeemable preference shares ($0.00005 par value;
    48,191,600 shares authorized and nil, 48,191,600, nil and
    nil shares issued and outstanding in 2003, 2004, 2005 and as of
    March 31, 2006 (unaudited), respectively)                                                                                                         |                                                                                                                                                                           |                                      |          |           |           |   | 12,062,696  |             |  |   |            |             |  |   |            |            
|Series C-1 convertible
    redeemable preference shares ($0.00005 par value;
    34,054,000 shares authorized and nil, 34,054,000, nil and
    nil shares issued and outstanding in 2003, 2004, 2005 and as of
    March 31, 2006 (unaudited) , respectively)                                                                                                      |                                                                                                                                                                           |                                      |          |           |           |   | 17,500,350  |             |  |   |            |             |  |   |            |            
|Series C-2 convertible
    redeemable preference shares ($0.00005 par value;
    34,053,400 shares authorized and nil, 34,053,400, nil and
    nil shares issued and outstanding in 2003, 2004, 2005 and as of
    March 31, 2006 (unaudited), respectively)                                                                                                       |                                                                                                                                                                           |                                      |          |           |           |   | 17,415,000  |             |  |   |            |             |  |   |            |            
|Shareholders equity
    (deficiency)                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |             |  |   |             |            
|Ordinary shares ($0.00005 par
    value; 1,000,000,000, 885,516,600 ,19,800,000,000 and
    19,800,000,000 shares authorized in 2003, 2004, 2005 and as
    of March 31, 2006 (unaudited); 200,000,000, 142,464,600,
    378,306,000 and 506,457,633 shares issued and outstanding
    in 2003, 2004, 2005 and as of March 31, 2006 (unaudited),
    respectively) |                                                                                                                                                                           |                                      | 10,000    |           |           |   | 7,124       |             |  |   | 18,916      |             |  |   | 25,324      |            
|Additional paid-in capital                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                           |                                      | 1,188,817 |           |           |   | 5,981,154   |             |  |   | 177,419,761 |             |  |   | 530,088,836 |            
|Deferred share based compensation                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                           |                                      |          |           |           |   | (969,959    | )           |  |   | (246,569    | )           |  |   |            |            
|Retained earnings (accumulated
    deficit)                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                           |                                      | 26,000    |           |           |   | (10,550,414 | )           |  |   | 12,997,237  |             |  |   | 22,430,006  |            
|Accumulated other comprehensive
    income (loss)                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                           |                                      | (41,755   | )         |           |   | (41,106     | )           |  |   | 1,225,306   |             |  |   | 3,339,139   |            
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            
|Total shareholders equity
    (deficiency)                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                           | $                                    | 1,183,062 |           |           | $ | (5,573,201  | )           |  | $ | 191,414,651 |             |  | $ | 555,883,305 |            
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            
|Total liabilities, mezzanine
    equity and shareholders equity (deficiency)                                                                                                                                                                                                                                                                                      |                                                                                                                                                                           | $                                    | 5,306,435 |           |           | $ | 56,414,659  |             |  | $ | 212,354,018 |             |  | $ | 648,745,075 |            
|                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                           |                                      |           |           |           |   |             |             |  |   |             |            



F-3



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED





CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |             |           |  |   |             |            | 
|---------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ----------- | ------------------ | --------- | - | ----------- | ----------- |  | - | ----------- | ---------- |  | ---- | ----------- | --------- |  | - | ----------- | ---------- | 
|                                                                                                                       |                            |                                      |             | Three months ended |          
|                                                                                                                       |                            | For the years ended December 31,     |             |                    | March 31, |  
|                                                                                                                       |                            |                                      |             |                    |           |  
|                                                                                                                       |                            | 2003                                 |             |                    | 2004      |   |             | 2005        |  |   | 2005        |            |  | 2006 |            
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|                                                                                                                       |                            |                                      |             |                    |           |   |             | (Unaudited) |  |   | (Unaudited) |           
|                                                                                                                       |                            | (In U.S. Dollars, except share data) |            
|Net revenues:                                                                                                          |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |             |           |  |   |             |           
|                                                                                                                       |  Commercial
    Locations |                                      | $           | 3,368,557          |           |   | $           | 26,321,179  |  |   | $           | 61,434,760 |  |      | $           | 9,431,521 |  |   | $           | 21,472,376 | 
|                                                                                                                       |  In-store
    Network     |                                      |             |                   |           |   |             |            |  |   |             | 5,468,919  |  |      |             |          |  |   |             | 5,293,091  | 
|                                                                                                                       |  Poster Frame
    Network |                                      |             |                   |           |   |             |            |  |   |             |           |  |      |             |          |  |   |             | 6,067,314  | 
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Advertising Service Revenue                                                                                            |                            |                                      | 3,368,557   |                    |           |   | 26,321,179  |             |  |   | 66,903,679  |            |  |      | 9,431,521   |           |  |   | 32,832,781  |           
|Advertising Equipment Revenue                                                                                          |                            |                                      | 389,282     |                    |           |   | 2,888,720   |             |  |   | 1,325,234   |            |  |      | 142,163     |           |  |   | 304,066     |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Total net revenues                                                                                                     |                            |                                      | 3,757,839   |                    |           |   | 29,209,899  |             |  |   | 68,228,913  |            |  |      | 9,573,684   |           |  |   | 33,136,847  |           
|Cost of revenues:                                                                                                      |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |             |           |  |   |             |           
|                                                                                                                       |  Commercial
    locations |                                      |             | 1,565,887          |           |   |             | 6,745,522   |  |   |             | 17,943,318 |  |      |             | 2,902,606 |  |   |             | 8,035,150  | 
|                                                                                                                       |  In-store
    network     |                                      |             |                   |           |   |             |            |  |   |             | 7,422,641  |  |      |             | 286,004   |  |   |             | 3,973,244  | 
|                                                                                                                       |  Poster Frame
    Network |                                      |             |                   |           |   |             |            |  |   |             |           |  |      |             |          |  |   |             | 2,397,268  | 
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Advertising Service Cost                                                                                               |                            |                                      | 1,565,887   |                    |           |   | 6,745,522   |             |  |   | 25,365,959  |            |  |      | 3,188,610   |           |  |   | 14,405,662  |           
|Advertising Equipment Cost                                                                                             |                            |                                      | 275,360     |                    |           |   | 1,934,331   |             |  |   | 975,747     |            |  |      | 70,571      |           |  |   | 231,814     |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Total cost of revenues                                                                                                 |                            |                                      | 1,841,247   |                    |           |   | 8,679,853   |             |  |   | 26,341,706  |            |  |      | 3,259,181   |           |  |   | 14,637,476  |           
|Gross profit                                                                                                           |                            |                                      | 1,916,592   |                    |           |   | 20,530,046  |             |  |   | 41,887,207  |            |  |      | 6,314,503   |           |  |   | 18,499,371  |           
|Operating expenses:                                                                                                    |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |             |           |  |   |             |           
|General and administrative                                                                                             |                            |                                      | 984,848     |                    |           |   | 3,987,496   |             |  |   | 9,119,846   |            |  |      | 1,881,111   |           |  |   | 4,395,342   |           
|Selling and marketing                                                                                                  |                            |                                      | 406,634     |                    |           |   | 3,453,533   |             |  |   | 9,543,748   |            |  |      | 1,491,644   |           |  |   | 4,057,199   |           
|Amortization of acquired intangible
    assets                                                                         |                            |                                      |            |                    |           |   | 77,443      |             |  |   | 437,837     |            |  |      | 67,352      |           |  |   | 999,178     |           
|Goodwill impairment loss                                                                                               |                            |                                      |            |                    |           |   | 58,397      |             |  |   |            |            |  |      |            |           |  |   |            |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Total operating
    expenses                                                                                           |                            |                                      | 1,391,482   |                    |           |   | 7,576,869   |             |  |   | 19,101,431  |            |  |      | 3,440,107   |           |  |   | 9,451,719   |           
|Income from operations                                                                                                 |                            |                                      | 525,110     |                    |           |   | 12,953,177  |             |  |   | 22,785,776  |            |  |      | 2,874,396   |           |  |   | 9,047,652   |           
|Interest income                                                                                                        |                            |                                      | 1,005       |                    |           |   | 9,739       |             |  |   | 1,761,909   |            |  |      | 10,985      |           |  |   | 915,952     |           
|Other income (expenses), net                                                                                           |                            |                                      | (9,364      | )                  |           |   | (3,843      | )           |  |   | (161,148    | )          |  |      | 5,315       |           |  |   | 46,149      |           
|Change in fair value of derivative
    liability associated with Series B convertible redeemable
    preference shares |                            |                                      |            |                    |           |   | (11,692,287 | )           |  |   |            |            |  |      |            |           |  |   |            |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Income before income taxes and
    minority interest                                                                   |                            |                                      | 516,751     |                    |           |   | 1,266,786   |             |  |   | 24,386,537  |            |  |      | 2,890,696   |           |  |   | 10,009,753  |           
|Income taxes:                                                                                                          |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |             |           |  |   |             |           
|Current                                                                                                                |                            |                                      | 608,274     |                    |           |   | 828,962     |             |  |   | 715,117     |            |  |      | 223,536     |           |  |   | 65,076      |           
|Deferred                                                                                                               |                            |                                      | (126,769    | )                  |           |   | 78,588      |             |  |   | (20,664     | )          |  |      | 25,265      |           |  |   | 551,714     |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Total income taxes                                                                                                     |                            |                                      | 481,505     |                    |           |   | 907,550     |             |  |   | 694,453     |            |  |      | 248,801     |           |  |   | 616,790     |           
|Net income after income taxes
    before minority interest and equity loss of affiliates                               |                            |                                      | 35,246      |                    |           |   | 359,236     |             |  |   | 23,692,084  |            |  |      | 2,641,895   |           |  |   | 9,392,963   |           
|Minority interest                                                                                                      |                            |                                      | (8,360      | )                  |           |   | (13,516     | )           |  |   | 144,433     |            |  |      | (598        | )         |  |   | (39,806     | )         
|Equity loss of affiliates                                                                                              |                            |                                      | (18,123     | )                  |           |   |            |             |  |   |            |            |  |      |            |           |  |   |            |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Net income                                                                                                             |                            |                                      | 25,483      |                    |           |   | 372,752     |             |  |   | 23,547,651  |            |  |      | 2,642,493   |           |  |   | 9,432,769   |           
|Deemed dividend on Series A
    convertible redeemable preference shares                                               |                            |                                      |            |                    |           |   | (8,308,411  | )           |  |   |            |            |  |      |            |           |  |   |            |           
|Deemed dividend on Series B
    convertible redeemable preference shares                                               |                            |                                      |            |                    |           |   | (2,191,442  | )           |  |   |            |            |  |      |            |           |  |   |            |           
|Deemed dividend on Series C-1
    convertible redeemable preference shares                                             |                            |                                      |            |                    |           |   | (13,356,087 | )           |  |   |            |            |  |      |            |           |  |   |            |           
|Premium of Series B
    convertible redeemable preference shares                                                       |                            |                                      |            |                    |           |   | 12,906,774  |             |  |   |            |            |  |      |            |           |  |   |            |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Income (loss) attributable to
    holders of ordinary shares                                                           |                            | $                                    | 25,483      |                    |           | $ | (10,576,414 | )           |  | $ | 23,547,651  |            |  | $    | 2,642,493   |           |  | $ | 9,432,769   |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Income (loss) per share 
    basic                                                                                    |                            | $                                    | 0.00        |                    |           | $ | (0.07       | )           |  | $ | 0.09        |            |  | $    | 0.02        |           |  | $ | 0.02        |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Income (loss) per share 
    diluted                                                                                  |                            | $                                    | 0.00        |                    |           | $ | (0.07       | )           |  | $ | 0.06        |            |  | $    | 0.01        |           |  | $ | 0.02        |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Shares used in calculating basic
    income (loss) per share                                                           |                            |                                      | 144,657,600 |                    |           |   | 160,998,600 |             |  |   | 252,128,545 |            |  |      | 142,464,600 |           |  |   | 438,232,094 |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            
|Shares used in calculating diluted
    income (loss) per share                                                         |                            |                                      | 144,657,600 |                    |           |   | 160,998,600 |             |  |   | 365,938,094 |            |  |      | 315,212,608 |           |  |   | 465,895,318 |           
|                                                                                                                       |                            |                                      |             |                    |           |   |             |             |  |   |             |            |  |      |            



F-4



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DEFICIENCY) AND COMPREHENSIVE INCOME (LOSS)

|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |   |  |   |             |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----------- | - | ---------- | - | ------ | -------------- |  | - | ------------ | - |  | ------------- | ---------- | - | ------------- | - | ----------- | ------------- |  | - | ------------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                                        |  |                                      |             |   |            |   |        | Retained       |  |   | Accumulated  |   |  | Total         |            |   |              
|                                                                                                                        |  | Ordinary                             |             |   | Additional |   |        | Deferred share |  |   | earnings     |   |  | other         |            |   | shareholders |   |             |              
|                                                                                                                        |  |                                      |             |   | paid-in    |   |        | based          |  |   | (accumulated |   |  | comprehensive |            |   | equity        |   |             | Comprehensive | 
|                                                                                                                        |  | Shares                               |             |   | Amount     |   |        | capital        |  |   | compensation |   |  | deficit)      |            |   | income (loss) |   |             | (deficiency)  |  |   | income (loss) |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|                                                                                                                        |  | (In U.S. dollars, except share data) |            
|Balance at January 1,
    2003                                                                                          |  |                                      |            |   |            | $ |       |                |  | $ | 125,000      |   |  | $             |           |   |               | $ | 517         |               |  | $ | (4,183        | ) |  | $ | 121,334     |   |  | $ |           |  
|Issuance of ordinary shares                                                                                             |  |                                      | 200,000,000 |   |            |   | 10,000 |                |  |   | 1,615,000    |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 1,625,000   |   |  |   |           |  
|Capital distribution relating to
    Everease                                                                           |  |                                      |            |   |            |   |       |                |  |   | (551,183     | ) |  |               |           |   |               |   |            |               |  |   |              |   |  |   | (551,183    | ) |  |   |           |  
|Cumulative translation adjustment                                                                                       |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   |            |               |  |   | (37,572       | ) |  |   | (37,572     | ) |  | $ | (37,572    | )
|Net income                                                                                                              |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | 25,483      |               |  |   |              |   |  |   | 25,483      |   |  |   | 25,483     |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|Balance at December 31,
    2003                                                                                        |  |                                      | 200,000,000 |   |            | $ | 10,000 |                |  | $ | 1,188,817    |   |  | $             |           |   |               |   | 26,000      |               |  | $ | (41,755       | ) |  | $ | 1,183,062   |   |  | $ | (12,089    | )
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|Issuance of ordinary shares                                                                                             |  |                                      | 14,594,200  |   |            |   | 730    |                |  |   | 4,484,068    |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 4,484,798   |   |  |   |           |  
|Reclassification of ordinary shares
    to Series A convertible redeemable preference shares                            |  |                                      | (62,400,000 | ) |            |   | (3,120 | )              |  |   | (1,048,469   | ) |  |               |           |   |               |   |            |               |  |   |              |   |  |   | (1,051,589  | ) |  |   |           |  
|Reclassification of ordinary shares
    to Series C-1 convertible redeemable preference shares                          |  |                                      | (9,729,600  | ) |            |   | (486   | )              |  |   | (101,932     | ) |  |               |           |   |               |   |            |               |  |   |              |   |  |   | (102,418    | ) |  |   |            |  
|Deferred share based compensation                                                                                       |  |                                      |            |   |            |   |       |                |  |   | 1,334,835    |   |  |               | (1,334,835 | ) |               |   |            |               |  |   |              |   |  |   |            |   |  |   |           |  
|Amortization of share-based
    compensation expense                                                                    |  |                                      |            |   |            |   |       |                |  |   | 123,835      |   |  |               | 364,876    |   |               |   |            |               |  |   |              |   |  |   | 488,711     |   |  |   |            |  
|Deemed dividend on Series A
    convertible redeemable preference shares                                                |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | (8,308,411  | )             |  |   |              |   |  |   | (8,308,411  | ) |  |   |           |  
|Deemed dividend on Series B
    convertible redeemable preference shares                                                |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | (2,191,442  | )             |  |   |              |   |  |   | (2,191,442  | ) |  |   |           |  
|Deemed dividend on Series C-1
    convertible redeemable preference shares                                              |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | (13,356,087 | )             |  |   |              |   |  |   | (13,356,087 | ) |  |   |           |  
|Premium of Series B
    convertible redeemable preference shares                                                        |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | 12,906,774  |               |  |   |              |   |  |   | 12,906,774  |   |  |   |           |  
|Cumulative translation adjustment                                                                                       |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   |            |               |  |   | 649           |   |  |   | 649         |   |  | $ | 649        |  
|Net income                                                                                                              |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | 372,752     |               |  |   |              |   |  |   | 372,752     |   |  |   | 372,752    |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|Balance at December 31,
    2004                                                                                        |  |                                      | 142,464,600 |   |            | $ | 7,124  |                |  | $ | 5,981,154    |   |  |               | (969,959   | ) |               | $ | (10,550,414 | )             |  | $ | (41,106       | ) |  | $ | (5,573,201  | ) |  | $ | 373,401    |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|Series A convertible
    redeemable preference shares converted into ordinary shares upon
    initial public offering   |  |                                      | 41,967,400  |   |            |   | 2,098  |                |  |   | 6,293,012    |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 6,295,110   |   |  |   |           |  
|Series B convertible
    redeemable preference shares converted into ordinary shares upon
    initial public offering   |  |                                      | 48,191,600  |   |            |   | 2,409  |                |  |   | 12,060,287   |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 12,062,696  |   |  |   |           |  
|Series C-1 convertible
    redeemable preference shares converted into ordinary shares upon
    initial public offering |  |                                      | 34,054,000  |   |            |   | 1,703  |                |  |   | 17,498,647   |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 17,500,350  |   |  |   |           |  
|Series C-2 convertible
    redeemable preference shares converted into ordinary shares upon
    initial public offering |  |                                      | 34,053,400  |   |            |   | 1,703  |                |  |   | 17,413,297   |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 17,415,000  |   |  |   |           |  
|Issuance of ordinary shares upon
    initial public offering, net of issuance cost of $13,703,370                       |  |                                      | 77,575,000  |   |            |   | 3,879  |                |  |   | 118,170,251  |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 118,174,130 |   |  |   |           |  
|Deferred share based compensation                                                                                       |  |                                      |            |   |            |   |       |                |  |   | (264,751     | ) |  |               | 264,751    |   |               |   |            |               |  |   |              |   |  |   |            |   |  |   |           |  
|Amortization of share-based
    compensation expense                                                                    |  |                                      |            |   |            |   |       |                |  |   | 267,864      |   |  |               | 458,639    |   |               |   |            |               |  |   |              |   |  |   | 726,503     |   |  |   |           |  
|Unrealized loss on
    available-for-sale securities                                                                    |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   |            |               |  |   | (164,150      | ) |  |   | (164,150    | ) |  | $ | (164,150   | )
|Cumulative translation adjustments                                                                                      |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   |            |               |  |   | 1,430,562     |   |  |   | 1,430,562   |   |  |   | 1,430,562  |  
|Net income                                                                                                              |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | 23,547,651  |               |  |   |              |   |  |   | 23,547,651  |   |  |   | 23,547,651 |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|Balance at December 31,
    2005                                                                                        |  |                                      | 378,306,000 |   |            | $ | 18,916 |                |  | $ | 177,419,761  |   |  | $             | (246,569   | ) |               | $ | 12,997,237  |               |  | $ | 1,225,306     |   |  | $ | 191,414,651 |   |  | $ | 24,814,063 |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|Adjustment for adoption of
    SFAS 123 - R (unaudited)                                                                 |  |                                      |            |   |            |   |       |                |  |   | (246,569     | ) |  |               | 246,569    |   |               |   |            |               |  |   |              |   |  |   |            |   |  |   |           |  
|Issuance of ordinary shares for
    acquisitions (unaudited)                                                            |  |                                      | 99,231,723  |   |            |   | 4,962  |                |  |   | 285,786,238  |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 285,791,200 |   |  |   |           |  
|Issuance of ordinary shares upon
    secondary offering, net of issuance cost of $3,466,700
    (unaudited)             |  |                                      | 15,000,000  |   |            |   | 750    |                |  |   | 61,782,550   |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 61,783,300  |   |  |   |           |  
|Exercise of employee stock options
    (unaudited)                                                                      |  |                                      | 13,919,910  |   |            |   | 696    |                |  |   | 3,880,316    |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 3,881,012   |   |  |   |           |  
|Amortization of share-based
    compensation expense (unaudited)                                                        |  |                                      |            |   |            |   |       |                |  |   | 1,466,540    |   |  |               |           |   |               |   |            |               |  |   |              |   |  |   | 1,466,540   |   |  |   |           |  
|Net income (unaudited)                                                                                                  |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   | 9,432,769   |               |  |   |              |   |  |   | 9,432,769   |   |  | $ | 9,432,769  |  
|Unrealized loss on
    available-for-sale securities (unaudited)                                                        |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   |            |               |  |   | (43,750       | ) |  |   | (43,750     | ) |  |   | (43,750    | )
|Cumulative translation adjustments
    (unaudited)                                                                      |  |                                      |            |   |            |   |       |                |  |   |             |   |  |               |           |   |               |   |            |               |  |   | 2,157,583     |   |  |   | 2,157,583   |   |  |   | 2,157,583  |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  
|Balance at March 31, 2006
    (unaudited)                                                                               |  |                                      | 506,457,633 |   |            | $ | 25,324 |                |  | $ | 530,088,836  |   |  | $             |           |   |               | $ | 22,430,006  |               |  | $ | 3,339,139     |   |  | $ | 555,883,305 |   |  | $ | 11,546,602 |  
|                                                                                                                        |  |                                      |             |   |            |   |        |                |  |   |              |   |  |               |            |   |               |   |             |               |  |   |               |  



F-5



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED





CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                        |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |            |            |            |   |             |             |             |  
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ---------- | -------------------------- | ---------- | - | ----------- | ----------- | ---------- | - | ------------ | ----------- | ----------- | ---- | ---------- | ---------- | ---------- | - | ----------- | ----------- | ----------- | -
|                                                        |                                                                                                                                                   |                                                    |            | For the three months ended |           
|                                                        |                                                                                                                                                   | For the year ended December 31                     |            |                            | March 31,  |  
|                                                        |                                                                                                                                                   |                                                    |            |                            |            |  
|                                                        |                                                                                                                                                   | 2003                                               |            |                            | 2004       |   |             | 2005        |            |   | 2005         |             |             | 2006 |           
|                                                        |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |           
|                                                        |                                                                                                                                                   |                                                    |            |                            |            |   |             | (Unaudited) |            |   | (Unaudited)  |            
|                                                        |                                                                                                                                                   | (In U.S. dollars)                                  |           
|Operating activities:                                   |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |            |            |            |   |             |            
|                                                        | Income (loss) attributable to
    holders of ordinary shares                                                                                      |                                                    | $          | 25,483                     |            |   | $           | (10,576,414 | )          |   | $            | 23,547,651  |             |      | $          | 2,642,493  |            |   | $           | 9,432,769   |            
|                                                        | Deemed dividend on Series A
    convertible redeemable preference shares                                                                          |                                                    |            |                           |            |   |             | 8,308,411   |            |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        | Deemed dividend on Series B
    convertible redeemable preference shares                                                                          |                                                    |            |                           |            |   |             | 2,191,442   |            |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        | Deemed dividend on Series C-1
    convertible redeemable preference shares                                                                        |                                                    |            |                           |            |   |             | 13,356,087  |            |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        | Premium relating to Series B
    convertible redeemable preference shares                                                                         |                                                    |            |                           |            |   |             | (12,906,774 | )          |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |           
|                                                        | Net income                                                                                                                                        |                                                    |            | 25,483                     |            |   |             | 372,752     |            |   |              | 23,547,651  |             |      |            | 2,642,493  |            |   |             | 9,432,769   |            
|                                                        | Adjustments to reconcile net income
    to net cash provided by (used in) operating activities:                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |            |            |            |   |             |             |            
|                                                        |                                                                                                                                                   | Minority interest                                  |            |                            | (8,360     | ) |             |             | (13,516    | ) |              |             | 144,433     |      |            |            | (598       | ) |             |             | (39,806     | )
|                                                        |                                                                                                                                                   | Bad debt provision                                 |            |                            |           |   |             |             | 173,837    |   |              |             | 235,604     |      |            |            | 36,364     |   |             |             | 194,723     |  
|                                                        |                                                                                                                                                   | Share based compensation                           |            |                            |           |   |             |             | 488,711    |   |              |             | 726,503     |      |            |            | 333,960    |   |             |             | 1,466,540   |  
|                                                        |                                                                                                                                                   | Depreciation and amortization                      |            |                            | 143,876    |   |             |             | 923,163    |   |              |             | 4,927,016   |      |            |            | 622,175    |   |             |             | 3,605,818   |  
|                                                        |                                                                                                                                                   | Loss on disposal of equipment                      |            |                            |           |   |             |             | 22,470     |   |              |             |            |      |            |            |           |   |             |             |            |  
|                                                        |                                                                                                                                                   | Investment loss on equity investment               |            |                            | 18,123     |   |             |             |           |   |              |             |            |      |            |            |           |   |             |             |            |  
|                                                        |                                                                                                                                                   | Change in fair value of derivative
    liability   |            |                            |           |   |             |             | 11,692,287 |   |              |             |            |      |            |            |           |   |             |             |            |  
|                                                        |                                                                                                                                                   | Goodwill impairment                                |            |                            |           |   |             |             | 58,397     |   |              |             |            |      |            |            |           |   |             |             |            |  
|                                                        | Changes in assets and liabilities,
    net of effects of acquisitions:                                                                            |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |            |            |            |   |             |             |            
|                                                        |                                                                                                                                                   | Accounts receivable, net                           |            |                            | (1,331,107 | ) |             |             | (4,525,148 | ) |              |             | (15,757,053 | )    |            |            | (1,804,368 | ) |             |             | 2,621,774   |  
|                                                        |                                                                                                                                                   | Inventories                                        |            |                            | (80,660    | ) |             |             | (1,030,529 | ) |              |             | (408,223    | )    |            |            | (788,522   | ) |             |             | (124,346    | )
|                                                        |                                                                                                                                                   | Prepaid expenses and other current
    assets      |            |                            | (121,304   | ) |             |             | (1,740,427 | ) |              |             | (2,347,426  | )    |            |            | (77,708    | ) |             |             | 2,918,858   |  
|                                                        |                                                                                                                                                   | Amounts due from related parties                   |            |                            | (252,576   | ) |             |             | (2,487,456 | ) |              |             | 666,703     |      |            |            | 1,425,866  |   |             |             | (908,927    | )
|                                                        |                                                                                                                                                   | Rental deposits                                    |            |                            | (570,904   | ) |             |             | (1,035,474 | ) |              |             | (10,076,230 | )    |            |            | (2,728,890 | ) |             |             | 1,692,642   |  
|                                                        |                                                                                                                                                   | Deferred taxes assets                              |            |                            | (126,769   | ) |             |             | 78,586     |   |              |             | (20,664     | )    |            |            | 25,265     |   |             |             | 551,714     |  
|                                                        |                                                                                                                                                   | Accounts payable                                   |            |                            | 429,144    |   |             |             | (1,609,816 | ) |              |             | 5,007,564   |      |            |            | 1,017,042  |   |             |             | (683,773    | )
|                                                        |                                                                                                                                                   | Accrued expenses and other current
    liabilities |            |                            | 573,053    |   |             |             | 4,174,214  |   |              |             | 3,950,903   |      |            |            | (2,217,452 | ) |             |             | (18,622,722 | )
|                                                        |                                                                                                                                                   | Amounts due to related parties                     |            |                            | 2,013,898  |   |             |             | (2,322,276 | ) |              |             |            |      |            |            |           |   |             |             | 2,496,212   |  
|                                                        |                                                                                                                                                   | Income tax payable                                 |            |                            | 608,235    |   |             |             | 825,100    |   |              |             | 672,585     |      |            |            | 637,052    |   |             |             | 164,289     |  
|                                                        |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |           
|Net cash provided by (used in)
    operating activities |                                                                                                                                                   | $                                                  | 1,320,132  |                            |            | $ | 4,044,875   |             |            | $ | 11,269,366   |             |             | $    | (877,321   | )          |            | $ | 4,765,765   |            
|Investing activities:                                   |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |            |            |            |   |             |            
|                                                        | Purchase of equipment                                                                                                                             |                                                    | $          | (1,467,730                 | )          |   | $           | (6,373,124  | )          |   | $            | (36,765,294 | )           |      | $          | (3,621,229 | )          |   | $           | (8,353,954  | )          
|                                                        | Acquisition of assets from a
    related party                                                                                                    |                                                    |            | (1,208,131                 | )          |   |             |            |            |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        | Purchase of subsidiaries, net of
    cash acquired                                                                                                |                                                    |            |                           |            |   |             | (4,697,378  | )          |   |              | (4,982,523  | )           |      |            | (3,056,622 | )          |   |             | (57,718,824 | )          
|                                                        | Deposit paid to acquire subsidiaries                                                                                                              |                                                    |            |                           |            |   |             |            |            |   |              | (40,919,530 | )           |      |            |           |            |   |             |            |            
|                                                        | Acquisition of equity investment                                                                                                                  |                                                    |            | (30,205                    | )          |   |             |            |            |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        | Investment in available-for-sale
    securities                                                                                                   |                                                    |            |                           |            |   |             |            |            |   |              | (35,000,000 | )           |      |            |           |            |   |             |            |            
|                                                        |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |           
|Net cash used in investing
    activities               |                                                                                                                                                   | $                                                  | (2,706,066 | )                          |            | $ | (11,070,502 | )           |            | $ | (117,667,347 | )           |             | $    | (6,677,851 | )          |            | $ | (66,072,778 | )          
|Financing activities:                                   |                                                                                                                                                   |                                                    |            |                            |            |   |             |             |            |   |              |             |             |      |            |            |            |   |             |            
|                                                        | Proceeds from short-term loan from
    a shareholder                                                                                              |                                                    |            | 500,000                    |            |   |             |            |            |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        | Repayment of short-term loan from a
    shareholder                                                                                               |                                                    |            |                           |            |   |             | (500,000    | )          |   |              |            |             |      |            |           |            |   |             |            |            
|                                                        | Proceeds from issuance of ordinary
    shares, net of issuance costs of $nil in 2003, $13,703,370 in
    2005, and $3,466,700 in 2006 (unaudited) |                                                    |            | 1,625,000                  |            |   |             |            |            |   |              | 118,174,130 |             |      |            |           |            |   |             | 65,664,312  |            

F-6



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##### Table of Contents



|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |            |           |  |   |            |             |  
|------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | ------------------------------ | --------- | -------------------------- | --------- | - | ---------- | ----------- |  | - | ----------- | --------- |  | ---- | ---------- | --------- |  | - | ---------- | ----------- | -
|                                                                                                                                     |                                                                                                                          |                                |           | For the three months ended |          
|                                                                                                                                     |                                                                                                                          | For the year ended December 31 |           |                            | March 31, |  
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |  
|                                                                                                                                     |                                                                                                                          | 2003                           |           |                            | 2004      |   |            | 2005        |  |   | 2005        |           |  | 2006 |           
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            | (Unaudited) |  |   | (Unaudited) |          
|                                                                                                                                     |                                                                                                                          | (In U.S. dollars)              |          
|                                                                                                                                     | Proceeds from issuance of
    Series B convertible redeemable preference shares (net of
    issuance costs of $437,304)  |                                |           |                           |           |   |            | 12,062,696  |  |   |             |          |  |      |            |          |  |   |            |            |  
|                                                                                                                                     | Proceeds from issuance of
    Series C-2 convertible redeemable preference shares (net of
    issuance costs of $85,000) |                                |           |                           |           |   |            | 17,415,000  |  |   |             |          |  |      |            |          |  |   |            |            |  
|                                                                                                                                     | Proceeds from short-term bank loans                                                                                      |                                |           |                           |           |   |            |            |  |   |             | 991,301   |  |      |            |          |  |   |            | 1,247,349   |  
|                                                                                                                                     | Repayment of short-term bank loans                                                                                       |                                |           |                           |           |   |            |            |  |   |             |          |  |      |            |          |  |   |            | (991,301    | )
|                                                                                                                                     | Repayment of short short-term loans                                                                                      |                                |           |                           |           |   |            |            |  |   |             |          |  |      |            |          |  |   |            | (78,802     | )
|                                                                                                                                     | Capital injection from minority
    shareholders                                                                         |                                |           |                           |           |   |            |            |  |   |             | 3,089     |  |      |            |          |  |   |            | 249,470     |  
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Net cash provided by financing
    activities                                                                                        |                                                                                                                          | $                              | 2,125,000 |                            |           | $ | 28,977,696 |             |  | $ | 119,168,520 |           |  | $    |           |           |  | $ | 66,091,028 |            
|Effect of exchange rate changes                                                                                                      |                                                                                                                          | $                              | (37,572   | )                          |           | $ | 649        |             |  | $ | 1,213,535   |           |  | $    |           |           |  | $ | 425,531    |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Net increase/ (decrease) in cash
    and cash equivalents                                                                            |                                                                                                                          | $                              | 701,494   |                            |           | $ | 21,952,718 |             |  | $ | 13,984,074  |           |  | $    | (7,555,172 | )         |  | $ | 5,209,546  |            
|Cash and cash equivalents,
    beginning of year/period                                                                              |                                                                                                                          |                                | 14,894    |                            |           |   | 716,388    |             |  |   | 22,669,106  |           |  |      | 22,669,106 |           |  |   | 36,653,180 |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Cash and cash equivalents, end of
    year /period                                                                                   |                                                                                                                          | $                              | 716,388   |                            |           | $ | 22,669,106 |             |  | $ | 36,653,180  |           |  | $    | 15,113,934 |           |  | $ | 41,862,726 |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Supplemental disclosure of cash
    flow information Income taxes paid                                                               |                                                                                                                          | $                              |          |                            |           | $ | 738        |             |  | $ | 94,391      |           |  | $    |           |           |  | $ |           |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|                                                                                                                                     | Interest paid                                                                                                            |                                | $         |                           |           |   | $          |            |  |   | $           | 11,581    |  |      | $          |          |  |   | $          | 26,651      |  
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Supplemental disclosures of
    non-cash investing activity:                                                                         |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |            |           |  |   |            |            
|Issuance of ordinary shares in
    exchange for technical know-how                                                                   |                                                                                                                          | $                              | 750,000   |                            |           | $ |           |             |  | $ |            |           |  | $    |           |           |  | $ |           |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Acquisition of subsidiaries:                                                                                                         |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |            |           |  |   |            |            
|                                                                                                                                     | Value of ordinary shares issued                                                                                          |                                | $         |                           |           |   | $          | 4,484,798   |  |   | $           |          |  |      | $          |          |  |   | $          | 285,791,199 |  
|                                                                                                                                     | Cash consideration                                                                                                       |                                |           |                           |           |   |            | 4,423,515   |  |   |             | 5,137,252 |  |      |            | 4,079,091 |  |   |            | 106,782,978 |  
|                                                                                                                                     | Accounts payable                                                                                                         |                                |           |                           |           |   |            | 538,860     |  |   |             |          |  |      |            |          |  |   |            | 49,219,897  |  
|                                                                                                                                     | Assets acquired (including
    intangible assets and goodwill)                                                           |                                | $         |                           |           |   | $          | 9,447,173   |  |   | $           | 5,137,252 |  |      | $          | 4,079,091 |  |   | $          | 441,794,074 |  
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Non-cash financing activities:                                                                                                       |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |            |           |  |   |            |            
|Reclassification of ordinary shares
    to Series A convertible redeemable preference shares                                         |                                                                                                                          | $                              |          |                            |           | $ | 9,360,000  |             |  | $ |            |           |  | $    |           |           |  | $ |           |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Reclassification of Series A
    convertible redeemable preference shares to Series C-1
    convertible redeemable preference shares |                                                                                                                          | $                              |          |                            |           | $ | 3,064,890  |             |  | $ |            |           |  | $    |           |           |  | $ |           |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           
|Reclassification of Series B
    convertible redeemable preference shares to Series C-1
    convertible redeemable preference shares |                                                                                                                          | $                              |          |                            |           | $ | 976,955    |             |  | $ |            |           |  | $    |           |           |  | $ |           |            
|                                                                                                                                     |                                                                                                                          |                                |           |                            |           |   |            |             |  |   |             |           |  |      |           



F-7



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)



1.
    Organization and Principal ActivitiesPrior to May 2003, the Group operated through Shanghai Focus
Media Advertisement Co. Ltd. (Focus Media
Advertisement) (formerly Shanghai Aiqi Advertising Co.,
Ltd. (Aiqi)) which was established in September
1997. On April 11, 2003, the majority shareholder of Focus
Media Advertisement, Jason Nanchun Jiang, incorporated Focus
Media Holding Limited (Focus Media Holding) with the
same shareholders of Focus Media Advertisement. Through
contractual arrangements described below, Focus Media Holding is
deemed the primary beneficiary of Focus Media Advertisement
resulting in Focus Media Advertisement being deemed a subsidiary
of Focus Media Holding under the requirements of FIN 46
(Revised) Consolidation of Variable Interest
Entities (FIN 46(R)) in substance, an
existing company, Focus Media Advertisement, has been
reorganized as a subsidiary of the new company Focus Media
Holding. Focus Media Holding has the same controlling
shareholder, the same non-controlling shareholders. Accordingly,
the Groups financial statements are prepared by including
the financial statements of Focus Media Advertisement through
May 2003 and thereafter is the consolidated financial statements
which includes Focus Media Holding and its subsidiaries and
Focus Media Advertisement and its subsidiaries. As of
March 31, 2006, the subsidiaries of Focus Media Holding and
Focus Media Advertisements subsidiaries include the
following entities:

Focus Media Holding Subsidiaries:

|                                                                                            |  |                    |  |               |                   |  |               |                                    |               |  |     |  
|------------------------------------------------------------------------------------------- |  | ------------------ |  | ------------- | ----------------- |  | ------------- | ---------------------------------- | ------------- |  | --- | -
|                                                                                            |  | Date of            |  | Date of       |                   |  | Place of      |                                    | Percentage of | 
|Subsidiary                                                                                  |  | acquisition        |  | incorporation |                   |  | incorporation |                                    | ownership     | 
|                                                                                            |  |                    |  |               |                   |  |               |                                    |               | 
|Focus Media (China) Holding Ltd.
    (Focus Media Hong Kong)                              |  | N/A                |  |               | April 23, 2003    |  |               | Hong Kong (HK)                   |               |  | 100 | %
|Focus Media Technology (Shanghai)
    Co., Ltd. (Focus Media Technology)                  |  | N/A                |  |               | June 19, 2003     |  |               | PRC                                |               |  | 100 | %
|Perfect Media Holding Ltd.
    (Perfect Media)                                            |  | September 22, 2004 |  |               | June 4, 2004      |  |               | British Virgin Islands
    (BVI) |               |  | 100 | %
|Focus Media Qingdao Holding Ltd.
    (Focus Media Qingdao)                                |  | October 15, 2004   |  |               | March 22, 2004    |  |               | BVI                                |               |  | 100 | %
|Focus Media Dalian Holding Ltd.
    (Focus Media Dalian)                                  |  | October 15, 2004   |  |               | March 24, 2004    |  |               | BVI                                |               |  | 100 | %
|Focus Media Changsha Holding Ltd.
    (Focus Media Changsha)                              |  | October 15, 2004   |  |               | March 11, 2004    |  |               | BVI                                |               |  | 100 | %
|Focus Media Digital Information
    Technology (Shanghai) Co., Ltd. (Focus Media Digital) |  | N/A                |  |               | October 27, 2004  |  |               | PRC                                |               |  | 100 | %
|New Focus Media Technology
    (Shanghai) Co., Ltd. (New Focus Media Technology)          |  | N/A                |  |               | September 5, 2005 |  |               | PRC                                |               |  | 100 | %
|Sorfari Holdings Limited
    (Sorfari)                                                    |  | March 22, 2005     |  |               | June 7, 2004      |  |               | BVI                                |               |  | 100 | %
|Focus Media Tianjin Limited
    (Focus Media Tianjin)                                     |  | March 21, 2005     |  |               | November 19, 2004 |  |               | BVI                                |               |  | 80  | %
|Capital Beyond Limited
    (CBL)                                                          |  | March 21, 2005     |  |               | November 15, 2004 |  |               | BVI                                |               |  | 100 | %
|Shanghai New Focus Media
    Advertisement Co (New Focus Media Advertisement)             |  | N/A                |  |               | December 20, 2005 |  |               | PRC                                |               |  | 90  | %
|Infoachieve Limited
    (Infoachieve)                                                     |  | January 1, 2006    |  |               | July 28, 2004     |  |               | BVI                                |               |  | 100 | %
|Shanghai Framedia Investment
    Consultation Co., Ltd. (Framedia Consultation)           |  | January 1, 2006    |  |               | June 16, 2005     |  |               | PRC                                |               |  | 100 | %
|Target Media Holdings Limited
    (Target Media Holding)                                  |  | February 28, 2006  |  |               | July, 2004        |  |               | Cayman Islands                     |               |  | 100 | %
|Target Media Multi-Media Technology
    (Shanghai) Co., Ltd. (TMM)                        |  | February 28, 2006  |  |               | August 17, 2004   |  |               | PRC                                |               |  | 100 | %
|Dotad Holdings Limited
    (Dotad)                                                        |  | March 21, 2006     |  |               | February 17, 2006 |  |               | BVI                                |               |  | 100 | %

F-8



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

Focus Media Advertisement Subsidiaries:

|                                                                                                           |  |                                       |  |                    |  |               |  |               |      |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | ------------------ |  | ------------- |  | ------------- | ---- | -
|                                                                                                           |  | Date of                               |  | Date of            |  | Place of      |  | Percentage of |     
|Subsidiary                                                                                                 |  | acquisition                           |  | incorporation      |  | incorporation |  | ownership     |     
|                                                                                                           |  |                                       |  |                    |  |               |  |               |     
|Sichuan Focus Media Advertising
    Co., Ltd. (Focus Media Sichuan)                                      |  | N/A                                   |  | October 16, 2003   |  | PRC           |  |               | 90   | %
|Shanghai Focus Media Advertising
    Agency Co., Ltd. (Focus Media Advertising Agency)                   |  | N/A                                   |  | October 15, 2004   |  | PRC           |  |               | 100  | %
|Shanghai On-Target Advertisement
    Co., Ltd. (On- Target)                                              |  | April 23, 2004                        |  | April 15, 2003     |  | PRC           |  |               | 60   | %
|Wuhan Ge Shi Focus Media
    Advertising Co., Ltd. (Focus Media Wuhan)                                   |  | April 23, 2004 and
    March 1, 2006  |  | November 13, 2003  |  | PRC           |  |               | 100  | %
|Yunnan Focus Media Advertising Co.,
    Ltd. (Focus Media Yunnan)                                        |  | July 9, 2004 and
    November 9, 2004 |  | March 3, 2004      |  | PRC           |  |               | 89.5 | %
|Nanjing Focus Media Advertising
    Co., Ltd. (Focus Media Nanjing)                                      |  | August 10, 2004                       |  | September 18, 2003 |  | PRC           |  |               | 90   | %
|Zhejiang Rui Hong Focus Media
    Advertising Co., Ltd. (Focus Media Zhejiang)                           |  | September 15, 2004                    |  | March 24, 2004     |  | PRC           |  |               | 80   | %
|Shanghai Perfect Media Advertising
    Co., Ltd. (Shanghai Perfect Media)                                |  | September 22, 2004                    |  | June 4, 2003       |  | PRC           |  |               | 100  | %
|Qingdao Fukesi Advertisement Co.
    Ltd.(Qingdao Advertising)                                           |  | October 15, 2004                      |  | March 22, 2004     |  | PRC           |  |               | 100  | %
|Dalian Focus Media Advertising Co.,
    Ltd. (Dalian Advertising)                                        |  | October 15, 2004                      |  | March 24, 2004     |  | PRC           |  |               | 100  | %
|Changsha Focus Media Shiji
    Advertisement Co., Ltd. (Changsha Advertising)                            |  | October 15, 2004                      |  | March 11, 2004     |  | PRC           |  |               | 100  | %
|Chongqing Geyang Focus Media
    Culture Advertising & Broadcasting Co. Ltd.
    (Chongqing Advertising) |  | September 15, 2004                    |  | October 10, 1999   |  | PRC           |  |               | 60   | %
|Shanghai Qianjian Advertising Co.,
    Ltd. (Qianjian Advertising)                                       |  | October 15, 2004                      |  | July 3, 2003       |  | PRC           |  |               | 100  | %
|Xian Focus Media
    Culture & Information Communication Co., Ltd.
    (Xian Focus Media)               |  | March 21, 2005                        |  | September 16, 2003 |  | PRC           |  |               | 70   | %
|Xiamen Guomao Advertising Co., Ltd.
    (Xiamen Advertising)                                             |  | March 4, 2005                         |  | March 23, 1998     |  | PRC           |  |               | 100  | %
|Tianjin Tongsheng Modern Display
    and Advertisement Co., Ltd. (Tianjin Advertising)                   |  | March 21, 2005                        |  | September 3, 1998  |  | PRC           |  |               | 80   | %
|Zhuhai Focus Media Culture and
    Communication Co., Ltd. (Focus Media Zhuhai)                          |  | March 21, 2005                        |  | June 21, 2004      |  | PRC           |  |               | 100  | %
|Hebei Tianmaweiye Advertisement
    Co., Ltd. (Hebei Advertising)                                        |  | March 22, 2005                        |  | December 6, 2004   |  | PRC           |  |               | 100  | %
|Guangdong Framedia Advertisement
    Co., Ltd. (Guangdong Framedia)                                      |  | March 21, 2005                        |  | December 16, 2003  |  | PRC           |  |               | 100  | %
|Shenzhen Bianjie Building
    Advertising Co., Ltd. (Shenzhen Bianjie)                                   |  | August 15, 2005                       |  | December 16, 2003  |  | PRC           |  |               | 100  | %
|Hefei Focus Advertising Co., Ltd.
    (Hefei Advertising)                                                |  | N/A                                   |  | October 27, 2005   |  | PRC           |  |               | 100  | %
|Fuzhou Focus Advertising Co., Ltd.
    (Fuzhou Advertising)                                              |  | December 12, 2005                     |  | October 21, 2005   |  | PRC           |  |               | 70   | %
|Jinan Focus Media Advertising Co.,
    Ltd. (Jinan Advertising)                                           |  | December 6, 2005                      |  | June 7, 2005       |  | PRC           |  |               | 100  | %
|Shenyang Focus Media Advertising
    Co., Ltd. (Shenyang Advertising)                                    |  | November 20, 2005                     |  | March 12, 2004     |  | PRC           |  |               | 100  | %

F-9



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

|                                                                                     |  |             |                   |  |               |  |                   |               |  |  |               |  |  |  |     |  
|------------------------------------------------------------------------------------ |  | ----------- | ----------------- |  | ------------- |  | ----------------- | ------------- |  |  | ------------- |  |  |  | --- | -
|                                                                                     |  | Date of     |                   |  | Date of       |  |                   | Place of      |  |  | Percentage of | 
|Subsidiary                                                                           |  | acquisition |                   |  | incorporation |  |                   | incorporation |  |  | ownership     | 
|                                                                                     |  |             |                   |  |               |  |                   |               |  |  |               | 
|Framedia Advertisement Development
    (Shanghai) Co., Ltd. (Framedia Development) |  |             | January 1, 2006   |  |               |  | April 28, 2004    |               |  |  | PRC           |  |  |  | 100 | %
|New Framedia Advertisement
    (Shanghai) Co., Ltd. (New Framedia)                 |  |             | January 1, 2006   |  |               |  | November 21, 2005 |               |  |  | PRC           |  |  |  | 100 | %
|Guangdong Century Sparkle
    Advertisement Co., Ltd. (Sparkle)                    |  |             | January 1, 2006   |  |               |  | March 25, 2005    |               |  |  | PRC           |  |  |  | 100 | %
|Shanghai Target Media Co., Ltd.
    (STM)                                          |  |             | February 28, 2006 |  |               |  | December 16, 2003 |               |  |  | PRC           |  |  |  | 100 | %
|Shenyang Target Media Ltd.
    (Shenyang TM)                                       |  |             | February 28, 2006 |  |               |  | June 15, 2005     |               |  |  | PRC           |  |  |  | 100 | %
|Fuzhou Heng Ding United Media Ltd.
    (Heng Ding)                                 |  |             | February 28, 2006 |  |               |  | December 16, 2003 |               |  |  | PRC           |  |  |  | 100 | %
|Shanghai New Target Media Co., Ltd.
    (New STM)                                  |  |             | February 28, 2006 |  |               |  | January 22, 2006  |               |  |  | PRC           |  |  |  | 100 | %
|Shenzhen E-times Consulting Co.,
    Ltd. (E-times Consulting)                     |  |             | January 1, 2006   |  |               |  | December 21, 2005 |               |  |  | PRC           |  |  |  | 100 | %
|Beijing Focus Media Wireless Co.,
    Ltd. (Focus Media Wireless)                  |  |             | March 21, 2006    |  |               |  | December 8, 2005  |               |  |  | PRC           |  |  |  | 100 | %



out-of


out-of




F-10



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

subsidiaries over the registered capital of Focus Media
Advertisement or its subsidiaries in the event that such option
is exercised.

The Group and its related parties hold all the variable
interests of Focus Media Advertisement and the Group has been
determined to be most closely associated with Focus Media
Advertisement. Therefore the Group is the primary beneficiary of
Focus Media Advertisement. The agreements described above
provided for effective control of Focus Media Advertisement to
be transferred to the Group at April 11, 2003. Focus Media
Advertisement had operating activity prior to entering into
these agreements with the Group. As a result, the consolidated
financial statements reflect the consolidation of Focus Media
Advertisement starting from May 2003.

In January 2003, the Financial Accounting Standards Board
(FASB) issued Financial Interpretation
(FIN) No. 46 Consolidation of Variable
Interest Entities, which requires certain variable
interest entitles to be consolidated by the primary beneficiary
of the entity if the ownership interest held by the equity
investors in the entity does not have characteristics of a
controlling financial interest or does not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN 46 was effective for all new variable interest entities
created or acquired after January 31, 2003. FASB issued
FIN 46 (Revised) Consolidation of Variable Interest
Entities, which provides for the deferral of the
implementation date to the end of the first reporting period
after March 15, 2004, unless the Group has a special
purpose entity, in which case the provisions must be applied for
fiscal years ended December 31, 2003. However, the Group
has elected to retroactively apply FIN 46 (Revised) and has
consolidated Focus Media Advertisement as its variable interest
entity since May 2003.



2.
    Summary of Significant Accounting Policies(a) Basis of Presentation

The consolidated financial statements of the Group have been
prepared in accordance with the accounting principles generally
accepted in the United States of America (US GAAP).
The consolidated financial statements reflect consolidated
operations thereafter.

(b) Basis of Consolidation

The consolidated financial statements include the financial
statements of the Group, its majority owned subsidiaries and its
variable interest entity, Focus Media Advertisement and its
majority owned subsidiaries. All inter-company transactions and
balances have been eliminated upon consolidation. The affiliated
companies where the Group owns more than 20% of the investment
are accounted for using the equity method of accounting. The
Groups share of earnings of the equity investments are
included in the accompanying consolidated statements of
operations.

(c) Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and highly
liquid investments which are unrestricted as to withdrawal or
use, and which have maturities of 3 months or less when
purchased.

(d) Use of Estimates

The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and

F-11



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

revenue and expenses in the financial statements and
accompanying notes. Significant accounting estimates reflected
in the Groups financial statements include allowance for
doubtful accounts, the useful lives of and impairment for
equipment and intangible assets, valuation allowance for
deferred tax assets and impairment of goodwill.

(e) Significant Risks and Uncertainties

The Group participates in a young and dynamic industry and
believes that changes in any of the following areas could have a
material adverse effect on the Groups future financial
position, results of operations or cash flows: the Groups
limited operating history; advances and trends in new
technologies and industry standards; share market performance
and public interest in companies operating in China that are
listed on share market in the U.S.; competition from other
competitors; regulatory or other PRC related factors; and risks
associated with the Groups ability to attract and retain
employees necessary to support its growth, risks associated with
the Groups growth strategies; and general risks associated
with the advertising industry.

(f) Investment in Available-for-sale
Securities

The Group classifies all of its short-term investments as
available-for-sale securities. Such short-term investments
consist primarily of debt instrument which are stated at fair
market value, with unrealized gains and losses recorded as
accumulated other comprehensive income (loss). Unrealized
losses, which are deemed other than temporary, are recorded in
the statement of operations as other expenses.

(g) Inventory

Inventory is stated at the lower of cost or market value.

(h) Equipment, Net

Equipment, net is carried at cost less accumulated depreciation
and amortization. Depreciation and amortization is calculated on
a straight-line basis over the following estimated useful lives:

|                               |  |                                                                                
|------------------------------ |  | -------------------------------------------------------------------------------
|Media display equipment        |  | 5 years                                                                        
|Computers and office equipment |  | 5 years                                                                        
|Vehicles                       |  | 5 years                                                                        
|Leasehold Improvements         |  | lesser of the term of the lease or
    the estimated useful lives of the assets



(i) Impairment of Long-Lived Assets




F-12



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

the carrying amount of the assets, the Group would recognize an
impairment loss based on the fair value of the assets.

(j) Goodwill

Beginning in 2002, with the adoption of Statement of Financial
Accounting Standards (SFAS) 142, Goodwill and
Other Intangible Assets, goodwill is no longer amortized,
but instead tested for impairment upon first adoption and
annually thereafter, or more frequently if events or changes in
circumstances indicate that it might be impaired.
SFAS No. 142 requires the Group to complete a two-step
goodwill impairment test. The first step compares the fair
values of each reporting unit to its carrying amount, including
goodwill. If the fair value of each reporting unit exceeds its
carrying amount, goodwill is not considered to be impaired and
the second step will not be required. SFAS No. 142
requires completion of this first step within the first six
months of initial adoption and annually thereafter. If the
carrying amount of a reporting unit exceeds its fair value, the
second step compares the implied fair value of goodwill to the
carrying value of a reporting units goodwill. The implied
fair value of goodwill is determined in a manner similar to
accounting for a business combination with the allocation of the
assessed fair value determined in the first step to the assets
and liabilities of the reporting unit. The excess of the fair
value of the reporting unit over the amounts assigned to the
assets and liabilities is the implied fair value of goodwill.
This allocation process is only performed for purposes of
evaluating goodwill impairment and does not result in an entry
to adjust the value of any assets or liabilities. An impairment
loss is recognized for any excess in the carrying value of
goodwill over the implied fair value of goodwill.

Management performed the annual goodwill impairment test as of
December 31, 2004 and an impairment loss of $58,397 was
recorded for the Perfect Media reporting unit. The fair value of
the Perfect Media reporting unit was estimated using a
combination of expected present value of future cash flow and
income approach valuation methodologies. The Group recorded an
impairment charge because the amount the Group paid for the
acquisition of Perfect Media exceeded its fair market value.
Management also performed an annual goodwill impairment test as
of December 31, 2005, and no impairment loss was required.

F-13



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

The changes in the carrying amount of goodwill for the year
ended December 31 2004, 2005 and three months ended
March 31, 2006 (unaudited) are as follows:

|                                                       |  |               |            |              |          |   |              |         |             |             |           |  |  |   |             |  
|------------------------------------------------------ |  | ------------- | ---------- | ------------ | -------- | - | ------------ | ------- | ----------- | ----------- | --------- |  |  | - | ----------- | -
|                                                       |  |               |            | In-elevator  |          |   |              |         |            
|                                                       |  |               |            | poster frame |          |   |              |         | Out-of-home |            
|                                                       |  |               |            | network      |          |   | Mobile-phone |         |             | television  |          
|                                                       |  |               |            | advertising  |          |   | advertising  |         |             | advertising |          
|                                                       |  | Perfect Media |            |              | services |   |              | service |             |             | services  | 
|                                                       |  |               |            |              |          |   |              |         |             |             |           | 
|Balance as of January 1, 2004                          |  | $             |           |              |          | $ |             |         |             | $           |          |  |  | $ |            |  
|Goodwill acquired during the year                      |  |               | 4,783,749  |              |          |   |             |         |             |             |          |  |  |   | 4,717,785   |  
|Tax benefits arising from acquired
    subsidiaries    |  |               | (39,527    | )            |          |   |             |         |             |             |          |  |  |   | (345,524    | )
|Impairment losses                                      |  |               | (58,397    | )            |          |   |             |         |             |             |          |  |  |   |            |  
|                                                       |  |               |            |              |          |   |              |         |             |             |           | 
|Balance as of December 31, 2004                        |  | $             | 4,685,825  |              |          |   |             |         |             |             |          |  |  |   | 4,372,261   |  
|                                                       |  |               |            |              |          |   |              |         |             |             |           | 
|Transfer to out-of-home advertising
    services       |  |               | (4,685,825 | )            |          |   |             |         |             |             |          |  |  |   | 4,685,825   |  
|Goodwill acquired during the year                      |  |               |            |              |          |   |             |         |             |             |          |  |  |   | 4,043,747   |  
|Tax benefits arising from acquired
    subsidiaries    |  |               |            |              |          |   |             |         |             |             |          |  |  |   | (244,236    | )
|Modification of original purchase
    price allocation |  |               |            |              |          |   |             |         |             |             |          |  |  |   | 64,477      |  
|Translation adjustments                                |  |               |            |              |          |   |             |         |             |             |          |  |  |   | 375,998     |  
|                                                       |  |               |            |              |          |   |              |         |             |             |           | 
|Balance as of December 31, 2005                        |  |               |            |              |          |   |             |         |             |             |          |  |  |   | 13,298,072  |  
|Goodwill acquired during the period
    (unaudited)    |  |               |            |              |          |   | 91,842,602   |         |             |             | 8,320,374 |  |  |   | 291,781,399 |  
|Translation adjustments (unaudited)                    |  |               |            |              |          |   | 695,404      |         |             |             |          |  |  |   | 852,929     |  
|                                                       |  |               |            |              |          |   |              |         |             |             |           | 
|Balance as of March 31, 2006
    (unaudited)           |  |               |            |              |          | $ | 92,538,006   |         |             | $           | 8,320,374 |  |  | $ | 301,246,575 |  
|                                                       |  |               |            |              |          |   |              |         |             |             |           | 

out-of out-of




(k) Revenue Recognition




F-14



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

customer; (iii) the selling price is both fixed and
determinable; and (iv) collection of the resulting
receivable is reasonably assured.

Prepayments for the advertising services are deferred and
recognized as revenue when the advertising services are rendered.

Prior to May 2003, the Group operated as an advertising agency,
by which it acted as an advertising agency generating revenue
from commissions for selling advertisements to media companies
on behalf of advertising clients. The Group was responsible for
collecting the full charges and remitted flat amount, less
commissions to the media companies. The commission revenue
represented the negotiated percentage of the sales price. The
Group evaluates the criteria outlined in Emerging Issues Task
Force (EITF) No. 99-19, Reporting Revenue
Gross as Principal Versus Net as an Agent, in determining
whether it is appropriate to record the gross amount of revenues
and related costs or the net amount earned after deducting fees
remitted to media companies. Accordingly, the Group recorded the
net amount billed to its customers since the Group was the agent
in these transactions, and had little latitude in establishing
prices, and was not involved in the determination of the service
specifications.

F-15



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

The Group presents advertising service revenue, net of sales
taxes incurred, as follows:

|                                    |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |            |            |  |   |            |            | 
|----------------------------------- | ----------------------------------- | ---------------------------------------- | --------- | ------------------ | --------- | - | ---------- | ----------- |  | - | ----------- | ---------- |  | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                    |                                     |                                          |           | Three months ended |          
|                                    |                                     | For the years ended December 31,         |           |                    | March 31, |  
|                                    |                                     |                                          |           |                    |           |  
|                                    |                                     | 2003                                     |           |                    | 2004      |   |            | 2005        |  |   | 2005        |            |  | 2006 |           
|                                    |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |           
|                                    |                                     |                                          |           |                    |           |   |            | (Unaudited) |  |   | (Unaudited) |           
|                                    |                                     | (In U.S. dollars, except per share data) |          
|Gross Advertising Service Revenue:  |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |            |            |  |   |            |           
|                                    | Commercial Locations                |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |            |            |  |   |            |            | 
|                                    |  Unrelated parties                 |                                          | $         | 2,581,448          |           |   | $          | 25,321,614  |  |   | $           | 62,632,982 |  |      | $          | 9,233,745  |  |   | $          | 21,200,216 | 
|                                    |  Related parties                   |                                          |           | 1,098,879          |           |   |            | 3,787,798   |  |   |             | 4,793,275  |  |      |            | 1,134,181  |  |   |            | 2,353,672  | 
|                                    |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |           
|                                    | Total Commercial Locations          |                                          |           | 3,680,327          |           |   |            | 29,109,412  |  |   |             | 67,426,257 |  |      |            | 10,367,926 |  |   |            | 23,553,888 | 
|                                    | In-store Network                    |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |            |            |  |   |            |            | 
|                                    |  Unrelated parties                 |                                          |           |                   |           |   |            |            |  |   |             | 5,475,192  |  |      |            |           |  |   |            | 5,215,360  | 
|                                    |  Related parties                   |                                          |           |                   |           |   |            |            |  |   |             | 517,998    |  |      |            |           |  |   |            | 602,088    | 
|                                    |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |           
|                                    | Total in-store network              |                                          |           |                   |           |   |            |            |  |   |             | 5,993,190  |  |      |            |           |  |   |            | 5,817,448  | 
|                                    | Poster Frame Network                |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |            |            |  |   |            |            | 
|                                    |  Unrelated parties                 |                                          |           |                   |           |   |            |            |  |   |             |           |  |      |            |           |  |   |            | 6,658,286  | 
|                                    |  Related parties                   |                                          |           |                   |           |   |            |            |  |   |             |           |  |      |            |           |  |   |            |           | 
|                                    |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |           
|                                    | Total Poster Frame Network          |                                          |           |                   |           |   |            |            |  |   |             |           |  |      |            |           |  |   |            | 6,658,286  | 
|Gross Advertising Services Revenue: |                                     |                                          | 3,680,327 |                    |           |   | 29,109,412 |             |  |   | 73,419,447  |            |  |      | 10,367,926 |            |  |   | 36,029,622 |           
|Less: Sales taxes:                  |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |            |            |  |   |            |           
|                                    | Commercial Locations                |                                          |           | 311,770            |           |   |            | 2,788,233   |  |   |             | 5,991,497  |  |      |            | 936,405    |  |   |            | 2,081,512  | 
|                                    | In-store Network                    |                                          |           |                   |           |   |            |            |  |   |             | 524,271    |  |      |            |           |  |   |            | 524,357    | 
|                                    | Poster Frame Network                |                                          |           |                   |           |   |            |            |  |   |             |           |  |      |            |           |  |   |            | 590,972    | 
|                                    |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |           
|Total sales taxes                   |                                     |                                          | 311,770   |                    |           |   | 2,788,233  |             |  |   | 6,515,768   |            |  |      | 936,405    |            |  |   | 3,196,841  |           
|                                    | Net Advertising Service Revenue     |                                          |           | 3,368,557          |           |   |            | 26,321,179  |  |   |             | 66,903,679 |  |      |            | 9,431,521  |  |   |            | 32,832,781 | 
|                                    | Add: Advertising Equipment Revenue: |                                          |           | 389,282            |           |   |            | 2,888,720   |  |   |             | 1,325,234  |  |      |            | 142,163    |  |   |            | 304,066    | 
|                                    |                                     |                                          |           |                    |           |   |            |             |  |   |             |            |  |      |           
|Net revenues:                       |                                     | $                                        | 3,757,839 |                    |           | $ | 29,209,899 |             |  | $ | 68,228,913  |            |  | $    | 9,573,684  |            |  | $ | 33,136,847 |           

(l) Operating Leases




(m) Advertising Costs




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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(n) Foreign Currency Translation

The functional and reporting currency of Focus Media Holding is
the United States dollar (US dollar).
Monetary assets and liabilities denominated in currencies other
than the US dollar are translated into the US dollar
at the rates of exchange ruling at the balance sheet date.
Transactions in currencies other than the US dollar during
the year are converted into US dollar at the applicable
rates of exchange prevailing at the first day of the month
transactions occurred. Transaction gains and losses are
recognized in the statements of operations.

The financial records of the Groups subsidiaries and its
variable interest entity are maintained in its local currency,
the Renminbi (RMB), which is the functional
currency. Assets and liabilities are translated at the exchange
rates at the balance sheet date, equity accounts are translated
at historical exchange rates and revenues, expenses, gains and
losses are translated using the average rate for the year.
Translation adjustments are reported as cumulative translation
adjustments and are shown as a separate component of other
comprehensive income (loss) in the statement of
shareholders equity (deficiency).

(o) Income Taxes

Deferred income taxes are recognized for temporary differences
between the tax basis of assets and liabilities and their
reported amounts in the financial statements, net operating loss
carry forwards and credits, by applying enacted statutory tax
rates applicable to future years. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Current income
taxes are provided for in accordance with the laws of the
relevant taxing authorities.

(p) Comprehensive Income (Loss)

Comprehensive income (loss) includes foreign currency
translation adjustments and unrealized gains (losses) on
marketable securities classified as available for sale.
Comprehensive income (loss) is reported in the statements of
shareholders equity (deficiency).

(q) Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents,
investment in available-for-sale securities, short-term
borrowing and the Series A, Series B and Series C
convertible redeemable preference shares. The carrying values of
cash and cash equivalents, investment in available-for-sale
securities and short-term borrowing approximate their fair
values due to their short-term maturities. The Group utilized a
third party valuations firm to determine the fair value of the
mezzanine equity component and the embedded liability of the
Series A, Series B and Series C convertible
redeemable preference shares. The valuation report utilized
generally accepted valuation methodologies such as the current
value method and the market value approach, which incorporates
certain assumptions such as the Groups expected future
cash flows and discount rates.

(r) Share-based Compensation

Effective January 1, 2006 the Group adopted SFAS
No. 123 (revised 2004), Share-Based Payment
(SFAS 123-R) using the modified prospective
application transition method, which establishes accounting for
share-based awards exchanged for employee services. Accordingly,

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

share-based compensation cost is measured at grant date, based
on the fair value of the award, and recognized in expense over
the requisite service period. The Group previously applied
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), and related Interpretations and
provided the pro forma disclosures required by
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123). APB 25
required the Group to record a compensation charge for the
excess of the market value of the share at the grant date or any
other measurement date over the amount an employee must pay to
acquire the share. The compensation expense is recognized over
the service period which is the vesting period.

Periods prior to the adoption of SFAS 123-R.Prior to the adoption of SFAS 123-R, the Group
provided the disclosures required under SFAS 123, as
amended by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosures (SFAS 148).

The following table illustrates the effect on net income and
income per share as if the Group had applied the fair value
recognition provisions of SFAS 123 to options granted under
the Groups share-based compensation plans prior to the
adoption. For purposes of this pro forma disclosure the value of
the options was estimated using the Black-Scholes option-pricing
model and amortized using an accelerated method over the
respective vesting periods of the awards. Disclosures for the

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

three months ended March 31, 2006 are not presented because
share-based payments were accounted for under
SFAS 123-Rs fair-value method during this period.

|                                                                                 |             |                          |             |       |                 |             |            |      |  |   |           |      | 
|-------------------------------------------------------------------------------- | ----------- | ------------------------ | ----------- | ----- | --------------- | ----------- | ---------- | ---- |  | - | --------- | ---- | 
|                                                                                 |             | Years ended December 31, |             |       | Three months    |            
|                                                                                 |             |                          |             |       | ended March 31, |            
|                                                                                 |             | 2004                     |             |       | 2005            |             |            | 2005 | 
|                                                                                 |             |                          |             |       |                 |             |            |      | 
|                                                                                 |             |                          |             |       |                 | (Unaudited) |           
|Net income, as reported                                                          |             | $                        | 372,752     |       |                 | $           | 23,547,651 |      |  | $ | 2,642,493 |     
|Add: Share based compensation as
    reported                                    |             |                          | 488,711     |       |                 |             | 726,503    |      |  |   | 333,960   |     
|Less: Share based compensation
    determined using the fair value method        |             |                          | (566,819    | )     |                 |             | (3,225,668 | )    |  |   | (877,618  | )   
|                                                                                 |             |                          |             |       |                 |             |            |      | 
|Pro forma net income                                                             |             | $                        | 294,644     |       |                 | $           | 21,048,486 |      |  | $ | 2,098,835 |     
|Deemed dividend on Series A
    convertible redeemable preference shares         |             |                          | (8,308,411  | )     |                 |             |           |      |  |   |          |     
|Deemed dividend on Series B
    convertible redeemable preference shares         |             |                          | (2,191,442  | )     |                 |             |           |      |  |   |          |     
|Deemed dividend on Series C-1
    convertible redeemable preference shares       |             |                          | (13,356,087 | )     |                 |             |           |      |  |   |          |     
|Premium of Series B
    convertible redeemable preference shares                 |             |                          | 12,906,774  |       |                 |             |           |      |  |   |          |     
|                                                                                 |             |                          |             |       |                 |             |            |      | 
|Pro forma net income (loss)
    attributable to holders of ordinary shareholders |             | $                        | (10,654,522 | )     |                 | $           | 21,048,486 |      |  | $ | 2,098,835 |     
|                                                                                 |             |                          |             |       |                 |             |            |      | 
|Basic income (loss) per share:                                                   |             |                          |             |       |                 |             |            |      |  |   |           |     
|                                                                                 | As reported |                          | $           | (0.07 | )               |             | $          | 0.09 |  |   | $         | 0.02 | 
|                                                                                 |             |                          |             |       |                 |             |            |      | 
|                                                                                 | Pro forma   |                          | $           | (0.07 | )               |             | $          | 0.08 |  |   | $         | 0.01 | 
|                                                                                 |             |                          |             |       |                 |             |            |      | 
|Diluted income (loss) per share:                                                 |             |                          |             |       |                 |             |            |      |  |   |           |     
|                                                                                 | As reported |                          | $           | (0.07 | )               |             | $          | 0.06 |  |   | $         | 0.01 | 
|                                                                                 |             |                          |             |       |                 |             |            |      | 
|                                                                                 | Pro forma   |                          | $           | (0.07 | )               |             | $          | 0.06 |  |   | $         | 0.01 | 
|                                                                                 |             |                          |             |       |                 |             |            |      | 



|                                          |  |      |           |  |      |                    |              |      |             |  |         |  |  |  |         | 
|----------------------------------------- |  | ---- | --------- |  | ---- | ------------------ | ------------ | ---- | ----------- |  | ------- |  |  |  | ------- | 
|                                          |  |      |           |  |      | Three months ended |             
|                                          |  |      |           |  |      | March 31,          |             
|                                          |  |      |           |  |      |                    |             
|                                          |  | 2004 |           |  | 2005 |                    |              | 2005 |             |  | 2006    | 
|                                          |  |      |           |  |      |                    |              |      |             |  |         | 
|                                          |  |      |           |  |      | (Unaudited)        |              |      | (Unaudited) | 
|Option granted to employees:              |  |      |           |  |      |                    |              |      |             |  |         |  |  |  |         | 
|Average risk-free rate of return          |  |      | 2.97%     |  |      |                    | 3.10-4.43%   |      |             |  | 3.38%   |  |  |  | 4.74%   | 
|Weighted average expected option
    life |  |      | 1-3 years |  |      |                    | 2-3 years    |      |             |  | 3 years |  |  |  | 2 years | 
|Volatility rate                           |  |      | 36.2%     |  |      |                    | 30.49%-36.2% |      |             |  | 36.2%   |  |  |  | 40.0%   | 
|Dividend yield                            |  |      | 0%        |  |      |                    | 0%           |      |             |  | 0%      |  |  |  | 0%      | 



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

Adoption of SFAS 123-R.Effective the quarter
ended March 31, 2006, the Group recorded share-based
compensation cost totaling the amount that would have been
recognized had the fair value method been applied since the
effective date of SFAS 123-R. Results for prior periods
have not been restated. The effect of recording share-based
compensation for the three month period ended March 31,
2006 (unaudited) was that the Group recorded additional
share-based compensation of $1,389,563.

As required by SFAS 123-R, management has made an estimate
of expected forfeitures and is recognizing compensation costs
only for those equity awards expected to vest. The cumulative
effect of initially adopting SFAS 123-R was not significant.

(s) Income (loss) per Share

Basic income (loss) per share is computed by dividing income
(loss) attributable to holders of ordinary shares by the
weighted average number of ordinary shares outstanding during
the year/period. Diluted income per ordinary share reflects the
potential dilution that could occur if securities or other
contracts to issue ordinary shares were exercised or converted
into ordinary shares. Ordinary share equivalents are excluded
from the computation in loss years as their effects would be
antidilutive.

(t) Recently Issued Accounting Standards

In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Instruments-an amendment of
FASB Statements 133 and 140, which is effective for
all financial instruments acquired or issued after the beginning
of an entitys first fiscal year that begins after
September 15, 2006. The statement improves financial
reporting by eliminating the exemption from applying
SFAS No. 133 to interests in securitized financial
assets so that similar instruments are accounted for similarly
regardless of the form of the instruments. The Statement also
improves financial reporting by allowing a preparer to elect
fair value measurement at acquisition, at issuance, or when a
previously recognized financial instrument is subject to a
re-measurement event, on an instrument-by-instrument basis, in
cases in which a derivative would otherwise have to bifurcated,
if the holder elects to account for the whole instrument on a
fair value basis. The Group is currently evaluating the impact,
if any, of this Statement on the consolidated combined financial
statements.

In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS
No. 123-R, which
is a revision of SFAS 123. SFAS 123-R supersedes
APB 25, Accounting for Stock Issued to
Employees. Generally, the approach in SFAS 123-R is
similar to the approach described in SFAS 123. However,
SFAS 123-R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the income statement based on the grant-date fair values. Pro
forma disclosure previously permitted under SFAS 123 is no
longer an alternative. Through 2005, the Group accounted for its
stock option plans using the intrinsic value method under
APB 25. Effective the beginning of 2006, the Group adopted
SFAS 123-R and elected to adopt the modified prospective
application method. SFAS 123-R requires the Group to use a
fair-value based method to account for share-based compensation.
Accordingly, share-based compensation cost is measured at the
grant date, based on the fair value of the award, and is
recognized as expense over the employees requisite service
period. Total compensation cost for the Groups stock plan
in the first quarter of 2006 (unaudited) was $1,466,540.
The expected impact that the adoption of the standard will have
on the Group for 2006 (unaudited) is $6,061,212.

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

In November 2004, the FASB issued SFAS No. 151,
Inventory Costs  an amendment of ARB
No. 43, Chapter 4 (SFAS 151).
SFAS 151 clarifies the accounting that requires abnormal
amounts of idle facility expenses, freight, handling costs, and
spoilage costs to be recognized as current-period charges. It
also requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the
production facilities. SFAS 151 will be effective for
inventory costs incurred on or after July 1, 2005. The
adoption of this standard will not have a material effect on the
Groups financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets  an amendment
of APB Opinion No. 29 (SFAS 153),
which amends Accounting Principles Board Opinion No. 29,
Accounting for Nonmonetary Transactions to eliminate
the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance.
SFAS 153 is effective for nonmonetary assets exchanges
occurring in fiscal periods beginning after June 15, 2005.
The adoption of this statement will not have a material effect
on the Groups financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
(SFAS 154), which replaces Accounting
Principles Board Opinions No. 20, Accounting
Changes and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements 
An Amendment of APB Opinion No. 28. SFAS 154
provides guidance on the accounting for and reporting of
accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as
the required method for reporting a change in accounting
principle and the reporting of a correction of an error.
SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. The adoption of this statement will not
have a material effect on the Groups financial position or
results of operations.

(u) Reclassification

Certain prior year amounts have been reclassified to conform
with the current periods presentation.

(v) Unaudited interim financial information

The interim financial information as of March 31, 2006 and
for the three months ended March 31, 2005 and 2006 are
unaudited and have been prepared on the same basis as the
audited financial statements. In the opinion of management, such
unaudited financial information includes all adjustments
(consisting only of normal recurring adjustments) necessary for
a fair presentation of the interim information. Operating
results for the three months ended March 31, 2006 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 2006.

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)



3.
    AcquisitionsDuring the years ended December 31, 2004, 2005 and three
months ended March 31, 2006, the Group made the following
acquisitions to continue to expand their networks in desirable
locations and to establish other stand alone networks that
provide effective channels for advertisers:

(1) On April 23, 2004, the Group increased its
existing ownership of On-Target from 30% to 60% by acquiring an
additional 30% of the outstanding ordinary shares of On-Target,
an advertising agency, in exchange for cash of $36,247. The
acquisition was recorded using the purchase method of accounting
and, accordingly, the acquired assets and liabilities were
recorded at their fair market value at the date of acquisition.
The purchase price was allocated as follows:

|                                 |               |   |         |              |  |     |        
|-------------------------------- | ------------- | - | ------- | ------------ |  | --- | -------
|                                 |               |   |         | Amortization
|                                 |               |   |         | period      
|                                 |               |   |         |             
|Net tangible liabilities assumed |               | $ | 197,555 |              |  |    
|Intangible assets:               |               |   |         |              |  |    
|                                 | Customer base |   |         | 138,898      |  |     | 7 years
|Goodwill                         |               |   | 94,904  |              |  | N/A
|                                 |               |   |         |              | 
|Total                            |               | $ | 36,247  |              |  |    
|                                 |               |   |         |              | 

(2)


|                                 |                  |                |        |        |               |              |         |        |  |     |          
|-------------------------------- | ---------------- | -------------- | ------ | ------ | ------------- | ------------ | ------- | ------ |  | --- | ---------
|                                 |                  |                |        |        |               | Amortization
|                                 |                  | April 23, 2004 |        |        | March 1, 2006 |              |         | period
|                                 |                  |                |        |        |               |              |         |       
|                                 |                  | (Unaudited)   
|Net tangible liabilities assumed |                  | $              | 4,667  |        |               | $            |        |        |  |    
|Intangible assets:               |                  |                |        |        |               |              |         |        |  |    
|                                 | Lease Agreements |                |        | 29,269 |               |              |         |       |  |     | 2.3 years
|Goodwill                         |                  |                |       |        |               |              | 373,600 |        |  | N/A
|                                 |                  |                |        |        |               |              |         |       
|Total                            |                  | $              | 24,602 |        |               | $            | 373,600 |        |  |    
|                                 |                  |                |        |        |               |              |         |       

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(3) In July and November, 2004, the Group acquired
89.5% of the outstanding ordinary shares of Focus Media Yunnan,
an advertising service provider, in exchange for cash of
$273,062, of which $217,483 was paid as of December 31,
2004 and the remainder was paid in 2005. The acquisition was
recorded using the purchase method of accounting and,
accordingly, the acquired assets and liabilities were recorded
at their fair market value at the date of acquisition. The
purchase price was allocated as follows:

|                             |                  |   |         |              |  |     |          
|---------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                             |                  |   |         | Amortization
|                             |                  |   |         | period      
|                             |                  |   |         |             
|Net tangible assets acquired |                  | $ | 27,181  |              |  |    
|Intangible assets:           |                  |   |         |              |  |    
|                             | Lease Agreements |   |         | 6,103        |  |     | 2.3 years
|                             | Customer base    |   |         | 6,050        |  |     | 7 years  
|Goodwill                     |                  |   | 233,728 |              |  | N/A
|                             |                  |   |         |              | 
|Total                        |                  | $ | 273,062 |              |  |    
|                             |                  |   |         |              | 

(4)


|                                 |                  |   |         |              |  |     |          
|-------------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                                 |                  |   |         | Amortization
|                                 |                  |   |         | period      
|                                 |                  |   |         |             
|Net tangible liabilities assumed |                  | $ | 270,230 |              |  |    
|Intangible assets:               |                  |   |         |              |  |    
|                                 | Lease Agreements |   |         | 13,810       |  |     | 2.3 years
|                                 | Customer base    |   |         | 41,321       |  |     | 7 years  
|Goodwill                         |                  |   | 215,099 |              |  | N/A
|                                 |                  |   |         |              | 
|Total                            |                  | $ |        |              |  |    
|                                 |                  |   |         |              | 

(5)


|                             |                  |   |         |              |  |     |          
|---------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                             |                  |   |         | Amortization
|                             |                  |   |         | period      
|                             |                  |   |         |             
|Net tangible assets acquired |                  | $ | 315,347 |              |  |    
|Intangible assets:           |                  |   |         |              |  |    
|                             | Lease Agreements |   |         | 47,169       |  |     | 2.3 years
|                             | Customer base    |   |         | 24,357       |  |     | 7 years  
|Goodwill                     |                  |   | 434,720 |              |  | N/A
|                             |                  |   |         |              | 
|Total                        |                  | $ | 821,593 |              |  |    
|                             |                  |   |         |              | 

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(6) On September 22, 2004, the Group acquired
100% of the outstanding ordinary shares of Perfect Media which
includes its then variable interest entity Shanghai Perfect
Media, an advertising services provider, in exchange for cash of
$500,000 and 14,594,200 ordinary shares having a fair value of
$0.31 per ordinary share which was determined by a
retrospective valuation performed by an unrelated party.

The valuation was based on the guideline companies approach
which incorporates the market performance of comparable listed
companies as well as the financial results and growth trends of
the Group to derive the total equity value of the Group. The
valuation model then allocated the equity value between the
ordinary shares and the preference shares and determined the
fair value of ordinary shares based on two scenarios: preference
shares that have a value in excess of their conversion price
were treated as if they had converted into ordinary shares; and
preference shares that have a value below their conversion price
were assigned a value that took into consideration their
liquidation preference. Ordinary shares were assigned a value
equal to their pro rata share of the residual amount (if any)
that remained after consideration of the liquidation preference
of preferred stock with a value below their conversion price.

Immediately following the acquisitions, Perfect Media became a
wholly owned subsidiary of Focus Media Holding and Shanghai
Perfect Media became a wholly owned subsidiary of Focus Media
Advertisement. The acquisition was recorded using the purchase
method of accounting and, accordingly, the acquired assets and
liabilities were recorded at their fair market value at the date
of acquisition. The Groups primary reason for the
acquisition of Perfect Media was its complementary business
model and its strong relationships with landlords and property
managers of commercial building locations in which the Group
desired to locate its flat-panel displays. The acquisition of
Perfect Media resulted in a significant amount of goodwill
because the amount the Group paid for Perfect Media exceeded its
fair market value. The Group was willing to pay in excess of
Perfect Medias fair market value in order to maintain its
competitive advantage within the commercial buildings the Group
already occupied. The aggregate purchase price of $4,984,798
consisted of the following:

|                                    |  |   |           | 
|----------------------------------- |  | - | --------- | 
|Cash consideration                  |  | $ | 500,000   | 
|Value of the ordinary shares issued |  |   | 4,484,798 | 
|                                    |  |   |          
|Total consideration                 |  | $ | 4,984,798 | 
|                                    |  |   |          



|                             |                  |   |           |              |  |     |          
|---------------------------- | ---------------- | - | --------- | ------------ |  | --- | ---------
|                             |                  |   |           | Amortization
|                             |                  |   |           | period      
|                             |                  |   |           |             
|Net tangible assets acquired |                  | $ | 1,086     |              |  |    
|Intangible assets:           |                  |   |           |              |  |    
|                             | Lease Agreements |   |           | 185,947      |  |     | 2.3 years
|                             | Customer base    |   |           | 14,016       |  |     | 7 years  
|Goodwill                     |                  |   | 4,783,749 |              |  | N/A
|                             |                  |   |           |              | 
|Total                        |                  | $ | 4,984,798 |              |  |    
|                             |                  |   |           |              | 

F-24



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(7) On October 15, 2004, the Group acquired
100% of the outstanding ordinary shares of Focus Media Qingdao
including its then variable interest entity Qingdao Advertising,
an advertising services provider, in exchange for cash of
$989,496. Immediately following the acquisition Focus Media
Qingdao became a wholly owned subsidiary of Focus Media Holding
and Qingdao Advertising became a wholly owned subsidiary of
Focus Media Advertisement. The acquisition was recorded using
the purchase method of accounting and, accordingly, the acquired
assets and liabilities were recorded at their fair market value
at the date of acquisition. The purchase price was allocated as
follows:

|                                 |                  |   |           |              |  |     |          
|-------------------------------- | ---------------- | - | --------- | ------------ |  | --- | ---------
|                                 |                  |   |           | Amortization
|                                 |                  |   |           | period      
|                                 |                  |   |           |             
|Net tangible liabilities assumed |                  | $ | 74,642    |              |  |    
|Intangible assets:               |                  |   |           |              |  |    
|                                 | Lease Agreements |   |           | 54,733       |  |     | 2.3 years
|                                 | Customer base    |   |           | 9,183        |  |     | 7 years  
|Goodwill                         |                  |   | 1,000,222 |              |  | N/A
|                                 |                  |   |           |              | 
|Total                            |                  | $ | 989,496   |              |  |    
|                                 |                  |   |           |              | 

(8)


|                                 |                  |   |         |              |  |     |          
|-------------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                                 |                  |   |         | Amortization
|                                 |                  |   |         | period      
|                                 |                  |   |         |             
|Net tangible liabilities assumed |                  | $ | 40,347  |              |  |    
|Intangible assets:               |                  |   |         |              |  |    
|                                 | Lease Agreements |   |         | 24,044       |  |     | 2.3 years
|                                 | Customer base    |   |         | 13,653       |  |     | 7 years  
|Goodwill                         |                  |   | 992,234 |              |  | N/A
|                                 |                  |   |         |              | 
|Total                            |                  | $ | 989,584 |              |  |    
|                                 |                  |   |         |              | 

F-25



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(9) On October 15, 2004, the Group acquired
100% of the outstanding ordinary shares of Focus Media Changsha
including its then variable interest entity Changsha
Advertising, an advertising services provider, in exchange for
cash of $989,484. Immediately following the acquisition Focus
Media Changsha became a wholly owned subsidiary of Focus Media
Holding and Changsha Advertising became a wholly owned
subsidiary of Focus Media Advertisement. The acquisition was
recorded using the purchase method of accounting and,
accordingly, the acquired assets and liabilities were recorded
at their fair market value at the date of acquisition. The
purchase price was allocated as follows:

|                                 |                  |   |         |              |  |     |          
|-------------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                                 |                  |   |         | Amortization
|                                 |                  |   |         | period      
|                                 |                  |   |         |             
|Net tangible liabilities assumed |                  | $ | 76,098  |              |  |    
|Intangible assets:               |                  |   |         |              |  |    
|                                 | Lease Agreements |   |         | 81,194       |  |     | 2.3 years
|                                 | Customer base    |   |         | 5,316        |  |     | 7 years  
|Goodwill                         |                  |   | 979,072 |              |  | N/A
|                                 |                  |   |         |              | 
|Total                            |                  | $ | 989,484 |              |  |    
|                                 |                  |   |         |              | 

(10)


|                             |                  |   |         |              |  |     |          
|---------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                             |                  |   |         | Amortization
|                             |                  |   |         | period      
|                             |                  |   |         |             
|Net tangible assets acquired |                  | $ | 125,599 |              |  |    
|Intangible assets:           |                  |   |         |              |  |    
|                             | Lease Agreements |   |         | 37,818       |  |     | 2.3 years
|                             | Customer base    |   |         |             |  |     | 7 years  
|Goodwill                     |                  |   | 174,890 |              |  | N/A
|                             |                  |   |         |              | 
|Total                        |                  | $ | 338,307 |              |  |    
|                             |                  |   |         |              | 

F-26



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(11) On March 21, 2005, the Group increased its
existing ownership of Xian Focus Media Culture &
Communication Co., Ltd, an advertising service provider, from
10% to 70% by acquiring an additional 60% of the outstanding
ordinary shares, in exchange for cash consideration of $84,577,
all of which was paid as of December 31, 2005. The
acquisition was recorded using the purchase method of accounting
and, accordingly, the acquired assets and liabilities were
recorded at their fair market value at the date of acquisition.
The purchase price was allocated as follows:

|                                 |                  |   |         |              |  |     |          
|-------------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                                 |                  |   |         | Amortization
|                                 |                  |   |         | period      
|                                 |                  |   |         |             
|Net tangible liabilities assumed |                  | $ | 99,663  |              |  |    
|Intangible assets:               |                  |   |         |              |  |    
|                                 | Lease Agreements |   |         | 20,637       |  |     | 2.3 years
|                                 | Customer base    |   |         | 4,313        |  |     | 7 years  
|Goodwill                         |                  |   | 159,290 |              |  | N/A
|                                 |                  |   |         |              | 
|Total                            |                  | $ | 84,577  |              |  |    
|                                 |                  |   |         |              | 

(12)


|                             |                  |   |         |              |  |     |          
|---------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                             |                  |   |         | Amortization
|                             |                  |   |         | period      
|                             |                  |   |         |             
|Net tangible assets acquired |                  | $ | 100,704 |              |  |    
|Intangible assets:           |                  |   |         |              |  |    
|                             | Lease Agreements |   |         | 23,923       |  |     | 2.3 years
|                             | Customer base    |   |         | 47,967       |  |     | 7 years  
|Goodwill                     |                  |   | 154,911 |              |  | N/A
|                             |                  |   |         |              | 
|Total                        |                  | $ | 327,505 |              |  |    
|                             |                  |   |         |              | 

F-27



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(13) On March 21, 2005, the Group acquired 80%
of the outstanding ordinary shares of Focus Media Tianjin,
including its then variable interest entity Tianjin Advertising,
an advertising services provider, in exchange for cash
consideration of $797,439, all of which was paid as of
December 31, 2005. Immediately following the acquisition,
Focus Media Tianjin became an 80% owned subsidiary of Focus
Media Holding and Tianjin Advertising became an 80% owned
subsidiary of Focus Media Advertisement. The acquisition was
recorded using the purchase method of accounting and,
accordingly, the acquired assets and liabilities were recorded
at their fair market value at the date of acquisition. The
purchase price was allocated as follows:

|                                 |                  |   |         |              |  |     |          
|-------------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                                 |                  |   |         | Amortization
|                                 |                  |   |         | period      
|                                 |                  |   |         |             
|Net tangible liabilities assumed |                  | $ | 100,825 |              |  |    
|Intangible assets:               |                  |   |         |              |  |    
|                                 | Lease Agreements |   |         | 40,306       |  |     | 2.3 years
|                                 | Customer base    |   |         | 83,417       |  |     | 7 years  
|Goodwill                         |                  |   | 774,541 |              |  | N/A
|                                 |                  |   |         |              | 
|Total                            |                  | $ | 797,439 |              |  |    
|                                 |                  |   |         |              | 

(14)


|                                 |                  |   |        |              |  |  |          
|-------------------------------- | ---------------- | - | ------ | ------------ |  |  | ---------
|                                 |                  |   |        | Amortization
|                                 |                  |   |        | period      
|                                 |                  |   |        |             
|Net tangible liabilities assumed |                  | $ | 18,003 |              |  | 
|Intangible assets:               |                  |   |        |              |  | 
|                                 | Lease Agreements |   |        | 60,291       |  |  | 2.3 years
|                                 |                  |   |        |              | 
|Total                            |                  | $ | 42,288 |              |  | 
|                                 |                  |   |        |              | 

F-28



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(15) On March 21, 2005, the Group acquired 100%
of the outstanding ordinary shares of CBL, including its then
variable interest entity Guangdong Framedia, an advertising
services provider, in exchange for cash consideration of
$2,054,008, all of which was paid as of December 31, 2005.
Immediately following the acquisition, CBL became a 100% owned
subsidiary of Focus Media Holding and Guangdong Framedia became
a 100% owned subsidiary of Focus Media Advertisement. The
acquisition was recorded using the purchase method of accounting
and, accordingly, the acquired assets and liabilities were
recorded at their fair market value at the date of acquisition.
The purchase price was allocated as follows:

|                             |                  |   |           |              |  |     |          
|---------------------------- | ---------------- | - | --------- | ------------ |  | --- | ---------
|                             |                  |   |           | Amortization
|                             |                  |   |           | period      
|                             |                  |   |           |             
|Net tangible assets acquired |                  | $ | 337,252   |              |  |    
|Intangible assets:           |                  |   |           |              |  |    
|                             | Lease Agreements |   |           | 471,818      |  |     | 2.3 years
|                             | Customer base    |   |           | 10,633       |  |     | 7 years  
|Goodwill                     |                  |   | 1,234,305 |              |  | N/A
|                             |                  |   |           |              | 
|Total                        |                  | $ | 2,054,008 |              |  |    
|                             |                  |   |           |              | 

(16)


|                             |                  |   |         |              |  |     |          
|---------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                             |                  |   |         | Amortization
|                             |                  |   |         | period      
|                             |                  |   |         |             
|Net tangible assets acquired |                  | $ | 94,639  |              |  |    
|Intangible assets:           |                  |   |         |              |  |    
|                             | Lease Agreements |   |         | 19,090       |  |     | 2.3 years
|Goodwill                     |                  |   | 659,545 |              |  | N/A
|                             |                  |   |         |              | 
|Total                        |                  | $ | 773,274 |              |  |    
|                             |                  |   |         |              | 

(17)


F-29



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

recorded at their fair market value at the date of acquisition.
The purchase price was allocated as follows:

|                                 |                  |   |         |              |  |     |           
|-------------------------------- | ---------------- | - | ------- | ------------ |  | --- | ----------
|                                 |                  |   |         | Amortization
|                                 |                  |   |         | period      
|                                 |                  |   |         |             
|Net tangible liabilities assumed |                  | $ | 50,166  |              |  |    
|Intangible assets:               |                  |   |         |              |  |    
|                                 | Lease Agreements |   |         | 22,141       |  |     | 2.34 years
|Goodwill                         |                  |   | 485,210 |              |  | N/A
|                                 |                  |   |         |              | 
|Total                            |                  | $ | 457,185 |              |  |    
|                                 |                  |   |         |              | 

(18)


|                             |                  |   |         |              |  |     |          
|---------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                             |                  |   |         | Amortization
|                             |                  |   |         | period      
|                             |                  |   |         |             
|Net tangible assets acquired |                  | $ | 16,949  |              |  |    
|Intangible assets:           |                  |   |         |              |  |    
|                             | Lease Agreements |   |         | 24,460       |  |     | 1.8 years
|Goodwill                     |                  |   | 454,242 |              |  | N/A
|                             |                  |   |         |              | 
|Total                        |                  | $ | 495,651 |              |  |    
|                             |                  |   |         |              | 

(19)


|                                 |                  |   |         |              |  |     |          
|-------------------------------- | ---------------- | - | ------- | ------------ |  | --- | ---------
|                                 |                  |   |         | Amortization
|                                 |                  |   |         | period      
|                                 |                  |   |         |             
|Net tangible liabilities assumed |                  | $ | 78,470  |              |  |    
|Intangible assets:               |                  |   |         |              |  |    
|                                 | Lease Agreements |   |         | 18,723       |  |     | 3.1 years
|Goodwill                         |                  |   | 121,703 |              |  | N/A
|                                 |                  |   |         |              | 
|Total                            |                  | $ | 61,956  |              |  |    
|                                 |                  |   |         |              | 

(20)


F-30



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

method of accounting and, accordingly, the acquired assets and
liabilities were recorded at their fair market value at the date
of acquisition. The purchase price was preliminarily allocated
as follows:

|                             |                  |   |        |              |  |  |          
|---------------------------- | ---------------- | - | ------ | ------------ |  |  | ---------
|                             |                  |   |        | Amortization
|                             |                  |   |        | period      
|                             |                  |   |        |             
|Net tangible assets acquired |                  | $ | 26,237 |              |  | 
|Intangible assets:           |                  |   |        |              |  | 
|                             | Lease Agreements |   |        | 17,132       |  |  | 3.5 years
|                             |                  |   |        |              | 
|Total                        |                  | $ | 43,369 |              |  | 
|                             |                  |   |        |              | 

Unaudited


(21)




|                                    |  |   |            | 
|----------------------------------- |  | - | ---------- | 
|Cash consideration                  |  | $ | 39,600,000 | 
|Other acquisition costs             |  |   | 311,110    | 
|Value of the ordinary shares issued |  |   | 54,417,599 | 
|                                    |  |   |           
|Total consideration                 |  | $ | 94,328,709 | 
|                                    |  |   |           



|                                 |                       |   |            |              |  |     |        
|-------------------------------- | --------------------- | - | ---------- | ------------ |  | --- | -------
|                                 |                       |   |            | Amortization
|                                 |                       |   |            | period      
|                                 |                       |   |            |             
|Net tangible liabilities assumed |                       | $ | 5,684,145  |              |  |    
|Intangible assets:               |                       |   |            |              |  |    
|                                 | Lease Agreements      |   |            | 8,300,000    |  |     | 6 years
|                                 | Customer base         |   |            | 2,676,000    |  |     | 7 years
|                                 | Non-compete agreement |   |            | 466,000      |  |     | 3 years
|                                 | Trademark             |   |            | 943,000      |  |     | 1 years
|                                 | Contract backlog      |   |            | 70,000       |  |     | 1 years
|Goodwill                         |                       |   | 87,557,854 |              |  | N/A
|                                 |                       |   |            |              | 
|Total                            |                       | $ | 94,328,709 |              |  |    
|                                 |                       |   |            |              | 

F-31



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

(22) On January 1, 2006, the Group acquired the
signed lease agreements, frames and ongoing advertising
agreements of Shenzhen
E-times Advertising
Co., Ltd. (E-times) and Skyvantage Group Limited,
one of the major poster frame advertising network operators in
South China, in exchange for cash consideration of $5,000,000.
This is considered an acquisition of a business and accordingly
the purchase method of accounting has been applied. Accordingly,
the acquired assets and liabilities were recorded at their fair
market value at the date of acquisition. The aggregate purchase
price of $5,034,008 consisted of the following:

|                        |  |   |           | 
|----------------------- |  | - | --------- | 
|Cash consideration      |  | $ | 5,000,000 | 
|Other acquisition costs |  |   | 34,008    | 
|                        |  |   |          
|Total consideration     |  | $ | 5,034,008 | 
|                        |  |   |          



|                   |                  |   |           |              |  |     |        
|------------------ | ---------------- | - | --------- | ------------ |  | --- | -------
|                   |                  |   |           | Amortization
|                   |                  |   |           | period      
|                   |                  |   |           |             
|Intangible assets: |                  |   |           |              |  |    
|                   | Lease Agreements |   | $         | 749,260      |  |     | 6 years
|Goodwill           |                  |   | 4,284,748 |              |  | N/A
|                   |                  |   |           |              | 
|Total              |                  | $ | 5,034,008 |              |  |    
|                   |                  |   |           |              | 

(23) out-of




|                                    |  |   |             | 
|----------------------------------- |  | - | ----------- | 
|Cash consideration                  |  | $ | 94,000,000  | 
|Other acquisition costs             |  |   | 2,057,757   | 
|Value of the ordinary shares issued |  |   | 231,000,000 | 
|                                    |  |   |            
|Total consideration                 |  | $ | 327,057,757 | 
|                                    |  |   |            

F-32



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

The purchase price was preliminarily allocated as follows:

|                             |                  |   |             |              |  |     |         
|---------------------------- | ---------------- | - | ----------- | ------------ |  | --- | --------
|                             |                  |   |             | Amortization
|                             |                  |   |             | period      
|                             |                  |   |             |             
|Net tangible assets acquired |                  | $ | 24,822,958  |              |  |    
|Intangible assets:           |                  |   |             |              |  |    
|                             | Lease Agreements |   |             | 4,509,000    |  |     | 10 years
|                             | Customer base    |   |             | 449,000      |  |     | 7 years 
|                             | Trademark        |   |             | 5,720,000    |  |     | 10 years
|                             | Contract backlog |   |             | 149,000      |  |     | 1 years 
|Goodwill                     |                  |   | 291,407,799 |              |  | N/A
|                             |                  |   |             |              | 
|Total                        |                  | $ | 327,057,757 |              |  |    
|                             |                  |   |             |              | 

(24)




|                             |                      |   |            |              |  |     |        
|---------------------------- | -------------------- | - | ---------- | ------------ |  | --- | -------
|                             |                      |   |            | Amortization
|                             |                      |   |            | period      
|                             |                      |   |            |             
|Net tangible assets acquired |                      | $ | 82,270     |              |  |    
|Intangible assets:           |                      |   |            |              |  |    
|                             | Customer base        |   |            | 3,999,751    |  |     | 7 years
|                             | Completed technology |   |            | 2,480,354    |  |     | 5 years
|                             | License              |   |            | 16,216       |  |     | 5 years
|                             | Partnership          |   |            | 101,035      |  |     | 5 years
|Goodwill                     |                      |   | 8,320,374  |              |  | N/A
|                             |                      |   |            |              | 
|Total                        |                      | $ | 15,000,000 |              |  |    
|                             |                      |   |            |              | 



Pro forma




F-33



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

during the year ended December 31, 2005 and three months
ended March 31, 2006 occurred as of January 1, 2004,
2005 and January 1, 2006. These pro forma results have been
prepared for comparative purposes only and do not purport to be
indications of the results of operations which actually would
have resulted had the significant acquisitions occurred as of
January 1, 2004, 2005 and 2006.

|                                                                 |  |                         |             |                      |                 |   |             |             |  |   |            | 
|---------------------------------------------------------------- |  | ----------------------- | ----------- | -------------------- | --------------- | - | ----------- | ----------- |  | - | ---------- | 
|                                                                 |  |                         |             | For the three months |                
|                                                                 |  | Year ended December 31, |             |                      | ended March 31, |  
|                                                                 |  |                         |             |                      |                 |  
|                                                                 |  | 2004                    |             |                      | 2005            |   |             | 2006        | 
|                                                                 |  |                         |             |                      |                 |   |             |             | 
|                                                                 |  | (Unaudited)             |             |                      | (Unaudited)     |   |             | (Unaudited) | 
|Revenues                                                         |  | $                       | 37,799,600  |                      |                 | $ | 113,750,432 |             |  | $ | 36,205,136 | 
|Net income (loss) attributable to
    holders of ordinary shares |  |                         | (14,944,599 | )                    |                 |   | 3,250,017   |             |  |   | 1,159,298  | 
|Income (loss) per share 
    basic                              |  | $                       | (0.06       | )                    |                 | $ | 0.01        |             |  | $ | 0.00       | 
|Income (loss) per share 
    diluted                            |  |                         | (0.06       | )                    |                 |   | 0.01        |             |  |   | 0.00       | 



|   |                                            
|-- | -------------------------------------------
|4. | Investment in Available-for-Sale Securities



|                                               |  |              |   |      |           |      |   |             |      |   |            |   |  |   |            |  
|---------------------------------------------- |  | ------------ | - | ---- | --------- | ---- | - | ----------- | ---- | - | ---------- | - |  | - | ---------- | -
|                                               |  | December 31, |   |      | March 31, |     
|                                               |  |              |   |      |           |     
|                                               |  | 2003         |   | 2004 |           | 2005 |   |             | 2006 |  
|                                               |  |              |   |      |           |      |   |             |      |  
|                                               |  |              |   |      |           |      |   | (Unaudited) |     
|Federal home loan cost                         |  | $            |  |      |           | $    |  |             |      | $ | 35,000,000 |   |  | $ | 35,000,000 |  
|Gross unrealized loss                          |  |              |  |      |           |      |  |             |      |   | (164,150   | ) |  |   | (207,900   | )
|                                               |  |              |   |      |           |      |   |             |      |   |            |  
|Fair Value                                     |  | $            |  |      |           | $    |  |             |      | $ | 34,835,850 |   |  | $ | 34,792,100 |  
|                                               |  |              |   |      |           |      |   |             |      |   |            |  
|All the securities are due within
    one year |  |              |   |      |           |      |   |             |      |   |            |   |  |   |            |  



|   |                         
|-- | ------------------------
|5. | Accounts Receivable, net



|                     |  |              |           |  |           |   |           |             |  |   |            |  |  |   |            | 
|-------------------- |  | ------------ | --------- |  | --------- | - | --------- | ----------- |  | - | ---------- |  |  | - | ---------- | 
|                     |  | December 31, |           |  | March 31, |  
|                     |  |              |           |  |           |  
|                     |  | 2003         |           |  | 2004      |   |           | 2005        |  |   | 2006       | 
|                     |  |              |           |  |           |   |           |             |  |   |            | 
|                     |  |              |           |  |           |   |           | (Unaudited) | 
|Billed receivables   |  | $            | 858,649   |  |           | $ | 4,782,521 |             |  | $ | 14,587,026 |  |  | $ | 31,218,690 | 
|Unbilled receivables |  |              | 550,812   |  |           |   | 1,837,428 |             |  |   | 7,648,382  |  |  |   | 6,031,558  | 
|                     |  |              |           |  |           |   |           |             |  |   |            | 
|                     |  | $            | 1,409,461 |  |           | $ | 6,619,949 |             |  | $ | 22,235,408 |  |  | $ | 37,250,248 | 
|                     |  |              |           |  |           |   |           |             |  |   |            | 



F-34



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)



6.
    InventoriesInventories consist of the following:

|                            |  |              |        |  |           |   |           |             |  |   |         |  |  |   |         | 
|--------------------------- |  | ------------ | ------ |  | --------- | - | --------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                            |  | December 31, |        |  | March 31, |  
|                            |  |              |        |  |           |  
|                            |  | 2003         |        |  | 2004      |   |           | 2005        |  |   | 2006    | 
|                            |  |              |        |  |           |   |           |             |  |   |         | 
|                            |  |              |        |  |           |   |           | (Unaudited) | 
|Finished goods              |  | $            | 74,140 |  |           | $ | 1,075,210 |             |  | $ | 433,844 |  |  | $ | 599,120 | 
|Spare parts and consumables |  |              | 16,810 |  |           |   | 167,930   |             |  |   | 45,685  |  |  |   | 6,170   | 
|                            |  |              |        |  |           |   |           |             |  |   |         | 
|                            |  | $            | 90,950 |  |           | $ | 1,243,140 |             |  | $ | 479,529 |  |  | $ | 605,290 | 
|                            |  |              |        |  |           |   |           |             |  |   |         | 



|   |                                          
|-- | -----------------------------------------
|7. | Prepaid Expenses and Other Current Assets



|                         |  |              |         |  |           |   |           |             |  |   |            |  |  |   |           | 
|------------------------ |  | ------------ | ------- |  | --------- | - | --------- | ----------- |  | - | ---------- |  |  | - | --------- | 
|                         |  | December 31, |         |  | March 31, |  
|                         |  |              |         |  |           |  
|                         |  | 2003         |         |  | 2004      |   |           | 2005        |  |   | 2006       | 
|                         |  |              |         |  |           |   |           |             |  |   |            | 
|                         |  |              |         |  |           |   |           | (Unaudited) | 
|Other receivables        |  | $            | 100,576 |  |           | $ | 295,650   |             |  | $ | 751,602    |  |  | $ | 1,121,396 | 
|Other taxes refundable   |  |              |        |  |           |   |          |             |  |   |           |  |  |   | 732,357   | 
|Advances to supplier     |  |              |        |  |           |   |          |             |  |   | 1,274,353  |  |  |   | 2,036,393 | 
|Staff advances           |  |              | 48,330  |  |           |   | 239,136   |             |  |   | 964,555    |  |  |   | 1,129,394 | 
|Prepaid expenses         |  |              |        |  |           |   | 162,304   |             |  |   | 276,861    |  |  |   | 327,104   | 
|Interest receivables     |  |              |        |  |           |   |          |             |  |   | 417,369    |  |  |   | 374,789   | 
|Deposit for acquisitions |  |              |        |  |           |   | 362,472   |             |  |   | 40,919,530 |  |  |   | 2,063,690 | 
|Note receivables         |  |              |        |  |           |   | 42,288    |             |  |   |           |  |  |   | 24,947    | 
|Loan to Infoachieve      |  |              |        |  |           |   |          |             |  |   | 759,563    |  |  |   |          | 
|Deferred offering costs  |  |              |        |  |           |   | 1,007,618 |             |  |   |           |  |  |   |          | 
|                         |  |              |         |  |           |   |           |             |  |   |            | 
|                         |  | $            | 148,906 |  |           | $ | 2,109,468 |             |  | $ | 45,363,833 |  |  | $ | 7,810,070 | 
|                         |  |              |         |  |           |   |           |             |  |   |            | 



|   |                                
|-- | -------------------------------
|8. | Acquired Intangible Assets, Net



|                               |  |              |   |      |           |   |         |             |  |      |           |   |  |   |            |  
|------------------------------ |  | ------------ | - | ---- | --------- | - | ------- | ----------- |  | ---- | --------- | - |  | - | ---------- | -
|                               |  | December 31, |   |      | March 31, |  
|                               |  |              |   |      |           |  
|                               |  | 2003         |   | 2004 |           |   | 2005    |             |  | 2006 |          
|                               |  |              |   |      |           |   |         |             |  |      |          
|                               |  |              |   |      |           |   |         | (Unaudited) | 
|Lease agreements               |  | $            |  |      |           | $ | 529,676 |             |  | $    | 1,278,059 |   |  | $ | 14,876,822 |  
|Customer bases                 |  |              |  |      |           |   | 273,820 |             |  |      | 430,879   |   |  |   | 7,568,078  |  
|Trademark                      |  |              |  |      |           |   |        |             |  |      |          |   |  |   | 6,682,799  |  
|Completed technology           |  |              |  |      |           |   |        |             |  |      |          |   |  |   | 2,480,354  |  
|Contract backlog               |  |              |  |      |           |   |        |             |  |      |          |   |  |   | 219,533    |  
|Non-compete agreement          |  |              |  |      |           |   |        |             |  |      |          |   |  |   | 466,883    |  
|Partnership                    |  |              |  |      |           |   |        |             |  |      |          |   |  |   | 101,035    |  
|License                        |  |              |  |      |           |   |        |             |  |      |          |   |  |   | 16,216     |  
|Less: accumulated amortization |  |              |  |      |           |   | (95,190 | )           |  |      | (551,018  | ) |  |   | (1,530,525 | )
|                               |  |              |   |      |           |   |         |             |  |      |           |  
|                               |  | $            |  |      |           | $ | 708,306 |             |  | $    | 1,157,920 |   |  | $ | 30,881,195 |  
|                               |  |              |   |      |           |   |         |             |  |      |           |  

F-35



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

During the year 2004, 2005 and the three months ended
March 31, 2005 and 2006, the Group acquired certain lease
agreements and customer bases through various acquisitions (see
Note 3). The Group also recorded amortization expense of
$nil, $77,443, $437,837 $67,352, and $999,178 for the years
ended December 31, 2003, 2004 and 2005 and the three months
ended March 31, 2005 (unaudited) and 2006 (unaudited),
respectively. The Group will record amortization expense of
$5,461,966, $4,561,595, $4,400,871, $4,154,231 and $4,145,868,
for 2006, 2007, 2008, 2009 and 2010, respectively.



9.
    Long-term InvestmentsInvestment consists of the following:

|                                                                      |  |              |        |           |      |   |        |             |  |      |   |  |  |   |           | 
|--------------------------------------------------------------------- |  | ------------ | ------ | --------- | ---- | - | ------ | ----------- |  | ---- | - |  |  | - | --------- | 
|                                                                      |  | December 31, |        | March 31, |     
|                                                                      |  |              |        |           |     
|                                                                      |  | 2003         |        |           | 2004 |   |        | 2005        |  | 2006 |  
|                                                                      |  |              |        |           |      |   |        |             |  |      |  
|                                                                      |  |              |        |           |      |   |        | (Unaudited) | 
|Xian Focus Media Advertising Co.
    Ltd. (Xian Focus
    Media)(a) |  | $            | 12,082 |           |      | $ | 12,088 |             |  | $    |  |  |  | $ |          | 
|Shanghai Xinna Media Co., Ltd.
    (Xinna)(b)                       |  |              |       |           |      |   |       |             |  |      |  |  |  |   | 911,033   | 
|Tianjin Subway Media Service Co.,
    Ltd.(c)                         |  |              |       |           |      |   |       |             |  |      |  |  |  |   | 144,443   | 
|Target Network Chengcheng Co.
    Ltd.(d)                             |  |              |       |           |      |   |       |             |  |      |  |  |  |   | 62,367    | 
|                                                                      |  |              |        |           |      |   |        |             |  |      |   | 
|                                                                      |  | $            | 12,082 |           |      | $ | 12,088 |             |  | $    |  |  |  | $ | 1,117,843 | 
|                                                                      |  |              |        |           |      |   |        |             |  |      |   | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | On September 23, 2003, the Group acquired 10% of the
    outstanding ordinary shares of Xian Focus Media. The Group has
    accounted for its investment in Xian Focus Media using the cost
    method of accounting. Subsequently in March 2005, the Group
    acquired an additional 60% of the outstanding ordinary shares of
    Xian Focus Media. Accordingly, the Group commenced consolidating
    Xian Focus Media upon obtaining control of this subsidiary (See
    Note 3(11)).
|   
|(b) |  | On January 6, 2006, STM acquired 20% equity interest in
    Xinna for cash consideration of $911,033. The Group has
    accounted for its investment in Xinna using the equity method of
    accounting.                                                                                                                                                                                                                                                                                  
|   
|(c) |  | On September 22, 2005, STM, a subsidiary of Target Media,
    formed a 50% owned entity  Tianjin Subway Media
    Service Co., Ltd. (Tianjin Subway Project) with a
    third party for a cash consideration of $144,443. The Group has
    accounted for its investment in Tianjin Subway Project using the
    equity method of accounting.                                                                                                                                          
|   
|(d) |  | In November 2005, STM, a subsidiary of Target Media, invested
    $62,367 in a 50% owned entity named Target Network Chengcheng
    Co. Ltd. (Chengcheng). The Group has accounted for
    its investment in Chengcheng using the equity method of
    accounting.                                                                                                                                                                                                                      

F-36



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)



10.
    Equipment, NetEquipment, net consists of the following:

|                                                    |  |              |           |   |           |   |            |             |  |   |            |   |  |   |             |  
|--------------------------------------------------- |  | ------------ | --------- | - | --------- | - | ---------- | ----------- |  | - | ---------- | - |  | - | ----------- | -
|                                                    |  | December 31, |           |   | March 31, |  
|                                                    |  |              |           |   |           |  
|                                                    |  | 2003         |           |   | 2004      |   |            | 2005        |  |   | 2006       |  
|                                                    |  |              |           |   |           |   |            |             |  |   |            |  
|                                                    |  |              |           |   |           |   |            | (Unaudited) | 
|Media display equipment                             |  | $            | 1,830,972 |   |           | $ | 9,384,262  |             |  | $ | 40,191,968 |   |  | $ | 68,852,703  |  
|Computers and office equipment                      |  |              | 292,200   |   |           |   | 675,053    |             |  |   | 1,267,696  |   |  |   | 2,844,038   |  
|Leasehold improvements                              |  |              | 14,505    |   |           |   | 167,932    |             |  |   | 537,130    |   |  |   | 869,779     |  
|Vehicles                                            |  |              |          |   |           |   | 83,834     |             |  |   | 349,575    |   |  |   | 445,639     |  
|                                                    |  |              |           |   |           |   |            |             |  |   |            |  
|                                                    |  | $            | 2,137,677 |   |           | $ | 10,311,081 |             |  | $ | 42,346,369 |   |  | $ | 73,012,159  |  
|Less: accumulated depreciation and
    amortization |  |              | (159,278  | ) |           |   | (1,142,742 | )           |  |   | (5,975,119 | ) |  |   | (12,505,458 | )
|Assembly in progress                                |  |              |          |   |           |   | 28,804     |             |  |   | 7,323,638  |   |  |   | 10,486,492  |  
|                                                    |  |              |           |   |           |   |            |             |  |   |            |  
|                                                    |  | $            | 1,978,399 |   |           | $ | 9,197,143  |             |  | $ | 43,694,888 |   |  | $ | 70,993,193  |  
|                                                    |  |              |           |   |           |   |            |             |  |   |            |  







|    |                      
|--- | ---------------------
|11. | Short-term Bank Loans





|    |                       
|--- | ----------------------
|12. | Other Short Term Loans



|                                                             |  |              |   |           |  |      |   |             |  |   |   |  |  |   |           | 
|------------------------------------------------------------ |  | ------------ | - | --------- |  | ---- | - | ----------- |  | - | - |  |  | - | --------- | 
|                                                             |  | December 31, |   | March 31, | 
|                                                             |  |              |   |           | 
|                                                             |  | 2003         |   | 2004      |  | 2005 |   | 2006        | 
|                                                             |  |              |   |           |  |      |   |             | 
|                                                             |  |              |   |           |  |      |   | (Unaudited) | 
|Other loan due to ex-shareholder of
    Target Media
    (a) |  | $            |  |           |  | $    |  |             |  | $ |  |  |  | $ | 3,742,048 | 
|Other loan due to ex-shareholder of
    Framedia(b)          |  |              |  |           |  |      |  |             |  |   |  |  |  |   | 3,034,287 | 
|                                                             |  |              |   |           |  |      |   |             |  |   |   | 
|                                                             |  | $            |  |           |  | $    |  |             |  | $ |  |  |  | $ | 6,776,335 | 
|                                                             |  |              |   |           |  |      |   |             |  |   |   | 






|    |  |                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | In December 2005, the ex-shareholder of Target Media and STM,
    Shanghai Investment Information Co., Ltd. (SII)
    provided a short term loan of $3,742,048 to STM. The loan bears
    interest at an annual rate of 4.698%. The interest expenses
    incurred in the three months ended March 31, 2006
    (unaudited) amounted to $14,580.

F-37



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)



(b)
    
    At March 31, 2006 (unaudited), the short-term loans from
    ex-shareholders of Framedia are non-interest bearing, all of
    which was repayable within one year.

13.
    Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consist of the
following:

|                                                      |  |              |         |  |           |   |           |             |  |   |            |  |  |   |            | 
|----------------------------------------------------- |  | ------------ | ------- |  | --------- | - | --------- | ----------- |  | - | ---------- |  |  | - | ---------- | 
|                                                      |  | December 31, |         |  | March 31, |  
|                                                      |  |              |         |  |           |  
|                                                      |  | 2003         |         |  | 2004      |   |           | 2005        |  |   | 2006       | 
|                                                      |  |              |         |  |           |   |           |             |  |   |            | 
|                                                      |  |              |         |  |           |   |           | (Unaudited) | 
|Accrued expenses                                      |  | $            | 119,840 |  |           | $ | 759,817   |             |  | $ | 3,161,133  |  |  | $ | 5,146,963  | 
|Other taxes payables                                  |  |              | 248,288 |  |           |   | 1,728,850 |             |  |   | 3,037,443  |  |  |   | 6,679,253  | 
|Advance from customers                                |  |              | 94,308  |  |           |   | 1,459,976 |             |  |   | 3,387,224  |  |  |   | 5,687,075  | 
|Accrued employee payroll and welfare                  |  |              | 86,426  |  |           |   | 473,054   |             |  |   | 1,059,717  |  |  |   | 1,052,173  | 
|Accrued offering costs                                |  |              |        |  |           |   | 767,821   |             |  |   |           |  |  |   |           | 
|Accrued merger and acquisition costs                  |  |              |        |  |           |   |          |             |  |   |           |  |  |   | 1,100,000  | 
|Payables related to acquisitions                      |  |              |        |  |           |   | 538,860   |             |  |   | 99,130     |  |  |   | 50,027,231 | 
|Amount due to minority shareholders
    of subsidiary |  |              |        |  |           |   | 426,858   |             |  |   | 200,848    |  |  |   | 326,916    | 
|Others                                                |  |              | 12,372  |  |           |   | 436,199   |             |  |   | 801,407    |  |  |   | 1,394,488  | 
|                                                      |  |              |         |  |           |   |           |             |  |   |            | 
|                                                      |  | $            | 561,234 |  |           | $ | 6,591,435 |             |  | $ | 11,746,902 |  |  | $ | 71,414,099 | 
|                                                      |  |              |         |  |           |   |           |             |  |   |            | 



|    |             
|--- | ------------
|14. | Share Option



Options to Employees




F-38



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

the financial results and growth trends of the Group, to derive
the total equity value of the Group. The valuation model
allocated the equity value between the ordinary shares and the
preference shares and determined the fair value of ordinary
shares based on two assumptions: where conversion into ordinary
shares would result in a higher economic value, preference
shares were treated as if they had converted into ordinary
shares; and preference shares that have a value higher than
their conversion price were assigned a value that took into
consideration their liquidation preference. Our ordinary shares
were assigned a value equal to their pro rata share of the
residual amount, if any, that remained after consideration of
the liquidation preference of preferred shares with a value
below their conversion price.

In January and February 2005, the Group granted
6,020,000 share options with exercise prices ranging from
$0.58 to $0.75 to purchase ordinary shares to directors,
officers and employees. In July 2005, the Group granted
11,683,630 share options with exercise price of $1.7 to
purchases ordinary shares to directors, offers and employees. In
November 2005, the Group further granted 4,800,000 share
options with exercise price ranging from $2.6 to $2.7 to
purchases ordinary shares to directors, officers and employees.
The Group recorded deferred share based compensation of $264,751
as of December 31, 2005 and compensation expense of
$458,639 for 2005, related to the difference between the
exercise price and the deemed fair value of the ordinary shares.
The Group determined the fair value of ordinary shares for those
grants in January and February 2005 using the Series C
preference share price of $0.51 and the fair value of ordinary
shares for the grants in July and November 2005 using the fair
market value of the ordinary shares quoted in the Nasdaq Stock
Exchange.

In March 2006, the Group granted 3,000,000 share options
with exercise prices of $5.093 to purchase ordinary shares to
directors, officers and employees. Effective January 1,
2006, the Group adopted SFAS 123-R. The fair value of stock
options granted to employees is determined using the
Black-Scholes option pricing model. The determination of the
fair value of share-based compensation awards on the date of
grant using an option-pricing model is affected by the
Groups stock price as well as assumptions regarding a
number of complex and subjective variables, including the
expected volatility of the Groups stock price over the
term of the awards, actual and projected employee stock option
exercise behaviors, risk-free interest rate and expected
dividends. As a result, the Group recorded compensation expense
of $1,466,540 for three months ended March 31, 2006
(unaudited).

Options to Non-employees

In 2004, the Group also granted 4,564,800 share options
with an exercise price of $0.24 to purchase ordinary shares to
its external consultants and advisors in exchange for past
services, which part of them vest over 1 year and part of
them vest over 3 years. In February 2005, the Group granted
1,240,000 share options with an exercise price of $0.75 to
purchase ordinary shares to its external consultants and
advisors in exchange for services. In July 2005, the Group
granted 100,000 share options with an exercise of $1.7 to
purchase ordinary shares to its external consultants and
advisors in exchange for services. No options were granted to
external consultants and advisors subsequent to July 2005. The
Group recorded compensation expense of approximately $123,835
and $267,864 and $26,710 for 2004, 2005 and three months ended
March 31, 2006 (unaudited), respectively, estimated using
the Black-Scholes option pricing model as such method provides a
more accurate estimate of the fair value of services received by
the external consultants and advisors.

F-39



---



##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

A summary of share-based compensation recognized in the
consolidated statement of operations are as follows:

|                           |  |              |         |  |                    |             |         |      |             |   |         |  |  |   |           | 
|-------------------------- |  | ------------ | ------- |  | ------------------ | ----------- | ------- | ---- | ----------- | - | ------- |  |  | - | --------- | 
|                           |  | Years ended  |         |  | Three months ended |            
|                           |  | December 31, |         |  | March 31,          |            
|                           |  |              |         |  |                    |            
|                           |  | 2004         |         |  | 2005               |             |         | 2005 |             |   | 2006    | 
|                           |  |              |         |  |                    |             |         |      |             |   |         | 
|                           |  |              |         |  |                    | (Unaudited) |         |      | (Unaudited) |  
|General and administrative |  | $            | 461,183 |  |                    | $           | 683,186 |      |             | $ | 320,273 |  |  | $ | 1,129,610 | 
|Selling and marketing      |  |              | 27,528  |  |                    |             | 43,317  |      |             |   | 13,687  |  |  |   | 336,910   | 
|                           |  |              |         |  |                    |             |         |      |             |   |         | 
|                           |  | $            | 488,711 |  |                    | $           | 726,503 |      |             | $ | 333,960 |  |  | $ | 1,466,540 | 
|                           |  |              |         |  |                    |             |         |      |             |   |         | 



|                                          |  |              |            |  |                    |             |             |      |             |  |         |  |  |  |         | 
|----------------------------------------- |  | ------------ | ---------- |  | ------------------ | ----------- | ----------- | ---- | ----------- |  | ------- |  |  |  | ------- | 
|                                          |  | Year ended   |            |  | Three months ended |            
|                                          |  | December 31, |            |  | March 31,          |            
|                                          |  |              |            |  |                    |            
|                                          |  | 2004         |            |  | 2005               |             |             | 2005 |             |  | 2006    | 
|                                          |  |              |            |  |                    |             |             |      |             |  |         | 
|                                          |  |              |            |  |                    | (Unaudited) |             |      | (Unaudited) | 
|Option granted to employees:              |  |              |            |  |                    |             |             |      |             |  |         |  |  |  |         | 
|Average risk-free rate of return          |  |              | 2.97%      |  |                    |             | 3.10-4.43%  |      |             |  | 3.38%   |  |  |  | 4.74%   | 
|Weighted average expected option
    life |  |              | 1-3  years |  |                    |             | 2-3 years   |      |             |  | 3 years |  |  |  | 2 years | 
|Volatility rate                           |  |              | 36.2%      |  |                    |             | 30.49%-36.2 | %    |             |  | 36.2%   |  |  |  | 40.0%   | 
|Dividend yield                            |  |              | 0%         |  |                    |             | 0%          |      |             |  | 0%      |  |  |  | 0%      | 





|                                                      |  |           |             |          |                |   |      | 
|----------------------------------------------------- |  | --------- | ----------- | -------- | -------------- | - | ---- | 
|                                                      |  |           |             | Weighted |               
|                                                      |  | Number    |             |          | average        |  
|                                                      |  | of option |             |          | exercise price |  
|                                                      |  |           |             |          |                |  
|Options outstanding at
    December 31, 2003          |  |           |            |          |                | $ |     | 
|Granted                                               |  |           | 25,208,200  |          |                | $ | 0.24 | 
|Cancelled                                             |  |           |            |          |                |   |     | 
|                                                      |  |           |             |          |                |  
|Options outstanding at
    December 31, 2004          |  |           | 25,208,200  |          |                | $ | 0.24 | 
|Granted                                               |  |           | 23,843,630  |          |                | $ | 1.59 | 
|Cancelled                                             |  |           |            |          |                |   |     | 
|                                                      |  |           |             |          |                |  
|Options outstanding at
    December 31, 2005          |  |           | 49,051,830  |          |                | $ | 0.89 | 
|Granted                                               |  |           | 3,000,000   |          |                | $ | 5.09 | 
|Cancelled                                             |  |           |            |          |                |   |     | 
|Exercised                                             |  |           | (13,919,910 | )        |                | $ | 0.29 | 
|                                                      |  |           |             |          |                |  
|Options outstanding at
    March 31, 2006 (unaudited) |  |           | 38,131,920  |          |                | $ | 1.44 | 
|                                                      |  |           |             |          |                |  

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

The weighted average per share fair value of options as of their
respective grant dates was as follows:

|                |  |              |      |  |                    |             |      |      |             |   |      |  |  |   |      | 
|--------------- |  | ------------ | ---- |  | ------------------ | ----------- | ---- | ---- | ----------- | - | ---- |  |  | - | ---- | 
|                |  | Years ended  |      |  | Three months ended |            
|                |  | December 31, |      |  | March 31,          |            
|                |  |              |      |  |                    |            
|                |  | 2004         |      |  | 2005               |             |      | 2005 |             |   | 2006 | 
|                |  |              |      |  |                    |             |      |      |             |   |      | 
|                |  |              |      |  |                    | (Unaudited) |      |      | (Unaudited) |  
|Ordinary shares |  | $            | 0.10 |  |                    | $           | 0.23 |      |             | $ | 0.16 |  |  | $ | 0.37 | 
|                |  |              |      |  |                    |             |      |      |             |   |      | 



|                 |  |                     |            |          |                    |  |          |          |  |   |             |          |  |          |            |  |           |   |      |  |  |   |         | 
|---------------- |  | ------------------- | ---------- | -------- | ------------------ |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ---------- |  | --------- | - | ---- |  |  | - | ------- | 
|                 |  | Options outstanding |            |          | Option exercisable |  |          |         
|                 |  |                     |            |          |                    |  |          |         
|                 |  |                     |            | Weighted |                    |  | Weighted |          |  |   |             | Weighted |  |          |           
|                 |  |                     |            | average  |                    |  | average  |          |  |   |             | average  |  |          | Aggregate  | 
|                 |  | No. of              |            |          | remaining          |  |          | exercise |  |   | Number      |          |  | exercise |            |  | Intrinsic |  
|                 |  | outstanding         |            |          | contractual life   |  |          | price    |  |   | exercisable |          |  | price    |            |  | value     |  
|                 |  |                     |            |          |                    |  |          |          |  |   |             |          |  |          |            |  |           |  
|Ordinary shares: |  |                     |            |          |                    |  |          |          |  |   |             |          |  |          |            |  |           |   |      |  |  |   |         | 
|$0.24            |  |                     | 25,208,200 |          |                    |  | 8.62 yrs |          |  | $ | 0.24        |          |  |          | 17,892,580 |  |           | $ | 0.24 |  |  | $ | 199,751 | 
|$0.58            |  |                     | 3,200,000  |          |                    |  | 9.14 yrs |          |  | $ | 0.58        |          |  |          | 800,000    |  |           | $ | 0.58 |  |  |   |        | 
|$0.75            |  |                     | 4,060,000  |          |                    |  | 9.17 yrs |          |  | $ | 0.75        |          |  |          | 1,015,000  |  |           | $ | 0.75 |  |  |   | 47,234  | 
|$1.70            |  |                     | 11,783,630 |          |                    |  | 9.58 yrs |          |  | $ | 1.70        |          |  |          |           |  |           |   |      |  |  |   | 36,308  | 
|$2.60-$2.70      |  |                     | 4,800,000  |          |                    |  | 9.92 yrs |          |  | $ | 2.70        |          |  |          |           |  |           |   |      |  |  |   | 71,999  | 
|                 |  |                     |            |          |                    |  |          |          |  |   |             |          |  |          |            |  |           |  
|                 |  |                     | 49,051,830 |          |                    |  |          |          |  |   |             |          |  |          | 19,707,580 |  |           |   |      |  |  | $ | 355,292 | 
|                 |  |                     |            |          |                    |  |          |          |  |   |             |          |  |          |            |  |           |  



|                 |  |                     |            |          |                     |  |            |          |  |   |             |          |  |          |           |  |           |   |      |  |  |   |         | 
|---------------- |  | ------------------- | ---------- | -------- | ------------------- |  | ---------- | -------- |  | - | ----------- | -------- |  | -------- | --------- |  | --------- | - | ---- |  |  | - | ------- | 
|                 |  | Options outstanding |            |          | Options exercisable |  |            |         
|                 |  |                     |            |          |                     |  |            |         
|                 |  |                     |            | Weighted |                     |  | Weighted   |          |  |   |             | Weighted |  |          |          
|                 |  |                     |            | average  |                     |  | average    |          |  |   |             | average  |  |          | Aggregate | 
|                 |  | Number of           |            |          | remaining           |  |            | exercise |  |   | Number      |          |  | exercise |           |  | intrinsic |  
|                 |  | outstanding         |            |          | contractual life    |  |            | price    |  |   | exercisable |          |  | price    |           |  | value     |  
|                 |  |                     |            |          |                     |  |            |          |  |   |             |          |  |          |           |  |           |  
|Ordinary shares: |  |                     |            |          |                     |  |            |          |  |   |             |          |  |          |           |  |           |   |      |  |  |   |         | 
|$0.24            |  |                     | 12,805,160 |          |                     |  | 8.44 years |          |  | $ | 0.24        |          |  |          | 6,366,680 |  |           | $ | 0.24 |  |  | $ | 150,170 | 
|$0.58            |  |                     | 2,512,500  |          |                     |  | 8.88 years |          |  | $ | 0.58        |          |  |          | 250,000   |  |           | $ | 0.58 |  |  |   |        | 
|$0.75            |  |                     | 3,230,630  |          |                     |  | 8.92 years |          |  | $ | 0.75        |          |  |          | 312,500   |  |           | $ | 0.75 |  |  | $ | 37,661  | 
|$1.70            |  |                     | 11,783,630 |          |                     |  | 9.33 years |          |  | $ | 1.70        |          |  |          |          |  |           |   |     |  |  | $ | 29,470  | 
|$2.60 - $2.70    |  |                     | 4,800,000  |          |                     |  | 9.67 years |          |  | $ | 2.70        |          |  |          |          |  |           |   |     |  |  | $ | 61,015  | 
|$5.09            |  |                     | 3,000,000  |          |                     |  | 10 years   |          |  | $ | 5.09        |          |  |          |          |  |           |   |     |  |  |   |        | 
|                 |  |                     |            |          |                     |  |            |          |  |   |             |          |  |          |           |  |           |  
|                 |  |                     | 38,131,920 |          |                     |  |            |          |  |   |             |          |  |          | 6,929,180 |  |           |   |      |  |  | $ | 278,316 | 
|                 |  |                     |            |          |                     |  |            |          |  |   |             |          |  |          |           |  |           |  



F-41



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

The following table summarizes information regarding options
issued within 12-month
prior to March 31, 2006:

|                 |  |           |            |  |               |   |      |          |  |   |           |  |  |           |      |  |  |  |    |  
|---------------- |  | --------- | ---------- |  | ------------- | - | ---- | -------- |  | - | --------- |  |  | --------- | ---- |  |  |  | -- | -
|                 |  | Number of |            |  | Fair value of |   |      |          |  |   |           | 
|                 |  | options   |            |  | ordinary      |   |      | Exercise |  |   | Intrinsic |  |  | Type of   |     
|Grant date       |  | issued    |            |  | shares        |   |      | price    |  |   | value     |  |  | valuation |     
|                 |  |           |            |  |               |   |      |          |  |   |           |  |  |           |     
|July 5, 2004     |  |           | 14,391,800 |  |               | $ | 0.29 |          |  | $ | 0.24      |  |  | $         | 0.05 |  |  |  | (a | )
|August 1, 2004   |  |           | 506,800    |  |               | $ | 0.29 |          |  | $ | 0.24      |  |  | $         | 0.85 |  |  |  | (a | )
|August 10, 2004  |  |           | 504,200    |  |               | $ | 0.29 |          |  | $ | 0.24      |  |  | $         | 8.05 |  |  |  | (a | )
|August 25, 2004  |  |           | 9,805,400  |  |               | $ | 0.29 |          |  | $ | 0.24      |  |  | $         | 0.05 |  |  |  | (a | )
|January 1, 2005  |  |           | 1,200,000  |  |               | $ | 0.51 |          |  | $ | 0.58      |  |  |           |     |  |  |  | (b | )
|February 2, 2005 |  |           | 2,000,000  |  |               | $ | 0.51 |          |  | $ | 0.58      |  |  |           |     |  |  |  | (b | )
|February 2, 2005 |  |           | 4,060,000  |  |               | $ | 0.51 |          |  | $ | 0.75      |  |  |           |     |  |  |  | (b | )
|July 13, 2005    |  |           | 11,783,630 |  |               | $ | 1.70 |          |  | $ | 1.70      |  |  |           |     |  |  |  | (c | )
|November 2, 2005 |  |           | 800,000    |  |               | $ | 2.60 |          |  | $ | 2.70      |  |  | $         | 0.10 |  |  |  | (d | )
|November 2, 2005 |  |           | 4,000,000  |  |               | $ | 2.70 |          |  | $ | 2.70      |  |  |           |     |  |  |  | (d | )
|March 10, 2006   |  |           | 3,000,000  |  |               | $ | 5.06 |          |  | $ | 5.09      |  |  |           |     |  |  |  | (d | )
|                 |  |           |            |  |               |   |      |          |  |   |           |  |  |           |     
|                 |  |           | 52,051,830 |  |               |   |      |          |  |   |           |  |  |           |      |  |  |  |    |  
|                 |  |           |            |  |               |   |      |          |  |   |           |  |  |           |     




Type of Valuation




|    |  |                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The fair value was determined based on a retrospective unrelated
    party valuation.                                                 
|   
|(b) |  | Based on Series C-2 convertible redeemable preference
    shares sold to third party members for cash proceeds
    (Note 17(c))       
|   
|(c) |  | The fair value was determined based on the initial public
    offering price on the grant date.                                       
|   
|(d) |  | The fair value was determined based on the closing quoted market
    price of the ordinary shares quoted in the Nasdaq Stock Exchange.



|    |             
|--- | ------------
|15. | Income Taxes







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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

The principal components of the Groups deferred income tax
assets are as follows:

|                                               |                                                 |              |          |         |           |   |         |             |  |   |         |         |  |   |            |           | 
|---------------------------------------------- | ----------------------------------------------- | ------------ | -------- | ------- | --------- | - | ------- | ----------- |  | - | ------- | ------- |  | - | ---------- | --------- | 
|                                               |                                                 | December 31, |          |         | March 31, |  
|                                               |                                                 |              |          |         |           |  
|                                               |                                                 | 2003         |          |         | 2004      |   |         | 2005        |  |   | 2006    |        
|                                               |                                                 |              |          |         |           |   |         |             |  |   |         |        
|                                               |                                                 |              |          |         |           |   |         | (Unaudited) | 
|Deferred tax assets:                           |                                                 |              |          |         |           |   |         |             |  |   |         |         |  |   |            |          
|                                               | Net operating loss carry forwards               |              | $        | 215,308 |           |   | $       | 276,673     |  |   | $       | 545,208 |  |   | $          | 2,891,620 | 
|                                               | Accrued expenses temporarily
    non-deductible |              |          | 42,363  |           |   |         | 54,281      |  |   |         | 46,695  |  |   |            | 590,374   | 
|                                               | Pre-operating expenses                          |              |          | 75,764  |           |   |         | 62,862      |  |   |         | 80,102  |  |   |            | 74,954    | 
|                                               | Bad debt provision                              |              |          | 29,044  |           |   |         | 57,147      |  |   |         | 130,897 |  |   |            | 193,506   | 
|                                               |                                                 |              |          |         |           |   |         |             |  |   |         |        
|                                               | Total deferred tax assets                       |              | $        | 362,479 |           |   | $       | 450,963     |  |   | $       | 802,902 |  |   | $          | 3,750,454 | 
|Valuation allowance on deferred tax
    assets |                                                 |              | (235,710 | )       |           |   |        |             |  |   | (59,988 | )       |  |   | (3,556,948 | )        
|                                               |                                                 |              |          |         |           |   |         |             |  |   |         |        
|Net deferred tax assets                        |                                                 | $            | 126,769  |         |           | $ | 450,963 |             |  | $ | 742,914 |         |  | $ | 193,506    |          
|                                               |                                                 |              |          |         |           |   |         |             |  |   |         |        









|                              |  |                          |      |                    |           |  |       |             |  |  |             |    |  |      |       |    |  |  |       |   
|----------------------------- |  | ------------------------ | ---- | ------------------ | --------- |  | ----- | ----------- |  |  | ----------- | -- |  | ---- | ----- | -- |  |  | ----- | --
|                              |  |                          |      | Three months ended |          
|                              |  | Years ended December 31, |      |                    | March 31, | 
|                              |  |                          |      |                    |           | 
|                              |  | 2003                     |      |                    | 2004      |  |       | 2005        |  |  | 2005        |    |  | 2006 |      
|                              |  |                          |      |                    |           |  |       |             |  |  |             |    |  |      |      
|                              |  |                          |      |                    |           |  |       | (Unaudited) |  |  | (Unaudited) |   
|Statutory rate                |  |                          | 33.0 | %                  |           |  | 33.0  | %           |  |  | 33.0        | %  |  |      | 33.0  | %  |  |  | 33.0  | % 
|Permanent book-tax difference |  |                          | 45.0 | %                  |           |  | 58.0  | %           |  |  | (30.3       | )% |  |      | (24.0 | )% |  |  | (61.7 | )%
|Change in valuation allowance |  |                          | 15.0 | %                  |           |  | (19.0 | )%          |  |  | 0.2         | %  |  |      |      |    |  |  | 34.9  | % 
|                              |  |                          |      |                    |           |  |       |             |  |  |             |    |  |      |      
|Effective tax rate            |  |                          | 93.0 | %                  |           |  | 72.0  | %           |  |  | 2.9         | %  |  |      | 9.0   | %  |  |  | 6.2   | % 
|                              |  |                          |      |                    |           |  |       |             |  |  |             |    |  |      |      

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)



16.
    Net income (loss) per ShareThe following table sets forth the computation of basic and
diluted income (loss) per share for the years/periods indicated:

|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |             |  |  |   |             | 
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ----------- |  | ---------------------------- | - | ----------- | ----------- |  | - | ----------- |  |  | ---- | ----------- |  |  | - | ----------- | 
|                                                                                                                               |  | Years Ended December 31, |             |  | Three Months Ended March 31, |  
|                                                                                                                               |  |                          |             |  |                              |  
|                                                                                                                               |  | 2003                     |             |  | 2004                         |   |             | 2005        |  |   | 2005        |  |  | 2006 |            
|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |            
|                                                                                                                               |  |                          |             |  |                              |   |             | (Unaudited) |  |   | (Unaudited) | 
|Income (loss) attributable to
    holders of ordinary shareholders (numerator):                                                |  | $                        | 25,483      |  |                              | $ | (10,576,414 | )           |  | $ | 23,547,651  |  |  | $    | 2,642,493   |  |  | $ | 9,432,769   | 
|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |            
|Shares (denominator):                                                                                                          |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |             |  |  |   |             | 
|Weighted average ordinary shares
    outstanding used in computing basic income (loss) per share                               |  |                          | 144,657,600 |  |                              |   | 160,998,600 |             |  |   | 252,128,545 |  |  |      | 142,464,600 |  |  |   | 438,232,094 | 
|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |            
|Plus weighted average preference
    shares outstanding                                                                        |  |                          |            |  |                              |   |            |             |  |   | 84,119,675  |  |  |      | 158,266,400 |  |  |   |            | 
|Plus incremental weighted average
    ordinary shares from assumed conversions of stock option using
    treasury stock method |  |                          |            |  |                              |   |            |             |  |   | 29,689,874  |  |  |      | 14,481,608  |  |  |   | 27,663,224  | 
|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |            
|Weighted average ordinary shares
    outstanding used in computing diluted income (loss) per share                             |  |                          | 144,657,600 |  |                              |   | 160,998,600 |             |  |   | 365,938,094 |  |  |      | 315,212,608 |  |  |   | 465,895,318 | 
|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |            
|Net income (loss) per
    share  basic                                                                                        |  | $                        | 0.00        |  |                              | $ | (0.07       | )           |  | $ | 0.09        |  |  | $    | 0.02        |  |  | $ | 0.02        | 
|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |            
|Net income (loss) per
    share  diluted                                                                                      |  | $                        | 0.00        |  |                              | $ | (0.07       | )           |  | $ | 0.06        |  |  | $    | 0.01        |  |  | $ | 0.02        | 
|                                                                                                                               |  |                          |             |  |                              |   |             |             |  |   |             |  |  |      |            

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

For the above mentioned years/periods, the Group had securities
outstanding which could potentially dilute basic earnings per
share in the future, but which were excluded from the
computation of diluted net income (loss) per share in the
years/periods presented, as their effects would have been
antidilutive. Such outstanding securities consist of the
following:

|                                                        |  |              |   |  |           |  |             |             |  |  |             |  |  |      |             |  |  |  |            | 
|------------------------------------------------------- |  | ------------ | - |  | --------- |  | ----------- | ----------- |  |  | ----------- |  |  | ---- | ----------- |  |  |  | ---------- | 
|                                                        |  | December 31, |   |  | March 31, | 
|                                                        |  |              |   |  |           | 
|                                                        |  | 2003         |   |  | 2004      |  |             | 2005        |  |  | 2005        |  |  | 2006 |            
|                                                        |  |              |   |  |           |  |             |             |  |  |             |  |  |      |            
|                                                        |  |              |   |  |           |  |             | (Unaudited) |  |  | (Unaudited) | 
|Series A convertible
    redeemable preference shares   |  |              |  |  |           |  | 41,967,400  |             |  |  |            |  |  |      | 41,967,400  |  |  |  |           | 
|Series B convertible
    redeemable preference shares   |  |              |  |  |           |  | 48,191,600  |             |  |  |            |  |  |      | 48,191,600  |  |  |  |           | 
|Series C-1 convertible
    redeemable preference shares |  |              |  |  |           |  | 34,054,000  |             |  |  |            |  |  |      | 34,054,000  |  |  |  |           | 
|Series C-2 convertible
    redeemable preference shares |  |              |  |  |           |  | 34,053,400  |             |  |  |            |  |  |      | 34,053,400  |  |  |  |           | 
|Outstanding options to purchase
    ordinary shares     |  |              |  |  |           |  | 25,208,200  |             |  |  | 49,051,830  |  |  |      | 32,468,200  |  |  |  | 38,131,920 | 
|                                                        |  |              |   |  |           |  |             |             |  |  |             |  |  |      |            
|                                                        |  |              |  |  |           |  | 183,474,600 |             |  |  | 49,051,830  |  |  |      | 190,734,600 |  |  |  | 38,131,920 | 
|                                                        |  |              |   |  |           |  |             |             |  |  |             |  |  |      |            



|    |                                         
|--- | ----------------------------------------
|17. | Convertible Redeemable Preference Shares



a)


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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

and the Redemption Start Date and the denominator of which
is 365. The Group recorded a deemed dividend of $2,191,442 in
2004, which resulted from the amortization of the 15% redemption
premium associated with Series B convertible redeemable
preference shares. According to the articles of association
amended on November 29, 2004, the redemption price of
Series B preferred stock is $0.24.

b)In April 2004, 62,400,000 outstanding ordinary shares
were reclassified and re-designated into 62,400,000
Series A convertible redeemable preference shares. The
re-designation has resulted in a deemed dividend of $8,308,411
which represents the difference between the fair value of the
Series A convertible redeemable preference shares at the
date of re-designation of $0.15 and the initial issuance price
of the ordinary shares of $0.05 for 10,000,000 shares and
approximately $0.01 for 52,400.000 shares.

The holders of Series A convertible redeemable preference
shares had the right to cause the Group to redeem such
preference shares, at any time commencing on a
Redemption Start Date, at the option of a majority of
holders of Series A redeemable convertible preference
shares at a redemption price per Series A convertible
redeemable preference share equal to $0.06 plus all declared but
unpaid dividends. Series A convertible redeemable
preference shares could not have been redeemed until the Group
had redeemed all of the Series B convertible redeemable
preference shares and paid the aggregate Series B
convertible redeemable preference shares redemption price in
full.

c)On November 29, 2004, the Group issued 34,053,400
Series C-2 convertible redeemable preference shares to
group of third party investors for cash proceeds of $17,415,000,
net of issuance costs of $85,000. The holder of a
Series C-2 convertible redeemable preference share could
have redeemed Series C-2 convertible redeemable preference
shares at any time after the earlier of (i) such time as
the holders of a majority of the Series C-2 convertible
redeemable preference share delivered notice in writing to the
Group that the Group and/or its affiliates was in material
breach of any of its representations, warranties and covenants
under the Series C Purchase Agreement, the Shareholders
Agreement or the Ancillary Documents (as defined in the
Series C Purchase Agreement) so long as such notice was to
have been delivered before December 31, 2006 and
(ii) anytime following the fourth anniversary of the
issuance of the Series C-2 convertible redeemable
preference share under the Series C Purchase Agreement. In
connection with the redemption of any Series C-2
convertible redeemable preference share, the Group was to pay a
redemption price equal to the Series C-2 convertible
redeemable preference share Issue Price of $0.51 plus all
declared but unpaid dividends on the Series C-2 convertible
redeemable preference share through to the date of redemption
thereof.

d)On November 29, 2004, certain investors of
Series A and/or Series B convertible redeemable
preference shares sold 20,432,600 outstanding Series A
convertible redeemable preference shares and 3,891,800
outstanding Series B convertible redeemable preference
shares to Series C-1 convertible redeemable preference
shares investors at a price of US$0.51. These Series A
convertible redeemable preference shares and Series B
convertible redeemable preference shares were re-designated as
Series C-1 convertible redeemable preference shares. The
re-designation resulted
in a deemed dividend of $8,458,464 which represented the
difference between the fair value of the
Series C-1
convertible redeemable preference shares of $0.51 and the
issuance price of Series A and Series B convertible
redeemable preference shares of $0.15 and $0.24, respectively.

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

e)In December 2004, an investor of ordinary shares sold
9,729,600 outstanding ordinary shares to third party investors
at a price of $0.51. These ordinary shares were
re-designated as
Series C-1
convertible redeemable preference shares. The
re-designation resulted
in a deemed dividend of $4,897,623 which represented the
difference between the fair value of the
Series C-1
convertible redeemable preference shares of $0.51 and the
issuance price of ordinary shares of $0.01.

Prior to the redemption or conversion of all
Series C-2
convertible redeemable preference shares issued by the Group,
any holder of
Series C-1
convertible redeemable preference shares thereof could have, at
any time, required the Group to redeem such shares out of funds
legally available therefore in connection with the redemption of
any Series C-1
convertible redeemable preference shares under this Clause, the
Group would have paid a redemption price equal to the
Series C-1
convertible redeemable preference shares Issue Price of $0.51
plus all declared but unpaid dividends on the
Series C-1
convertible redeemable preference shares through to the date of
redemption thereof.

The significant terms of the Series A, Series B,
Series C-1 and
Series C-2
convertible redeemable preference shares are as follows:

Conversion

Each Series A and Series B convertible redeemable
preference share was automatically convertible into one ordinary
share at any time after the date of issuance of such shares,
subject to anti-dilution or performance adjustment based on an
initial conversion price of $0.15 and $0.24, respectively, upon
the consummation of a Series A/ B Qualified Public Offering
or obtaining the necessary written consent from the holders of
Series A and Series B convertible redeemable
preference shares. A Series A/B Qualified Public Offering
referred to the closing of an underwritten public offering of
the ordinary shares of the Group in the United States that was
registered under the Securities Act of 1933 representing at
least 25% of the fully-diluted share capital of the Group
immediately following the offering, at a price per share that
values the Group at no less than $200,000,000 immediately prior
to the offering.

Each Series C-1
and Series C-2
convertible redeemable preference share was automatically
convertible into one ordinary share at any time after the date
of issuance of such shares, subject to anti-dilution or
performance adjustment based on an initial conversion price of
$0.51 and $0.51, respectively, upon the consummation of a
Series C Qualified Public Offering or obtaining the
necessary written consent from the holders of
Series C-1 and
Series C-2
convertible redeemable preference shares. A Series C
Qualified Public Offering referred to the closing of an
underwritten public offering of the ordinary shares of the Group
in the United States that has been registered under the
Securities Act of 1933 which represents at least 25% of the
fully-diluted share capital of the Group immediately following
the offering, at a price per share that values the Group at no
less than $335,000,000 immediately prior to the offering.

The conversion price of Series A, Series B,
Series C-1 and
Series C-2
convertible redeemable preference shares was subject to
adjustment for dilution, including but not limited to share
splits, share dividends and recapitalization.

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

Additionally, the conversion price was to be adjusted for
dilution in the following circumstances:



1) In the event that the Group issued additional ordinary
    shares at a price per share less than the then prevailing
    Series A, Series B and Series C convertible
    redeemable preference shares respective conversion price,
    the Series A, Series B and Series C convertible
    redeemable preference shares respective conversion price
    was to be reduced, concurrently with such issuance, to a price
    (calculated to the nearest cent) equal to the price per share at
    which such additional shares were to be issued.2) If the Groups financial results of 2004 and 2005
    did not meet specified targets. Under the terms of the amended
    and restated memorandum and articles of association in April
    2005, the performance-based adjustment was not triggered in 2004.Voting Rights

Each Series A, Series B, Series C-1 and
Series C-2 redeemable convertible preference share had
voting rights equivalent to the number of shares of ordinary
shares into which it was convertible.

Dividends

The holders of Series A, Series B, Series C-1 and
Series C-2 redeemable convertible preference shares were to
be entitled to receive out of any funds legally available
therefore, when and if declared by the Board of Directors of the
Group, dividends at the rate or in the amount as the Board of
Directors considers appropriate.

Liquidation Preference

In the event of any liquidation, dissolution or winding up of
the Group, as defined, the holders of Series A,
Series B, Series C-1 and Series C-2 convertible
redeemable preference shares were to receive $0.06 per
share, $0.24 per share, $0.51 per share and
$0.51 per share, respectively, plus all declared but unpaid
dividends. Such amounts were to be adjusted for any share
splits, share dividends and recapitalization.

In the event of any liquidation, dissolution or winding up of
the Group caused by a Trade Sale, which is defined
as any sales of shares, merger, consolidation or other similar
transaction involving the Group in which its shareholders do not
retain a majority of the voting power in the surviving entity,
or a sale of all or substantially all the Groups assets,
the holder of Series B redeemable convertible preference
shares were to receive the higher of (i) 200% of the
original purchase price of the Series B preference shares,
for each Series B redeemable convertible preference share
outstanding or (ii) the amount the holder would have
received if all of the Series B redeemable convertible
preference shares held by such holder were to be converted to
ordinary shares immediately prior to such liquidation,
dissolution or winding up of the Group. According to the
articles of association amended on November 29, 2004 (the
Modification Date), the net settlement feature of
the Series B convertible redeemable preference shares under
trade sale was removed.

The embedded conversion option of Series B convertible
redeemable preference shares has been recorded at its fair value
of $1,179,689 and accounted for separately as an embedded
conversion option. The Group has accounted for the derivative
liability relating to the conversion option by adjusting the
liability its estimated fair value at each subsequent balance
sheet date up to the Modification Date, with adjustments
recorded as other income or expenses. In 2004, the Group

F-48



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

adjusted the derivative liability to fair market value and
recorded a change in fair value of the derivative liability of
$11,692,287 in the consolidated statements of operations. The
Group recorded a deemed dividend of $1,179,689 in 2004, which
resulted from the accretion of the discount of Series B
convertible redeemable preference shares. On the Modification
Date, the Group has re-combined the fair value of the derivative
liability of $12,871,976 with Series B convertible
redeemable preference shares and subsequently recorded an
accretion of premium of $12,906,774, which represented the
difference of the carrying balance of Series B convertible
redeemable preference shares at the Modification Date and its
initial issuance date.



18.
    Ordinary Shares(a) In April 2003 the Group issued 2,000,000 ordinary
shares for cash proceeds of $1,625,000.

(b) In May 2003, the Board of Directors approved a share
split of 100:1 of the ordinary shares which has been
retroactively reflected in the Groups financial statements.

(c) In April 2004, 62,400,000 outstanding ordinary shares
were reclassified and redesignated into 62,400,000 Series A
convertible redeemable preference shares.

(d) In September 2004, the Group issued 14,594,200 ordinary
shares as partial consideration of the acquisition of all the
outstanding ordinary shares of Perfect Media (Note 3 (6)).

(e) In December 2004, 9,729,600 outstanding ordinary shares
were sold and redesignated in 9,729,600
Series C-1
convertible redeemable preference shares.

(f) On May 31, 2005, shareholders of the Group
approved a 200-for-1
split of the Companys shares, with immediate effect. The
200-for-l share split of the Companys shares has been
retroactively applied to all periods presented.

(g) Upon initial public offering, the Group issued
77,575,000 ordinary shares, for US$1.7 per ordinary share,
for total proceeds of US$118,174,130, net of offering expenses.

(h) On January 1, 2006, the Group issues 22,157,003
ordinary shares, for US$2.46 per share, as partial consideration
of the acquisition of all the outstanding ordinary shares of
Infoachieve (Note 3 (21)).

(i) In January 2006 upon the secondary offering, the Group
issued 15,000,000 ordinary shares, for US$4.35 per ordinary
share, for total proceeds of US$61,783,300, net of offering
expenses of US$3,466,700.

(j) On February 28, 2006, the Group issues 77,000,000
ordinary shares, for US$3.00 per share, as partial consideration
of the acquisition of all the outstanding ordinary shares of
Target Media (Note 3 (23)).

(k) On March 1, 2006, the Group issues 74,720 ordinary
shares, for US$5.00 per share, as full consideration of the
acquisition of the remaining 25% outstanding ordinary
shares of in Focus Media Wuhan (Note 3 (2))



19.
    Mainland China Contribution Plan and Profit AppropriationFull time employees of the Group in the PRC participate in a
government-mandated multiemployer defined contribution plan
pursuant to which certain pension benefits, medical care,

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

unemployment insurance, employee housing fund and other welfare
benefits are provided to employees. PRC labor regulations
require the Group to accrue for these benefits based on certain
percentages of the employees salaries. The total
contribution for such employee benefits were $60,609, $338,923,
$619,831 and $440,349 for the years ended December 31,
2003, 2004, 2005 and three months ended March 31, 2006
(unaudited), respectively.

Pursuant to laws applicable to entities incorporated in the PRC,
the Group subsidiaries in the PRC must make appropriations from
after-tax profit to non-distributable reserve funds. These
reserve funds include one or more of the following: (i) a
general reserve, (ii) an enterprise expansion fund and
(iii) a staff bonus and welfare fund. Subject to certain
cumulative limits, the general reserve fund requires annual
appropriations of 10% of after tax profit (as determined under
accounting principles generally accepted in the PRC at each
year-end) until such cumulative appropriation reaches 50% of the
registered capital; the other fund appropriations are at the
companys discretion. These reserve funds can only be used
for specific purposes of enterprise expansion and staff bonus
and welfare and are not distributable as cash dividends. In
2003, 2004, 2005, the Group made total appropriations of $nil,
$1,488,000, $98,729, respectively.



20.
    Commitments(a) Leases

The Group has entered into certain leasing arrangements relating
to the placement of the flat-panel television screens and poster
frames in various locations where the Group operates the
networks and in connection with the lease of the Groups
office premises. Rental expense under operating leases for 2003,
2004, 2005 and three months ended March 31, 2006
(unaudited) were $803,079, $3,648,829 and $15,481,200 and
$2,910,231, respectively.

Future minimum lease payments under non-cancelable operating
lease agreements were as follows (unaudited):

|                    |  |           |             | 
|------------------- |  | --------- | ----------- | 
|                    |  | March 31, |            
|                    |  |           |            
|2007                |  | $         | 43,346,190  | 
|2008                |  |           | 33,031,315  | 
|2009                |  |           | 21,849,103  | 
|2010                |  |           | 14,209,352  | 
|2011                |  |           | 4,508,331   | 
|2012 and thereafter |  |           | 1,684,262   | 
|                    |  |           |            
|                    |  | $         | 118,628,553 | 
|                    |  |           |            



|    |                                   
|--- | ----------------------------------
|21. | Segment and Geographic Information

out-of




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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

advertising services, mobile-phone advertising services and
out-of-home television advertising services. The out-of-home
television advertising service is still the most significant
segment as of March 31, 2006 (unaudited). The Group has not
provided 2003, 2004 or 2005 segment disclosure for the poster
frame network advertising service or the mobile phone
advertising services because they did not exist prior to 2006.

The following table presents selected financial information
relating to the Groups segments for the three months ended
March 31, 2005 (unaudited) and 2006 (unaudited):

|                                                          |  |              |            |  |              |  |   |             |  |  |             | 
|--------------------------------------------------------- |  | ------------ | ---------- |  | ------------ |  | - | ----------- |  |  | ----------- | 
|                                                          |  | Poster frame |            |  |              |  |  
|                                                          |  | network      |            |  | Mobile phone |  |   | Out-of-home | 
|                                                          |  | advertising  |            |  | advertising  |  |   | advertising | 
|                                                          |  | services     |            |  | services     |  |   | services    | 
|                                                          |  |              |            |  |              |  |   |             | 
|Revenue                                                   |  |              |            |  |              |  |   |             |  |  |             | 
|For the three months ended
    March 31, 2005 (unaudited) |  |              |           |  |              |  |  |             |  |  | 9,431,521   | 
|For the three months ended
    March 31, 2006 (unaudited) |  |              | 6,067,314  |  |              |  |  |             |  |  | 26,765,467  | 
|Cost of revenue                                           |  |              |            |  |              |  |   |             |  |  |             | 
|For the three months ended
    March 31, 2005 (unaudited) |  |              |           |  |              |  |  |             |  |  | 3,188,610   | 
|For the three months ended
    March 31, 2006 (unaudited) |  |              | 2,397,268  |  |              |  |  |             |  |  | 12,008,394  | 
|Net income                                                |  |              |            |  |              |  |   |             |  |  |             | 
|For the three months ended
    March 31, 2005 (unaudited) |  |              |           |  |              |  |  |             |  |  | 2,642,493   | 
|For the three months ended
    March 31, 2006 (unaudited) |  |              | 2,626,783  |  |              |  |  |             |  |  | 6,805,986   | 
|Total assets                                              |  |              |            |  |              |  |   |             |  |  |             | 
|For the three months ended
    March 31, 2005 (unaudited) |  |              |           |  |              |  |  |             |  |  | 60,839,516  | 
|For the three months ended
    March 31, 2006 (unaudited) |  |              | 17,980,760 |  |              |  |   |             |  |  | 630,764,315 | 

Geographic Information






out-of




|    |                           
|--- | --------------------------
|22. | Related Party Transactions



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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

In 2003, the Group purchased equipment from a company under
common control for cash proceeds of $1,208,131.

Details of gross advertising service revenue from related
parties for the years ended December 31, 2003, 2004, 2005
and three months ended March 31, 2005 (unaudited) and
2006 (unaudited) are as follows:

|                                                             |  |                     |                     |                         |      |                    |           |      |  |             |           |  |             |      |           |  |      |   |           |  |  |   |           | 
|------------------------------------------------------------ |  | ------------------- | ------------------- | ----------------------- | ---- | ------------------ | --------- | ---- |  | ----------- | --------- |  | ----------- | ---- | --------- |  | ---- | - | --------- |  |  | - | --------- | 
|                                                             |  |                     |                     |                         |      | Three months ended |          
|                                                             |  |                     |                     | Year ended December 31, |      |                    | March 31, |     
|                                                             |  |                     |                     |                         |      |                    |           |     
|Name of related parties                                      |  | Director interested |                     |                         | 2003 |                    |           | 2004 |  |             | 2005      |  |             | 2005 |           |  | 2006 |  
|                                                             |  |                     |                     |                         |      |                    |           |      |  |             |           |  |             |      |           |  |      |  
|                                                             |  |                     |                     |                         |      |                    |           |      |  | (Unaudited) |           |  | (Unaudited) |     
|Everease Advertising &
    Communication Ltd.                |  |                     | Jason Nanchun Jiang |                         |      | $                  | 978,058   |      |  | $           | 1,367,351 |  |             | $    |          |  |      | $ | 307,387   |  |  | $ |          | 
|Multimedia Park Venture Capital                              |  |                     | Jimmy Wei Yu        |                         |      |                    | 120,821   |      |  |             | 1,227,267 |  |             |      | 2,330,945 |  |      |   | 660,417   |  |  |   | 1,636,076 | 
|Shanghai Jobwell Business
    Consulting Ltd.                |  |                     | Jimmy Wei Yu        |                         |      |                    |          |      |  |             | 411,034   |  |             |      | 1,050,258 |  |      |   | 16,637    |  |  |   | 474,754   | 
|Shanghai Wealove Wedding Service
    Co., Ltd.               |  |                     | Jimmy Wei Yu        |                         |      |                    |          |      |  |             | 372,488   |  |             |      | 757,850   |  |      |   | 10,817    |  |  |   | 410,158   | 
|Shanghai Hetong Network Technology
    Co., Ltd.             |  |                     | Jimmy Wei Yu        |                         |      |                    |          |      |  |             | 361,371   |  |             |      | 908,100   |  |      |   | 15,865    |  |  |   | 390,089   | 
|Ctrip Travel Information Technology
    (Shanghai) Co., Ltd. |  |                     | Neil Nanpeng Shen   |                         |      |                    |          |      |  |             | 48,287    |  |             |      | 264,120   |  |      |   | 123,058   |  |  |   | 44,683    | 
|                                                             |  |                     |                     |                         |      |                    |           |      |  |             |           |  |             |      |           |  |      |  
|                                                             |  |                     |                     |                         |      | $                  | 1,098,879 |      |  | $           | 3,787,798 |  |             | $    | 5,311,273 |  |      | $ | 1,134,181 |  |  | $ | 2,955,760 | 
|                                                             |  |                     |                     |                         |      |                    |           |      |  |             |           |  |             |      |           |  |      |  

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##### Table of Contents

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
FOR THE

THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED) AND 2006
(UNAUDITED)

(In U.S. dollars except share data and unless otherwise
stated)

Details of amounts due from related parties as of
December 31, 2003, 2004, 2005 and March 31, 2006
(unaudited) are as follows:

|                                                             |  |                     |                     |              |      |   |           |      |  |             |           |  |  |      |           |  |  |   |           | 
|------------------------------------------------------------ |  | ------------------- | ------------------- | ------------ | ---- | - | --------- | ---- |  | ----------- | --------- |  |  | ---- | --------- |  |  | - | --------- | 
|                                                             |  |                     |                     | December 31, |      |   | March 31, |     
|                                                             |  |                     |                     |              |      |   |           |     
|Name of related parties                                      |  | Director interested |                     |              | 2003 |   |           | 2004 |  |             | 2005      |  |  | 2006 |          
|                                                             |  |                     |                     |              |      |   |           |      |  |             |           |  |  |      |          
|                                                             |  |                     |                     |              |      |   |           |      |  | (Unaudited) |          
|Shanghai Everease
    Advertising & Communication Ltd.       |  |                     | Jason Nanchun Jiang |              |      | $ | 252,576   |      |  | $           | 1,259,138 |  |  | $    |          |  |  | $ |          | 
|Multimedia Park Venture Capital                              |  |                     | Jimmy Wei Yu        |              |      |   |          |      |  |             | 690,212   |  |  |      | 330,700   |  |  |   | 1,656,268 | 
|Shanghai Jobwell Business
    Consulting Ltd.                |  |                     | Jimmy Wei Yu        |              |      |   |          |      |  |             | 275,971   |  |  |      | 546,207   |  |  |   | 477,022   | 
|Shanghai Wealove Wedding Service
    Co., Ltd.               |  |                     | Jimmy Wei Yu        |              |      |   |          |      |  |             | 251,556   |  |  |      | 662,953   |  |  |   | 412,118   | 
|Shanghai Hetong Network Technology
    Co., Ltd.             |  |                     | Jimmy Wei Yu        |              |      |   |          |      |  |             | 263,155   |  |  |      | 533,469   |  |  |   | 391,953   | 
|Ctrip Travel Information Technology
    (Shanghai) Co., Ltd. |  |                     |                     |              |      |   |          |      |  |             |          |  |  |      |          |  |  |   | 44,895    | 
|                                                             |  |                     |                     |              |      |   |           |      |  |             |           |  |  |      |          
|                                                             |  |                     |                     |              |      | $ | 252,576   |      |  | $           | 2,740,032 |  |  | $    | 2,073,329 |  |  | $ | 2,982,256 | 
|                                                             |  |                     |                     |              |      |   |           |      |  |             |           |  |  |      |          



|                                                       |  |                     |                     |              |      |           |           |      |  |             |   |      |  |   |   |  |  |   |           | 
|------------------------------------------------------ |  | ------------------- | ------------------- | ------------ | ---- | --------- | --------- | ---- |  | ----------- | - | ---- |  | - | - |  |  | - | --------- | 
|                                                       |  |                     |                     | December 31, |      | March 31, |          
|                                                       |  |                     |                     |              |      |           |          
|Name of related parties                                |  | Director interested |                     |              | 2003 |           |           | 2004 |  | 2005        |   | 2006 | 
|                                                       |  |                     |                     |              |      |           |           |      |  |             |   |      | 
|                                                       |  |                     |                     |              |      |           |           |      |  | (Unaudited) |  
|Shanghai Everease
    Advertising & Communication Ltd. |  |                     | Jason Nanchun Jiang |              |      | $         | 1,386,124 |      |  | $           |  |      |  | $ |  |  |  | $ |          | 
|Weiqiang Jiang (direct family
    member)              |  |                     | Jason Nanchun Jiang |              |      |           |          |      |  |             |  |      |  |   |  |  |  |   | 2,496,212 | 
|Multimedia Park Venture Capital                        |  |                     | Jimmy Wei Yu        |              |      |           | 627,774   |      |  |             |  |      |  |   |  |  |  |   |          | 
|                                                       |  |                     |                     |              |      |           |           |      |  |             |   |      |  |   |  
|                                                       |  |                     |                     |              |      | $         | 2,013,898 |      |  | $           |  |      |  | $ |  |  |  | $ | 2,496,212 | 
|                                                       |  |                     |                     |              |      |           |           |      |  |             |   |      |  |   |  





|    |                      
|--- | ---------------------
|22. | Restricted Net Assets





|    |                             
|--- | ----------------------------
|23. | Subsequent Event (Unaudited)

On June 21, 2006, the Group and
certain of the Groups pre-IPO shareholders successfully completed a
follow-on public offering. In this offering, including the
over-allotment option exercised by the underwriters, the Group sold
1,600,000 ADSs and the selling shareholders sold an additional
6,100,000 ADSs to the public.


F-53



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##### Table of Contents

INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL

INFORMATION

|                                                                                                                     |  |      |     | 
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                     |  | Page |    
|                                                                                                                     |  |      |    
|Introduction to Unaudited Pro Forma
    Condensed Consolidated Financial Information                                 |  |      | P-2 | 
|Unaudited Pro Forma Condensed
    Consolidated Statement of Operations for the year ended
    December 31, 2005      |  |      | P-3 | 
|Unaudited Pro Forma Condensed
    Consolidated Statement of Operations for the three months
    ended March 31, 2006 |  |      | P-4 | 
|Notes to the Unaudited Pro Forma
    Condensed Consolidated Financial Information                                    |  |      | P-5 | 

P-1



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##### Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION

(in U.S. dollars)

Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Information

The following unaudited pro forma condensed consolidated
financial information is derived from the historical financial
statements of Focus Media Holding Limited, appearing elsewhere
in this annual report, after giving effects to the pro forma
adjustments described in the notes thereto. Financial
information with respect to the acquisitions are derived from
the historical financial statements of Capital Beyond Limited,
Infoachieve Limited and Target Media Holdings Limited
(Target Media) available in Focus Media Holding Limited's
registration statement on Form F-1 (File No. 333-134714).

The preparation of the unaudited pro forma condensed
consolidated statements of operations appearing below is based
on financial statements prepared in accordance with the
accounting principles generally accepted in the United States of
America (US GAAP). These principles require the use
of estimates that affect the reported amounts of revenues and
expenses. Actual results could differ from those estimates. The
objective of the unaudited pro forma condensed consolidated
statements of operations is to provide information on the impact
of the acquisitions of Capital Beyond Limited, Infoachieve
Limited and Target Media (the Acquired Businesses).
These Acquired Businesses permitted Focus Media Holding Limited
to expand its network including the growth and further
segmentation of its commercial location and in-store networks,
and the addition of its poster frame advertising network.

The unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 2005 presents
adjustments as if the acquisitions of Acquired Businesses had
been consummated on January 1, 2005. The unaudited pro
forma condensed consolidated statement of operations for the
three months ended March 31, 2006 presents adjustments as
if the acquisitions of Target Media had been consummated on
January 1, 2005.

The following unaudited pro forma condensed consolidated
statements of operations should be read in conjunction with the
historical consolidated financial statements, unaudited pro
forma condensed consolidated statements of operations and
Item 5. Operating and Financial Review and Prospects included elsewhere in
this annual report.

The unaudited pro forma condensed consolidated financial
information presented in this annual report includes all the
adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the operating results in
the historical periods. However, because such adjustments are
based on estimates such as the estimated amortization period for
the acquired intangible assets for Framedia and Target Media, it
is not intended to show how the consolidated companies would
have actually performed if the events described above had in
fact occurred on the dates assumed or to project the results of
operations or financial position for any future date or period.
In addition, the financial information of Target Media for the
two month period ended February 28, 2006 has not been
audited or reviewed by an independent registered public
accounting firm but is derived from management accounts.
Accordingly, the financial information of Target Media for that
period, including the statement of operations relating to Target
Media, that has been used to calculate the pro forma financial
information as of and for the three month period ended
March 31, 2006 may differ significantly from any actual
consolidated statement of operations financial information had
it been audited or reviewed by an independent registered public
accounting firm. See Item 3.D Key Information  Risk Factors  The
unaudited pro forma condensed consolidated financial information
included in this annual report contains financial information that
has not been audited or reviewed by an independent certified
public accounting firm, and that is derived in part by
estimates, and accordingly the pro forma financial information
may differ significantly from the actual consolidated financial
information.

P-2



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##### Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2005

(In U.S. Dollars, except share data)

|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     |   |             |            |  
|---------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------------------ | ----------- | ---------- | --------------- | ----------- | -------- | ------------ | ------------ | - | ----------- | ---------- | - | ----------- | ---------- | ---------- | ---- | - | ---------- | ------- | - | --- | --- | - | ----------- | ---------- | -
|                                                                                                                 |                              |                    |             |            |                 | Infoachieve |          |              | Target Media |   |             |            |   |             |            |           
|                                                                                                                 |                              | Focus Media        |             |            | Capital Beyond  |             |          | Limited for  |              |   | Limited for |            |   |             |            |            |      |  
|                                                                                                                 |                              | Holding Limited    |             |            | Limited for the |             |          | the year     |              |   | the year    |            |   |             |            |            |      |  
|                                                                                                                 |                              | for the year ended |             |            | three months    |             |          | ended        |              |   | ended       |            |   |             |            |            |      |  
|                                                                                                                 |                              | December 31,       |             |            | ended March     |             |          | December 31, |              |   | December    |            |   | Pro forma   |            |            |      |   |           
|                                                                                                                 |                              | 2005               |             |            | 31, 2005        |             |          | 2005         |              |   | 31, 2005    |            |   | Adjustments |            |            | Note |   | Pro Forma  |        
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|                                                                                                                 |                              |                    |             |            |                 |             |          | (a)          |              |   |             |            |   |             |           
|Net Revenues:                                                                                                    |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     |   |             |           
|                                                                                                                 |  Commercial locations       |                    | $           | 61,434,760 |                 |             | $        |             |              |   | $           |           |   |             | $          | 33,693,000 |      |   | $          |        |   |     |     |   | $           | 95,127,760 |  
|                                                                                                                 |  In-store network           |                    |             | 5,468,919  |                 |             |          |             |              |   |             |           |   |             |            |           |      |   |            |        |   |     |     |   |             | 5,468,919  |  
|                                                                                                                 |  Poster Frame Network       |                    |             |           |                 |             |          |             |              |   |             | 11,828,519 |   |             |            |           |      |   |            |        |   |     |     |   |             | 11,828,519 |  
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Advertising Service Revenue                                                                                      |                              |                    | 66,903,679  |            |                 |             |         |              |              |   | 11,828,519  |            |   |             | 33,693,000 |            |      |   |           |         |   |     |     |   | 112,425,198 |           
|Advertising Equipment Revenue                                                                                    |                              |                    | 1,325,234   |            |                 |             |         |              |              |   |            |            |   |             |           |            |      |   |           |         |   |     |     |   | 1,325,234   |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Total net revenues                                                                                               |                              |                    | 68,228,913  |            |                 |             |         |              |              |   | 11,828,519  |            |   |             | 33,693,000 |            |      |   |           |         |   |     |     |   | 113,750,432 |           
|Cost of Revenues:                                                                                                |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     |   |             |           
|                                                                                                                 |  Commercial locations       |                    |             | 17,943,318 |                 |             |          | 122,038      |              |   |             |           |   |             |            | 16,321,000 |      |   |            | (55,934 | ) |     | (4) |   |             | 34,330,422 |  
|                                                                                                                 |  In-store network           |                    |             | 7,422,641  |                 |             |          |             |              |   |             |           |   |             |            |           |      |   |            |        |   |     |     |   |             | 7,422,641  |  
|                                                                                                                 |  Poster Frame Network       |                    |             |           |                 |             |          |             |              |   |             | 7,233,043  |   |             |            |           |      |   |            |        |   |     |     |   |             | 7,233,043  |  
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Advertising Service Cost                                                                                         |                              |                    | 25,365,959  |            |                 |             | 122,038  |              |              |   | 7,233,043   |            |   |             | 16,321,000 |            |      |   | (55,934    | )       |   |     |     |   | 48,986,106  |           
|Advertising Equipment Cost                                                                                       |                              |                    | 975,747     |            |                 |             |         |              |              |   |            |            |   |             |           |            |      |   |           |         |   |    |     |   | 975,747     |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Total cost of revenues                                                                                           |                              |                    | 26,341,706  |            |                 |             | 122,038  |              |              |   | 7,233,043   |            |   |             | 16,321,000 |            |      |   | (55,934    | )       |   |     |     |   | 49,961,853  |           
|Gross profit (loss)                                                                                              |                              |                    | 41,887,207  |            |                 |             | (122,038 | )            |              |   | 4,595,476   |            |   |             | 17,372,000 |            |      |   | 55,934     |         |   |     |     |   | 63,788,579  |           
|Operating expenses:                                                                                              |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     |   |             |           
|General and administrative                                                                                       |                              |                    | 9,119,846   |            |                 |             | 607      |              |              |   | 5,428,018   |            |   |             | 1,945,000  |            |      |   | (307,672   | )       |   | (4) |     |   | 16,185,799  |           
|Selling and marketing                                                                                            |                              |                    | 9,543,748   |            |                 |             |         |              |              |   | 3,363,704   |            |   |             | 8,584,000  |            |      |   | (88,468    | )       |   | (4) |     |   | 21,402,984  |           
|Amortization of acquired intangibles                                                                             |                              |                    | 437,837     |            |                 |             |         |              |              |   |            |            |   |             |           |            |      |   | 4,201,715  |         |   | (1) |     |   | 4,639,552   |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Total operating
    expenses                                                                                     |                              |                    | 19,101,431  |            |                 |             | 607      |              |              |   | 8,791,722   |            |   |             | 10,529,000 |            |      |   | 3,805,575  |         |   |     |     |   | 42,228,335  |           
|Income (loss) from
    operations                                                                                |                              |                    | 22,785,776  |            |                 |             | (122,645 | )            |              |   | (4,196,246  | )          |   |             | 6,843,000  |            |      |   | (3,749,641 | )       |   |     |     |   | 21,560,244  |           
|                                                                                                                 | Interest income/(expenses)   |                    |             | 1,761,909  |                 |             |          | 48           |              |   |             | (170,557   | ) |             |            | 68,000     |      |   |            |        |   |     |     |   |             | 1,659,400  |  
|                                                                                                                 | Other income (expenses), net |                    |             | (161,148   | )               |             |          | (29          | )            |   |             | (3,857     | ) |             |            | (94,000    | )    |   |            |        |   |     |     |   |             | (259,034   | )
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Income (loss) before income
    taxes and minority interests                                                     |                              |                    | 24,386,537  |            |                 |             | (122,626 | )            |              |   | (4,370,660  | )          |   |             | 6,817,000  |            |      |   | (3,749,641 | )       |   |     |     |   | 22,960,610  |           
|Income taxes:                                                                                                    |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     |   |             |           
|                                                                                                                 | Current                      |                    |             | 715,117    |                 |             |          |             |              |   |             | 1,941      |   |             |            |           |      |   |            |        |   |     |     |   |             | 717,058    |  
|                                                                                                                 | Deferred                     |                    |             | (20,664    | )               |             |          |             |              |   |             |           |   |             |            |           |      |   |            |        |   |     |     |   |             | (20,664    | )
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Total income taxes                                                                                               |                              |                    | 694,453     |            |                 |             |         |              |              |   | 1,941       |            |   |             |           |            |      |   |           |         |   | (6) |     |   | 696,394     |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Net income (loss) after
    income taxes before minority interests                                               |                              |                    | 23,692,084  |            |                 |             | (122,626 | )            |              |   | (4,372,601  | )          |   |             | 6,817,000  |            |      |   | (3,749,641 | )       |   |     |     |   | 22,264,216  |           
|Minority interests                                                                                               |                              |                    | 144,433     |            |                 |             |         |              |              |   |            |            |   |             | (22,000    | )          |      |   |           |         |   |     |     |   | 122,433     |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Net income (loss)                                                                                                |                              |                    | 23,547,651  |            |                 |             | (122,626 | )            |              |   | (4,372,601  | )          |   |             | 6,839,000  |            |      |   | (3,749,641 | )       |   |     |     |   | 22,141,783  |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     |   |            |           
|Deemed dividend on ordinary shares                                                                               |                              |                    |            |            |                 |             |         |              |              |   | (15,187,200 | )          |   |             |           |            |      |   |           |         |   |     |     |   | (15,187,200 | )         
|Deemed dividend on Series A-1
    convertible redeemable preference shares 
    Redesignation                   |                              |                    |            |            |                 |             |         |              |              |   | (1,136,700  | )          |   |             |           |            |      |   | 1,136,700  |         |   | (3) |     |   |            |           
|Deemed dividend on Series A-1
    convertible redeemable preference shares  Accretion
    of redemption premium |                              |                    |            |            |                 |             |         |              |              |   | (378,985    | )          |   |             |           |            |      |   | 378,985    |         |   | (3) |     |   |            |           
|Deemed dividend on Series A-2
    convertible redeemable preference shares 
    Redesignation                   |                              |                    |            |            |                 |             |         |              |              |   | (623,700    | )          |   |             |           |            |      |   | 623,700    |         |   | (3) |     |   |            |           
|Deemed dividend on Series A-2
    convertible redeemable preference shares  Accretion
    of redemption premium |                              |                    |            |            |                 |             |         |              |              |   | (207,820    | )          |   |             |           |            |      |   | 207,820    |         |   | (3) |     |   |            |           
|Accretion to Series A
    redeemable convertible preferred shares redemption value                               |                              |                    |            |            |                 |             |         |              |              |   |            |            |   |             | (3,288,000 | )          |      |   | 3,288,000  |         |   | (3) |     |   |            |           
|Accretion to Series B
    redeemable convertible preferred shares redemption value                               |                              |                    |            |            |                 |             |         |              |              |   |            |            |   |             | (960,000   | )          |      |   | 960,000    |         |   | (3) |     |   |            |           
|Beneficial conversion of
    Series A redeemable convertible preferred shares                                    |                              |                    |            |            |                 |             |         |              |              |   |            |            |   |             | (3,021,000 | )          |      |   |           |         |   |     |     |   | (3,021,000  | )         
|Beneficial conversion of
    Series B redeemable convertible preferred shares                                    |                              |                    |            |            |                 |             |         |              |              |   |            |            |   |             | (806,000   | )          |      |   |           |         |   |     |     |   | (806,000    | )         
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Net income
    (loss) attributable to holders of ordinary shares                                                 |                              | $                  | 23,547,651  |            |                 | $           | (122,626 | )            |              | $ | (21,907,006 | )          |   | $           | (1,236,000 | )          |      | $ | 2,845,564  |         |   |     |     | $ | 3,127,583   |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Income per share  basic                                                                                         |                              | $                  | 0.09        |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     | $ | 0.01        |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Shares used in calculating basic
    income per share                                                            |                              |                    | 252,128,545 |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   | (5) |     |   | 351,285,548 |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Income per share  diluted                                                                                       |                              | $                  | 0.06        |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   |     |     | $ | 0.01        |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        
|Shares used in calculating diluted
    income per share                                                          |                              |                    | 365,938,094 |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |         |   | (5) |     |   | 465,095,097 |           
|                                                                                                                 |                              |                    |             |            |                 |             |          |              |              |   |             |            |   |             |            |            |      |   |            |        







P-3



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##### Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2006

(In U.S. Dollars, except share data)

|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |    |   |  |   |             |            |  
|------------------------------------------------------------------ | ---------------------------- | --------------------- | ----------- | ---------- | -------------------- | - | ---------- | ----------- | - | - | -------- | - |  | --------- | -- | - |  | - | ----------- | ---------- | -
|                                                                   |                              | Focus Media Holding   |             |            | Target Media Limited |   |            |             |   |   |          |  
|                                                                   |                              | Limited for the three |             |            | for the two months   |   |            |             |   |   |          |  
|                                                                   |                              | months ended          |             |            | ended February 28,   |   |            | Pro forma   |   |   |          |   | 
|                                                                   |                              | March 31,2006         |             |            | 2006                 |   |            | Adjustments |   |   | Note     |   |  | Pro Forma |   
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|                                                                   |                              |                       |             | (b)        |                      |   |            |             |   |   |         
|Net Revenues:                                                      |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |    |   |  |   |             |           
|                                                                   |  Commercial locations       |                       | $           | 21,472,376 |                      |   | $          | 3,068,289   |   |   | $        |  |  |           |    |   |  |   | $           | 24,540,665 |  
|                                                                   |  In-store network           |                       |             | 5,293,091  |                      |   |            |            |   |   |          |  |  |           |    |   |  |   |             | 5,293,091  |  
|                                                                   |  Poster Frame Network       |                       |             | 6,067,314  |                      |   |            |            |   |   |          |  |  |           |    |   |  |   |             | 6,067,314  |  
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Advertising Service Revenue                                        |                              |                       | 32,832,781  |            |                      |   | 3,068,289  |             |   |   |         |   |  |           |    |   |  |   | 35,901,070  |           
|Advertising Equipment Revenue                                      |                              |                       | 304,066     |            |                      |   |           |             |   |   |         |   |  |           |    |   |  |   | 304,066     |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Total net revenues                                                 |                              |                       | 33,136,847  |            |                      |   | 3,068,289  |             |   |   |         |   |  |           |    |   |  |   | 36,205,136  |           
|Cost of Revenues:                                                  |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |    |   |  |   |             |           
|                                                                   |  Commercial locations       |                       |             | 8,035,150  |                      |   |            | 3,792,503   |   |   |          |  |  |           |    |   |  |   |             | 11,827,653 |  
|                                                                   |  In-store network           |                       |             | 3,973,244  |                      |   |            |            |   |   |          |  |  |           |    |   |  |   |             | 3,973,244  |  
|                                                                   |  Poster Frame Network       |                       |             | 2,397,268  |                      |   |            |            |   |   |          |  |  |           |    |   |  |   |             | 2,397,268  |  
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Advertising Service Cost                                           |                              |                       | 14,405,662  |            |                      |   | 3,792,503  |             |   |   |         |   |  |           |    |   |  |   | 18,198,165  |           
|Advertising Equipment Cost                                         |                              |                       | 231,814     |            |                      |   |           |             |   |   |         |   |  |           |    |   |  |   | 231,814     |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Total cost of revenues                                             |                              |                       | 14,637,476  |            |                      |   | 3,792,503  |             |   |   |         |   |  |           |    |   |  |   | 18,429,979  |           
|Gross profit (loss)                                                |                              |                       | 18,499,371  |            |                      |   | (724,214   | )           |   |   |         |   |  |           |    |   |  |   | 17,775,157  |           
|Operating expenses:                                                |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |    |   |  |   |             |           
|General and administrative                                         |                              |                       | 4,395,342   |            |                      |   | 2,541,194  |             |   |   |         |   |  |           |    |   |  |   | 6,936,536   |           
|Selling and marketing                                              |                              |                       | 4,057,199   |            |                      |   | 3,114,507  |             |   |   |         |   |  |           |    |   |  |   | 7,171,706   |           
|Amortization of acquired intangibles                               |                              |                       | 999,178     |            |                      |   |           |             |   |   | 205,350  |   |  |           | (2 | ) |  |   | 1,204,528   |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Total operating
    expenses                                       |                              |                       | 9,451,719   |            |                      |   | 5,655,701  |             |   |   | 205,350  |   |  |           |    |   |  |   | 15,312,770  |           
|Income (loss) from
    operations                                  |                              |                       | 9,047,652   |            |                      |   | (6,379,915 | )           |   |   | (205,350 | ) |  |           |    |   |  |   | 2,462,387   |           
|                                                                   | Interest income/(expenses)   |                       |             | 915,952    |                      |   |            | (23,177     | ) |   |          |  |  |           |    |   |  |   |             | 892,775    |  
|                                                                   | Other income (expenses), net |                       |             | 46,149     |                      |   |            | (1,755,019  | ) |   |          |  |  |           |    |   |  |   |             | (1,708,870 | )
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Income (loss) before income
    taxes and minority interests       |                              |                       | 10,009,753  |            |                      |   | (8,158,111 | )           |   |   | (205,350 | ) |  |           |    |   |  |   | 1,646,292   |           
|Income taxes:                                                      |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |    |   |  |   |             |           
|                                                                   | Current                      |                       |             | 65,076     |                      |   |            | (59,402     | ) |   |          |  |  |           |    |   |  |   |             | 5,674      |  
|                                                                   | Deferred                     |                       |             | 551,714    |                      |   |            |            |   |   |          |  |  |           |    |   |  |   |             | 551,714    |  
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Total income taxes                                                 |                              |                       | 616,790     |            |                      |   | (59,402    | )           |   |   |         |   |  |           | (6 | ) |  |   | 557,388     |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Net income (loss) after
    income taxes before minority interests |                              |                       | 9,392,963   |            |                      |   | (8,098,709 | )           |   |   | (205,350 | ) |  |           |    |   |  |   | 1,088,904   |           
|Minority interests                                                 |                              |                       | (39,806     | )          |                      |   | (30,588    | )           |   |   |         |   |  |           |    |   |  |   | (70,394     | )         
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Net income
    (loss) attributable to holders of ordinary shares   |                              | $                     | 9,432,769   |            |                      | $ | (8,068,121 | )           |   | $ | (205,350 | ) |  |           |    |   |  | $ | 1,159,298   |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Income per share  basic                                           |                              | $                     | 0.02        |            |                      |   |            |             |   |   |          |   |  |           |    |   |  | $ | 0.00        |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Shares used in calculating basic
    income per share              |                              |                       | 438,232,094 |            |                      |   |            |             |   |   |          |   |  |           | (5 | ) |  |   | 488,709,872 |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Income per share  diluted                                         |                              | $                     | 0.02        |            |                      |   |            |             |   |   |          |   |  |           |    |   |  | $ | 0.00        |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   
|Shares used in calculating diluted
    income per share            |                              |                       | 465,895,318 |            |                      |   |            |             |   |   |          |   |  |           | (5 | ) |  |   | 516,373,096 |           
|                                                                   |                              |                       |             |            |                      |   |            |             |   |   |          |   |  |           |   







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##### Table of Contents

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL INFORMATION

The following pro forma adjustment has been made to the
unaudited pro forma condensed consolidated financial information.

(1) Reflects amortization for the acquired intangible
assets recorded as a result of our acquisitions of Capital
Beyond Limited in March 2005, Infoachieve Limited in January
2006 and Target Media in February 2006 to reflect amortization
for the year ended December 31, 2005.

The aggregate purchase price of $94.3 million of
Infoachieve Limited is comprised of the following:

|                                     |  |                  |        | 
|------------------------------------ |  | ---------------- | ------ | 
|                                     |  | (in thousands    |       
|                                     |  | of U.S. dollars) |       
|                                     |  |                  |       
|Cash consideration                   |  | $                | 39,600 | 
|Other acquisition costs              |  |                  | 311    | 
|Fair Value of ordinary shares issued |  |                  | 54,418 | 
|                                     |  |                  |       
|                                     |  | $                | 94,329 | 
|                                     |  |                  |       





|                                  |  |                  |        |  |              |  |         | 
|--------------------------------- |  | ---------------- | ------ |  | ------------ |  | ------- | 
|                                  |  | (in thousands    |        |  | Amortization | 
|                                  |  | of U.S. dollars) |        |  | period       | 
|                                  |  |                  |        |  |              | 
|Net tangible liabilities acquired |  |                  | 5,684  |  |              |  |         | 
|Acquired intangible assets        |  |                  | 12,455 |  |              |  | 7 years | 
|Goodwill                          |  |                  | 87,558 |  |              |  |         | 
|                                  |  |                  |        |  |              | 
|Total                             |  | $                | 94,329 |  |              |  |         | 
|                                  |  |                  |        |  |              | 









|                                     |  |                  |         | 
|------------------------------------ |  | ---------------- | ------- | 
|                                     |  | (in thousands    |        
|                                     |  | of U.S. dollars) |        
|                                     |  |                  |        
|Cash consideration                   |  | $                | 94,000  | 
|Other acquisition costs              |  |                  | 2,058   | 
|Fair Value of ordinary shares issued |  |                  | 231,000 | 
|                                     |  |                  |        
|                                     |  | $                | 327,058 | 
|                                     |  |                  |        

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##### Table of Contents

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL
INFORMATION  (Continued)

The cash portion of the purchase price will be paid in three
installments. The first installment of $45 million was paid
at closing. The second installment is to be paid on
April 28, 2006. The final installment of $24 million
is to be paid on July 31, 2006. The fair value of the
ordinary shares issued for purchase price allocation purposes
was estimated using the closing market price for a reasonable
period before and after the date of the announcement of the
acquisition.

|                             |  |                  |         |  |              |  |         | 
|---------------------------- |  | ---------------- | ------- |  | ------------ |  | ------- | 
|                             |  | (in thousands    |         |  | Amortization | 
|                             |  | of U.S. dollars) |         |  | period       | 
|                             |  |                  |         |  |              | 
|Net tangible assets acquired |  |                  | 24,823  |  |              |  |         | 
|Acquired intangible assets   |  |                  | 10,827  |  |              |  | 7 years | 
|Goodwill                     |  |                  | 291,408 |  |              |  |         | 
|                             |  |                  |         |  |              | 
|Total                        |  | $                | 327,058 |  |              |  |         | 
|                             |  |                  |         |  |              | 











|                                                                                                                              |  |              |             |  |           |  |             | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- |  | --------- |  | ----------- | 
|                                                                                                                              |  | December 31, |             |  | March 31, | 
|                                                                                                                              |  | 2005         |             |  | 2006      | 
|                                                                                                                              |  |              |             |  |           | 
|Shares used in calculating basic
    income per share on a pro forma basis:                                                   |  |              |             |  |           |  |             | 
|Weighted average ordinary shares
    outstanding used in computing basic income per share for Focus
    Media Holding Limited |  |              | 252,128,545 |  |           |  | 438,232,094 | 
|Issuance of ordinary shares for the
    acquisition of Infoachieve Limited                                                    |  |              | 22,157,003  |  |           |  |            | 
|Issuance of ordinary shares for the
    acquisition of Target Media                                                           |  |              | 77,000,000  |  |           |  | 50,477,778  | 
|                                                                                                                              |  |              |             |  |           | 
|                                                                                                                              |  |              | 351,285,548 |  |           |  | 488,709,872 | 
|                                                                                                                              |  |              |             |  |           | 

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##### Table of Contents

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL
INFORMATION  (Continued)

|                                                                                                                                |  |              |             |  |           |  |             | 
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- |  | --------- |  | ----------- | 
|                                                                                                                                |  | December 31, |             |  | March 31, | 
|                                                                                                                                |  | 2005         |             |  | 2006      | 
|                                                                                                                                |  |              |             |  |           | 
|Shares used in calculating diluted
    income per share on a pro forma basis:                                                   |  |              |             |  |           |  |             | 
|Weighted average ordinary shares
    outstanding used in computing diluted income per share for Focus
    Media Holding Limited |  |              | 365,938,094 |  |           |  | 465,895,318 | 
|Issuance of ordinary shares for the
    acquisition of Infoachieve Limited                                                      |  |              | 22,157,003  |  |           |  |            | 
|Issuance of ordinary shares for the
    acquisition of Target Media                                                             |  |              | 77,000,000  |  |           |  | 50,477,778  | 
|                                                                                                                                |  |              |             |  |           | 
|                                                                                                                                |  |              | 465,095,097 |  |           |  | 516,373,096 | 
|                                                                                                                                |  |              |             |  |           | 



P-7