##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 (Mark One)
 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, 2006.
 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
    
    The NASDAQ Stock Market LLC
   
 (Title of Class)
   
 (Title of Class)
  534,896,873 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




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##### 



FOCUS MEDIA HOLDING LIMITED
 FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2006
 Table of Contents
 SUPPLEMENTAL INFORMATION
    
    
    1FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED
    
    
    1PART I
    
    
    
    
    3ITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    3ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    3ITEM 3.
    
    KEY INFORMATION
    
    
    3ITEM 4.
    
    INFORMATION ON THE COMPANY
    
    
    30ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    52ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    52ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    76ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    84ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    91ITEM 9.
    
    THE OFFER AND LISTING
    
    
    92ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    93ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    105ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    106PART II
    
    
    
    
    106ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    106ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    106ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    108ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    108ITEM 16B.
    
    CODE OF ETHICS
    
    
    109ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    109ITEM 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    109ITEM 16E.
    
    PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    109PART III
    
    
    
    
    109ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    109ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    110ITEM 19.
    
    EXHIBITS
    
    
    111EX-10.97 2006 SHARE OPTION PLAN, DATED AUGUST 22EX-10.98 SHARE PURCHASE AGREEMENT, DATED FEBRUARY 28, 2007ASSET TRANSFER AGREEMENT, DATED JANUARY 30, 2003EX-10.100 CALL OPTION AGREEMENT, DATED JANUARY 30, 2003EX-10.101 CALL OPTION AGREEMENT, DATED JANUARY 30, 2003EX-10.102 EQUITY INTERESTS PLEDGE AGREEMENT, DATED JANUARY 3EX-10.103 EQUITY INTEREST PLEDGE AGREEMENTEX-10.104 EXCLUSIVE SERVICE AGREEMENT, DATED JAN 20, 2003EX-10.105 LOAN AGREEMENT, DATED JANUARY 10, 2003EX-10.106 LOAN AGREEMENT, DATED JANUARY 10, 2003EX-10.107 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.108 CALL OPTION AGREEMENT, DATED NOVEMBER 1, 2004EX-10.109 CALL OPTION AGREEMENT, DATED NOVEMBER1, 2004EX-10.110 EQUITY INTERESTS PLEDGE AGREEMENT, NOV 1, 2004EX-10.111 EQUITY INTERESTS PLEDGE AGREEMENT, NOV 1, 2004EX-10.112 EXCLUSIVE SERVICE AGREEMENT, NOV 1, 2004EX-10.113 LOAN AGREEMENT, NOV 1, 2004EX-10.114 LOAN AGREEMENT, NOV 1, 2004EX-10.115 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.116 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.117 ASSET TRANSFER AGREEMENT, DATED NOVEMBER 30, 2004EX-10.118 CALL OPTION AGREEMENT, DATED NOVEMBER 30, 2004EX-10.119 CALL OPTION AGREEMENT, DATED NOVEMBER 30, 2004EX-10.120 EQUITY OMTERESTS PLEDGE AGREEMENT, NOV 30, 2004EX-10.121 EQUITY INTERESTS PLEDGE AGREEMENT, NOV 30, 2004EX-10.122 EXCLUSIVE SERVICES AGREEMENT, NOV 11, 2004EX-10.123 LOAN AGREEMENT, DATED NOVEMBER 1, 2004EX-10.124 LOAN AGREEMENT, DATED NOVEMBER 1, 2004EX-10.125 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.126 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.127 ASSET TRANSFER AGREEMENT, NOV 30, 2004EX-10.128 CALL OPTION AGREEMENT, DATED NOVEMBER 30, 2004EX-10.129 CALL OPTION AGREEMENT, DATED NOVEMBER 30, 2004EX-10.130 EQUITY INTERESTS PLEDGE AGREEMENT, NOV 30, 2004EX-10.131 EQUITY INTERESTS PLEDGE AGREEMENT, NOV 30, 2004EX-10.132 EXCLUSIVE SERVICE AGREEMENT, NOV 3, 2004EX-10.133 LOAN AGREEMENT, DATED NOVEMBER 1, 2004EX-10.134 LOAN AGREEMENT, DATED NOVEMBER 1, 2004EX-10.135 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTSEX-10.136 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTSEX-10.137 ASSET TRANSFER AGREEMENT, MAY 17, 2005EX-10.138 CALL OPTION AGREEMENT, MAY 17, 2005EX-10.139 CALL OPTION AGREEMENT, MAY 17, 2005EX-10.140 EQUITY INTERESTS PLEDGE AGREEMENT, MAY 17, 2005EX-10.141 EQUITY INTERESTS PLEDGE AGREEMENT, MAY 17, 2005EX-10.142 EXCLUSIVE SERVICE AGREEMENT, APRIL 30, 2005EX-10.143 LOAN AGREEMENT, DATED APRIL 20, 2005EX-10.144 LOAN AGREEMENT, DATED APRIL 20, 2005EX-10.145 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.146 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.147 SUPPLEMENTAL AGREEMENT FOR LOAN AGREEMENTEX-10.148 SUPPLEMENTAL AGREEMENT FOR LOAN AGREEMENTEX-10.149 CALL OPTION AGREEMENT , DATED JULY 1, 2006EX-10.150 CALL OPTION AGREEMENT, DATED JULY 1, 2006EX-10.151 EQUITY INTERESTS PLEDGE AGREEMENT, JULY 1, 2006EX-10.152 EQUITY INTERESTS PLEDGE AGREEMENT, JULY 1, 2006EX-10.153 EXCLUSIVE SERVICE AGREEMENT, JULY 1, 2006EX-10.154 LOAN AGREEMENT, DATED JUNE 20, 2006EX-10.155 LOAN AGREEMENT, DATED 20, 2006EX-10.156 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.157 SHAREHOLDERS' VOTING RIGHTS PROXY AGREEMENTEX-10.158 SHARE PURCHASE AGREEMENT, JULY 21, 2006EX-10.159 REGISTRATION RIGHTS AGREEMENTEX-10.160 SHAREHOLDERS' VOTING RIGHT PROXY AGREEMENTEX-12.1 CERTIFICATE OF CHIEF EXECUTIVE OFFICEREX-12.2 CERTIFICATE OF 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 OFFICEEX-21.1 LIST OF SUBSIDIARIES




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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 five 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 Limited 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
subsidiaries and affiliates, which we acquired in March 2006 and renamed Focus Media
Wireless;
    
    Allyes refers to Allyes Information Technology Company Limited, and its
consolidated subsidiaries and affiliates, which we acquired in March 2007; and
    
    This annual report on Form 20-F includes our audited consolidated financial
statements for the years ended December 31, 2004, 2005 and 2006, and as of December 31,
2005 and 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;
    
    projected revenues, profits, earnings and other estimated financial information;
 1




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##### Table of Contents




    
    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 or have
acquired, including Framedia, Target Media, Focus Media Wireless and Allyes;
    
    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,
Framedias poster frame network, our movie theater advertising network, our wireless
advertising services network and our online advertising services business;
    
    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 and through Internet advertising channels such as through Allyes;
    
    our plan to identify and create additional advertising channels that target specific
consumer demographics, which could allow us to increase our advertising revenue,
including Internet advertising channels;
    
    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.
   2




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##### Table of Contents



PART I
 
 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 December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in thousands of U.S. dollars)Selected Consolidated Statements of
Operations Data:Gross revenues
    
    $
    24
    
    
    $
    3,671
    
    
    $
    29,109
    
    
    $
    73,419
    
    
    $
    231,186Net revenues:Commercial location network(1)
    
    
    
    
    
    $
    3,369
    
    
    $
    26,321
    
    
    $
    61,435
    
    
    $
    132,061In-store network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,469
    
    
    
    26,907Poster frame network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,904Mobile Handset Advertising network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,101Advertising service revenue(1)
    
    
    
    
    
    
    3,369
    
    
    
    26,321
    
    
    
    66,904
    
    
    
    209,973Other revenues
    
    
    
    
    
    
    389
    
    
    
    2,889
    
    
    
    1,325
    
    
    
    1,932Total net revenues
    
    
    24
    
    
    
    3,758
    
    
    
    29,210
    
    
    
    68,229
    
    
    
    211,905Cost of revenues:Net advertising service cost:
 3




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##### Table of Contents



For the year ended December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in thousands of U.S. dollars)Commercial location network
    
    
    
    
    
    
    1,566
    
    
    
    6,804
    
    
    
    18,325
    
    
    
    42,836In-store network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,423
    
    
    
    18,106Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,621Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,052Advertising service cost
    
    
    
    
    
    
    1,566
    
    
    
    6,804
    
    
    
    25,748
    
    
    
    80,615Other costs
    
    
    
    
    
    
    275
    
    
    
    1,934
    
    
    
    976
    
    
    
    765Total cost of revenues
    
    
    
    
    
    
    1,841
    
    
    
    8,738
    
    
    
    26,724
    
    
    
    81,380Gross profit
    
    
    24
    
    
    
    1,917
    
    
    
    20,472
    
    
    
    41,505
    
    
    
    130,525Operating expenses:General and administrative
    
    
    21
    
    
    
    985
    
    
    
    3,988
    
    
    
    9,120
    
    
    
    25,723Selling and marketing
    
    
    3
    
    
    
    407
    
    
    
    3,473
    
    
    
    9,599
    
    
    
    25,762Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,338
    )Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    Total operating expenses
    
    
    24
    
    
    
    1,392
    
    
    
    7,519
    
    
    
    18,719
    
    
    
    50,147Income from operations
    
    
    
    
    
    
    525
    
    
    
    12,953
    
    
    
    22,786
    
    
    
    80,378Interest income
    
    
    
    
    
    
    1
    
    
    
    10
    
    
    
    1,812
    
    
    
    4,560Interest expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    (305
    )Other income
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    70
    
    
    
    271Other expenses
    
    
    
    
    
    
    (9
    )
    
    
    (58
    )
    
    
    (231
    )
    
    
    (558
    )Change 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
    
    
    
    84,346Total income taxes
    
    
    
    
    
    
    (482
    )
    
    
    (908
    )
    
    
    (694
    )
    
    
    (1,044
    )Minority interest
    
    
    
    
    
    
    8
    
    
    
    13
    
    
    
    (145
    )
    
    
    (105
    )Equity loss of affiliates
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    $
    25
    
    
    $
    372
    
    
    $
    23,548
    
    
    $
    83,197
 For the year ended December 31,2002
    
    2003
    
    2004
    
    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
    
    
    
    
    
    
    
    
    
    
    (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
    
    $
    
    
    
    $
    25
    
    
    $
    (10,577
    )
    
    $
    23,548
    
    
    $
    83,197Income (loss) per share  basic
    
    $
    
    
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    0.09
    
    
    $
    0.16Income (loss) per share  diluted
    
    $
    
    
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    0.16Shares used in calculating basic
income per share
    
    
    
    
    
    
    144,657,600
    
    
    
    160,998,600
    
    
    
    252,128,545
    
    
    
    505,411,079Shares used in calculating
diluted income per share
    
    
    
    
    
    
    144,657,600
    
    
    
    160,998,600
    
    
    
    365,938,094
    
    
    
    521,536,381
 As of December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in thousands of U.S. dollars, except share data)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    15
    
    
    $
    716
    
    
    $
    22,669
    
    
    $
    36,653
    
    
    $
    164,611Other current assets(2)
    
    
    106
    
    
    
    1,902
    
    
    
    12,713
    
    
    
    104,988
    
    
    
    78,712Non-current assets
    
    
    8
    
    
    
    2,688
    
    
    
    21,033
    
    
    
    70,713
    
    
    
    862,919Total assets
    
    
    129
    
    
    
    5,306
    
    
    
    56,415
    
    
    
    212,354
    
    
    
    1,106,242Current liabilities
    
    
    7
    
    
    
    4,119
    
    
    
    8,634
    
    
    
    20,694
    
    
    
    51,837Non-current
liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,303Total liabilities
    
    
    7
    
    
    
    4,119
    
    
    
    8,634
    
    
    
    20,694
    
    
    
    55,140Minority interest
    
    
    
    
    
    
    4
    
    
    
    81
    
    
    
    245
    
    
    
    358Mezzanine equity
    
    
    
    
    
    
    
    
    
    
    53,273
    
    
    
    
    
    
    
    
 4




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##### Table of Contents



As of December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in thousands of U.S. dollars, except share data)Ordinary shares (nil, 200,000,000,
142,464,600, 378,306,000 and
534,896,873 shares issued and
outstanding in 2002, 2003, 2004, 2005
and 2006, respectively)
    
    
    
    
    
    
    10
    
    
    
    7
    
    
    
    19
    
    
    
    27Other shareholders equity (deficiency)
    
    
    122
    
    
    
    1,173
    
    
    
    (5,580
    )
    
    
    191,396
    
    
    
    1,050,717Total shareholders equity (deficiency)
    
    $
    122
    
    
    $
    1,183
    
    
    $
    (5,573
    )
    
    $
    191,415
    
    
    $
    1,106,242
 As of December 31,2004
    
    2005
    
    2006Selected Operating Data:Number of displays in our commercial location network:Our direct cities
    
    
    12,786
    
    
    
    45,049
    
    
    
    80,263Our regional distributors(3)
    
    
    2,629
    
    
    
    3,177
    
    
    
    5,197Total
    
    
    15,415
    
    
    
    48,226
    
    
    
    85,460Number of displays in our in-store network
    
    
    
    
    
    
    27,849
    
    
    
    38,742Number of stores in our in-store network
    
    
    
    
    
    
    4,130
    
    
    
    3,898Number of installed frames in our poster frame
network(4)
    
    
    
    
    
    
    
    
    
    
    99,784
 For and as of the three months endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2006
    
    2006
    
    2006
    
    2006Commercial Location Network(5):Number of time slots available for sale(6)
    
    
    10,717
    
    
    
    11,314
    
    
    
    15,679
    
    
    
    15,939Number of time slots sold(7)
    
    
    3,904
    
    
    
    5,369
    
    
    
    6,111
    
    
    
    8,533Average utilization rate(8)
    
    
    36.4
    %
    
    
    47.5
    %
    
    
    39.0
    %
    
    
    53.5
    %In-store Network(9):Number of time slots available for sale(6)
    
    
    245,314
    
    
    
    261,360
    
    
    
    273,909
    
    
    
    318,342Number of time slots sold(7)
    
    
    76,498
    
    
    
    87,450
    
    
    
    90,647
    
    
    
    97,774Average utilization rate(8)
    
    
    31.2
    %
    
    
    33.5
    %
    
    
    33.1
    %
    
    
    30.7
    %Poster Frame Network(10):Number of frame slots available for sale(11)
    
    
    208,659
    
    
    
    243,959
    
    
    
    267,603
    
    
    
    294,294Number of frame slots sold(12)
    
    
    90,262
    
    
    
    154,793
    
    
    
    160,437
    
    
    
    166,825Occupancy rate(13)
    
    
    43.3
    %
    
    
    63.5
    %
    
    
    60.0
    %
    
    
    56.7
    %
 
 (1)
    
    Advertising service revenue is presented net of business tax. Business tax on advertising
service revenue from our commercial location network amounted to $2,788,233, $5,991,497,
13,641,118 in 2004, 2005 and 2006, respectively. Business tax on advertising service revenue
for our in-store network amounted to $524,271 and 2,803,349 in 2005 and 2006. Business tax on
advertising service revenue for our poster frame network amounted to 3,988,769 for 2006.
Business tax includes business tax of 5.55% and cultural industries tax of ranging from 0% to
4.0% of our gross advertising service revenue.(2)
    
    Other current assets are equal to total current assets less cash and cash equivalents.(3)
    
    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.(4)
    
    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.(5)
    
    Starting January 1, 2006, time slot data presented for our commercial location network
includes only data related to our premier office building A channel.(6)
    
    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. 5




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##### Table of Contents



(7)
    
    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.(8)
    
    Utilization rate refers to total time slots sold as a percentage of total time slots available during the relevant period.(9)
    
    We commenced operation of our in-store network in April 2005.(10)
    
    We commenced operation of our poster frame network in January 2006.(11)
    
    Includes the number of frame slots available on a monthly basis within each three month period.(12)
    
    Includes the number of frame slots sold on a monthly basis within each three month period.(13)
    
    Occupancy rate refers to the total number of frame slots sold as a percentage of total frame
slots available during the relevant period. Currency Translations and Exchange Rates
    RENMINBI PER U.S. DOLLAR NOON BUYING RATEAVERAGE
    
    HIGH
    
    LOW
    
    PERIOD-END2001
    
    
    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
    
    
    
    8.07022006
    
    
    7.9723
    
    
    
    8.0702
    
    
    
    7.8041
    
    
    
    7.8087
 6




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##### Table of Contents



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
 Our failure to timely file the 2006 annual report
on Form 20-F as a result of allegations raised by an anonymous investor holding a short position in our ADSs may subject
us to shareholder litigation and delisting review, either of which may materially and adversely affect our business.
      We have a limited operating history, which may make it difficult for you to evaluate our business
and prospects.
  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 decrease in demand for
advertising media in general and for our advertising services in particular would
materially and adversely affect our ability to generate revenue from our advertising
services, and our financial condition and results of operations.
 Our quarterly operating results are difficult to predict and may fluctuate significantly from
period to period in the future.
  7




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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.
    8




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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, our operating margins and earnings could decrease and our
results of operations could be materially and adversely affected.
   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.
    9




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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, Allyes and any future
acquisitions may expose us to potential risks and have an adverse effect on our ability to manage
our business.
   There may be unknown risks inherent in our acquisitions of Framedia, Target Media, Focus Media
Wireless and Allyes, which could result in a material adverse effect on our business.
  10




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Our recent entry into mobile handset advertising and Internet advertising services through our
acquisitions of Focus Media Wireless and Allyes, respectively, may expose us to risks associated
with operating in the telecommunications and Internet industries 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;
    
    consumer dissatisfaction with, or any related regulations restricting, the use or
pushing of unsolicited advertisements, commonly known as spam;
    
    the performance and reliability of the Internet infrastructure;
    
    the continued growth of the Internet and e-commerce industries.
   11




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One or more of our regional distributors could engage in activities that are harmful to our
reputation in the industry and to our business.
  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.
  12




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If the Internet and, in particular, Internet marketing are not broadly adopted in China, our
ability to generate revenue and sustain profitability from Allyes could be materially and adversely
affected.
  The growth of our online advertising agency business is substantially dependent on the
acceptance of the cost-per-thousand-impressions, or CPM Internet advertising sales model, and
certain performance-based Internet advertising sales models, including CPC and CPA models, by
industry participants in China.
  If the delivery of ads or the use of cookies is limited or blocked, our ability to update and
expand our user data would be hindered and demand for our Internet marketing solutions could
decline.
  Our role through Allyes as a supplier of ad space may harm our reputation as an independent
purchasing agent and the reputation of our performance-based advertising network as a marketplace
for ad space.
 13




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Our Internet advertising business could be materially and adversely affected if we are unable
to introduce new or enhanced Internet marketing services and technologies that meet our clients
requirements.
  
    
    our failure to anticipate changes in clients requirements;
    
    our competitors introduction of new services and technologies ahead of our new
services and technologies, or their introduction of superior or cheaper services and
technologies;
    
    our failure to adapt to Internet advertising technology trends and evolving industry standards; and
    
    delays or difficulties in technology integration, customization or development.
 The business and prospects of our online advertising agency business could be harmed if
click-through fraud is not detected.
  System failures could significantly disrupt the operations of our online advertising agency
business, which would cause us to lose clients or ad inventory
  14




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##### Table of Contents



If our Internet marketing technologies contain design or performance defects, our reputation
and business may be harmed and we may need to expend significant resources to address liability.
   We may be liable for content that we serve onto Web publishers websites, which could increase
our expenses.
  The successful operation of our business depends upon the performance and reliability of the
Internet infrastructure and fixed telecommunications networks in China.
  15




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##### Table of Contents



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.
  16




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##### Table of Contents



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.
    17




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##### Table of Contents



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.
  Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.
   18




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##### Table of Contents



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.
    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.
  19




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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.
  While we believe that we currently have adequate internal control procedures in place, we are still
exposed to potential risks from legislation requiring companies to evaluate controls under Section
404 of the Sarbanes-Oxley Act of 2002.
  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.
  20




---



##### Table of Contents




    
    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.
  21




---



##### Table of Contents



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.
    22




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##### Table of Contents



Our business operations may be affected by legislative or regulatory changes.
  PRC regulation of loans and direct investment by offshore holding companies to PRC entities may
delay or prevent us from using funds to make loans or additional capital contributions to our PRC
operating subsidiaries and affiliates.
  
    
    loans by us to Focus Media Technology, Framedia Investment, Dotad Technology, or New
Allyes Technology or any other of our foreign invested enterprises, 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 our PRC operating affiliates or their respective 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
  23




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##### Table of Contents



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.
   The PRC legal system embodies uncertainties which could limit the legal protections available to
you and us.
  24




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##### Table of Contents



If tax benefits currently available to us in PRC were no longer available under the new Enterprise
Income Taxes (EIT) law which will be effective on January 1, 2008, our effective income tax rates
for our PRC operations could increase.
     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.
    25




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##### Table of Contents



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.
  Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
  Fluctuations in exchange rates could result in foreign currency exchange losses.
  26




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##### Table of Contents



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.
   27




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##### Table of Contents



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 any hostile acquisition attempt
by a third party, which could limit our shareholders opportunity to sell their shares at a
premium.
    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.
  28




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##### Table of Contents



Judgments obtained against us by our shareholders may not be enforceable.
  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
 29




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##### Table of Contents




    
    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.
  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
  30




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31




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##### Table of Contents



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 operated through Focus Media Wireless offered on the mobile
telecommunications networks of China Mobile Communications Corporation, or China
Mobile, and China United Telecommunications Corporation, or China Unicom;
    
    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; and
    
    our movie theater network, which refers to our network of movie theaters throughout
China in which we have leased approximately three minutes of screen-time prior to each
showing of a movie.
  
    
    selling advertising time slots on our commercial location, in-store, outdoor LED and
movie theater networks, which we refer to collectively as our out-of-home television
advertising networks;
    
    selling frame space on our poster frame network;
    
    selling advertisements on our WAP-based mobile handset advertising network; and
    
    following our acquisition of Allyes in March 2007, providing advertising agency and
technology services for on-line advertising through Allyes.
  32




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##### Table of Contents



For and as of the three months endedSeptember
    
    December
    
    
    
    
    
    
    
    
    
    September
    
    DecemberMarch 31,
    
    June 30,
    
    30,
    
    31,
    
    March 31,
    
    June 30,
    
    30,
    
    31,2005
    
    2005
    
    2005
    
    2005
    
    2006
    
    2006
    
    2006
    
    2006Commercial location network:Number of displays:Our direct cities
    
    
    16,025
    
    
    
    20,267
    
    
    
    34,079
    
    
    
    45,049
    
    
    
    71,230
    
    
    
    69,446
    
    
    
    68,723
    
    
    
    80,263Our regional distributors(1)
    
    
    1,847
    
    
    
    2,664
    
    
    
    3,273
    
    
    
    3,177
    
    
    
    3,779
    
    
    
    3,712
    
    
    
    5,290
    
    
    
    5,197Total
    
    
    17,872
    
    
    
    22,931
    
    
    
    37,352
    
    
    
    48,226
    
    
    
    75,009
    
    
    
    73,158
    
    
    
    74,013
    
    
    
    85,460Time slot data:(2)Number of time slots
available for sale
    
    
    6,010
    
    
    
    6,737
    
    
    
    8,346
    
    
    
    9,028
    
    
    
    10,717
    
    
    
    11,314
    
    
    
    15,679
    
    
    
    15,939Number of time slots sold
    
    
    1,998
    
    
    
    3,057
    
    
    
    4,240
    
    
    
    4,648
    
    
    
    3,904
    
    
    
    5,369
    
    
    
    6,111
    
    
    
    8,533Utilization rate(3)
    
    
    33.2
    %
    
    
    45.4
    %
    
    
    50.8
    %
    
    
    51.5
    %
    
    
    36.4
    %
    
    
    47.5
    %
    
    
    39.0
    %
    
    
    53.5
    %In-store network:Number of displays in our in-
store network
    
    
    3,149
    
    
    
    12,779
    
    
    
    20,061
    
    
    
    27,849
    
    
    
    33,765
    
    
    
    35,511
    
    
    
    36,387
    
    
    
    38,742Number of stores in our
in-store network
    
    
    423
    
    
    
    1,835
    
    
    
    2,702
    
    
    
    4,130
    
    
    
    5,218
    
    
    
    4,174
    
    
    
    3,894
    
    
    
    1,100Time slot data:Number of time slots
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,314
    
    
    
    261,360
    
    
    
    273,909
    
    
    
    318,342Number of time slots sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,498
    
    
    
    87,450
    
    
    
    90,647
    
    
    
    97,774Utilization rate(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.2
    %
    
    
    33.5
    %
    
    
    33.1
    %
    
    
    30.7
    %Poster Frame Network:Number of frames installed in
our poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,353
    
    
    
    82,200
    
    
    
    95,878
    
    
    
    99,784Frame slot data:Number of frame slots
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,659
    
    
    
    243,959
    
    
    
    267,603
    
    
    
    294,294Number of frame slots sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,262
    
    
    
    154,793
    
    
    
    160,437
    
    
    
    166,825Occupancy rate(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.3
    %
    
    
    63.5
    %
    
    
    60.0
    %
    
    
    56.7
    %
 33




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##### Table of Contents



(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 December 31, 2006,
advertising services revenues from our premier office building A channel accounted for 69% 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.
In addition, our Focus Media Wireless services, target consumers based on their
demographic characteristics and consumer preferences, while our advertising services
through Allyes are performance based and allow advertisers to target consumers based on
their consumer preferences and behavior.
    
    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 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
  
    
    80,623 flat-panel displays in 51 cities in China directly and an additional 5,197
flat-panel displays installed in 40 cities in China through our regional distributors;
and
    
    38,742 flat-panel displays installed in 1,100 hypermarkets, 979 supermarkets and
1,819 convenience stores in cities in China.
 34




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##### Table of Contents



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
200 5 x 5 LED digital billboards placed in high pedestrian traffic outdoor locations
in Shanghai.
    
    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 90 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. 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.
  35




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Strong Management and Sales Team with Extensive Industry Experience.
  Our Strategies
  Enhance Our Market Position and Revenues by Expanding Our Networks.
 .
 Identify And Create New Networks and Advertising Channels that Target Specific Consumer
Demographics and Expands Network Capacity.
 In-store Network
 Targeted Advertising Channels
 36




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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;
    
    our mobile handset advertising network offered on China Mobiles and China Unicoms
mobile telecommunications networks;
    
    LED digital billboards installed on the street-sides in major shopping districts and
other locations with high pedestrian traffic in Shanghai;
    
    our movie theatre network of movie theatres throughout China which have leased to us
approximately three minutes of screen-time prior to each showing of a movie; and
 37




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##### Table of Contents




    
    our Internet advertising marketing and services agency, which refers to the business
operated by Allyes, which includes digital marketing technologies, digital marketing
services and digital performance-based media.
  Commercial Location Network
     In-store Network
  38




---



##### Table of Contents



Poster Frame Network
  Mobile Handset Advertising Network
  Outdoor LED Network
  Movie Theatre Network
  Internet Advertising Agency Services
  Advertising Clients, Sales and Marketing
 Our Advertising Clients
 39




---



##### Table of Contents



Sales
 Advertising Contracts
   Network Monitoring and Evaluation
  40




---



##### Table of Contents



Market Research
 Programming
   Pricing
  Relationships with Location Providers
    41




---



##### Table of Contents



Technology and Suppliers
    42




---



##### Table of Contents



Competition
  Facilities
  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).
   43




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##### Table of Contents




    
    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 the Group 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.
   
    
    the respective ownership structures of Focus Media, Framedia, Focus Media Wireless,
Allyes 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,
Allyes 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, Allyes
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).
  44




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##### Table of Contents



Advertising Content
    Outdoor Advertising
  
    
    utilize traffic safety facilities and traffic signs;
 45




---



##### Table of Contents




    
    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.
    Print Advertising
  Regulation of Telecommunications Value-added Service Providers
  46




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##### Table of Contents



C. Organizational Structure
    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,
New Focus Media Agency, Focus Media Defeng Advertisement, all of which are 90%-owned
subsidiaries 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, New Focus
Media Agency and Focus Media Defeng 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;
    
    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; and
    
    with regard to the operation of our the Internet advertising marketing agency
business of Allyes, through seven PRC operating companies, which we refer to as the
Allyes operating affiliates, each of which is owned by PRC citizens.
 47




---



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48




---



##### 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 our PRC operating affiliates and their
respective 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 our PRC operating
affiliates and their respective subsidiaries to us, as described in Related Party
Transactions.(4)
    
    Each of our PRC operating affiliates is owned by two PRC shareholders, which are in each case
either (i) two PRC citizens designated by us or our subsidiaries or (ii) by two PRC entities
owned by our subsidiaries or by our designated appointees.(5)
    
    The wholly-owned entities relating to our out-of-home television network operations include
New Focus Media Technology, Focus Media Technology, Focus Media Digital and New Focus Media
Digital. These consist of subsidiaries of Focus Media Advertisement, which holds between 60%
and 99% of the subsidiaries, with the remaining minority interest held by Jimmy Wei Yu, Focus
Media Advertising Agency or unrelated third parties.(6)
    
    The PRC operating affiliates engaged in the operating of our poster frame network include:
New Structure Advertisement, Framedia Advertisement and Guangzhou Framedia.(7)
    
    The Allyes operating affiliates engaged in the operation of our online advertising agency
business consist of seven different companies under our control.(8)
    
    Our out-of-home television network operations comprises our commercial location, in-store,
outdoor LED and movie theater networks. 49




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##### 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,
Allyes, 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,
Allyes, 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
 50




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##### Table of Contents




    
    the PRC business operations of Focus Media, Framedia, Focus Media Wireless, Allyes,
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
  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., Ltd.
    
    PRC
    
    
    90
    %Shanghai New Focus Media Agency Co., Ltd.
    
    PRC
    
    
    90
    %Shanghai Focus Media Defeng Advertising Co., Ltd.
    
    PRC
    
    
    90
    %Shanghai Focus Media Baiwang Advertising Co., Ltd.
    
    PRC
    
    
    70
    %Shanghai Focus Media Xiangkun Advertising Co., Ltd.
    
    PRC
    
    
    70
    %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
    %ProfitBest Worldwide Limited
    
    BVI
    
    
    100
    %Wiseglobal Investments Limited
    
    BVI
    
    
    100
    %Summitworld Limited
    
    BVI
    
    
    100
    %Newking Investment Limited
    
    BVI
    
    
    100
    %Surge Zhenghe Holding Limited
    
    BVI
    
    
    100
    %Speedaccess Limited
    
    BVI
    
    
    100
    %Peakbright Group Limited
    
    BVI
    
    
    100
    %Homesky Investment Limited
    
    BVI
    
    
    100
    %Bestwin Partners Limited
    
    BVI
    
    
    100
    %Glomedia Holdings Limited
    
    BVI
    
    
    100
    %Appreciate Capital Ltd.
    
    BVI
    
    
    70
    %Richcrest Pacific Limited
    
    BVI
    
    
    100
    %Wealthstar Holdings Limited
    
    BVI
    
    
    100
    %Highmark Asia Limited
    
    BVI
    
    
    100
    %Plentiworth Investment Limited
    
    BVI
    
    
    100
    %Directwealth Holdings Limited
    
    BVI
    
    
    100
    %Better off Investments Limited
    
    BVI
    
    
    100
    %Allyes Information Technology Company Ltd.
    
    Cayman Islands
    
    
    100
    %
 51




---



##### Table of Contents



Place of
    
    PercentageSubsidiary
    
    Incorporation
    
    of ownershipNew Allyes Information Technology (Shanghai) Co., Ltd.
    
    PRC
    
    
    100
    %Allyes Information Technology (Shanghai) Co., Ltd.
    
    PRC
    
    
    100
    %Hua Kuang Advertising Company Limited
    
    Hong Kong
    
    
    100
    %Topstart Holdings Limited
    
    BVI
    
    
    100
    %Vast Well Development Limited
    
    BVI
    
    
    100
    %Crownsky Limited
    
    BVI
    
    
    100
    %
  
    
    with respect to our out-of-home television advertising networks, Focus Media
Advertisement and its subsidiaries;
    
    with respect to our poster frame network, New Structure Advertisement, Framedia
Advertisement and Guangdong Framedia;
    
    with respect to our wireless advertising services, Focus Media Wireless; and
    
    with respect to our online advertising agency business, Shanghai MSN
Advertising Co., Ltd., Shanghai Huxin Advertising Co., Ltd., Shanghai Quanshi
Advertising Co., Ltd., Shanghai Kuantong Advertising Co., Ltd., Beijing Quanshi
Advertising Co., Ltd., Shanghai Allyes Advertising Co., Ltd., and Shenzhen Baifen
Creative Advertising Co., Ltd., and their respective subsidiaries, which seven
companies and additional subsidiaries we collectively refer to as the Allyes
operating affiliates.
 D. Property, Plants and Equipment
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  A. Overview
   52




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##### Table of Contents




    
    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;
    
    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 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 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;
    
    Our ability to successfully operate and market our new Internet advertising
marketing and technology agency; and
    
    Our ability to acquire companies that operate advertising businesses complementary
to our existing operations.
    Revenues
  53




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##### Table of Contents



For the year ended December 31,2004
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Net revenues:Commercial location network(1)
    
    $
    26,321
    
    
    
    90.1
    %
    
    $
    61,435
    
    
    
    90.0
    %
    
    $
    132,061
    
    
    
    62.3
    %In-store network(1)
    
    
    
    
    
    
    
    
    
    
    5,469
    
    
    
    8.0
    %
    
    
    26,907
    
    
    
    12.7
    %Poster frame network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,904
    
    
    
    19.3
    %Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,101
    
    
    
    4.8
    %Advertising service revenue
    
    
    26,321
    
    
    
    90.1
    %
    
    
    66,904
    
    
    
    98.0
    %
    
    
    209,973
    
    
    
    99.1
    %Other revenue
    
    
    2,889
    
    
    
    9.9
    %
    
    
    1,325
    
    
    
    2.0
    %
    
    
    1,932
    
    
    
    0.9
    %Total revenues
    
    $
    29,210
    
    
    
    100.0
    %
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    211,905
    
    
    
    100.0
    %
 
 (1)
    
    Advertising service revenue is presented net of business tax, sales discounts and agency
rebates. Business tax on advertising service revenue from our commercial location network
amounted to $2.8 million, $6.0 million and $13.6 million in 2004, 2005 and 2006, respectively.
Business tax on advertising service revenue for our in-store network amounted to $2.8 million,
in 2006. Business tax on advertising service revenue for our poster frame network amounted to
$4.0 million for 2006. Business tax includes business tax ranging from 3%  5.55% and cultural
industries tax ranging from 0% to 4.0%.  For the year ended December 31,2004
    
    
    2005
    
    
    2006(in thousands of U.S. dollars, except percentages)Revenue:Commercial Locations Unrelated parties
    
    $
    25,386
    
    
    
    86.9
    %
    
    $
    59,435
    
    
    
    87.1
    %
    
    $
    130,474
    
    
    
    61.6
    % Related parties
    
    
    3,723
    
    
    
    12.7
    %
    
    
    7,991
    
    
    
    11.7
    %
    
    
    15,228
    
    
    
    7.2
    %Total Commercial Locations
    
    
    29,109
    
    
    
    99.6
    %
    
    
    67,426
    
    
    
    98.8
    %
    
    
    145,702
    
    
    
    68.8
    %In-store Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    5,475
    
    
    
    8.0
    %
    
    
    25,330
    
    
    
    12.0
    % Related parties
    
    
    
    
    
    
    
    
    
    
    518
    
    
    
    0.8
    %
    
    
    4,380
    
    
    
    2.0
    %Total in-store network
    
    
    
    
    
    
    
    
    
    
    5,993
    
    
    
    8.8
    %
    
    
    29,710
    
    
    
    14.0
    %Poster Frame Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,893
    
    
    
    21.2
    % Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Poster Frame Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,893
    
    
    
    21.2
    %Mobile Handset Advertising
Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,880
    
    
    
    5.1
    % Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Mobile Handset
Advertising network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,880
    
    
    
    5.1
    %Gross Advertising Services
Revenue:
    
    
    29,109
    
    
    
    99.6
    %
    
    
    73,419
    
    
    
    107.6
    %
    
    
    231,185
    
    
    
    109.1
    %Less: Sales taxes:Commercial Locations
    
    
    2,788
    
    
    
    9.5
    %
    
    
    5,991
    
    
    
    8.8
    %
    
    
    13,641
    
    
    
    6.4
    %In-store Network
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    0.8
    %
    
    
    2,803
    
    
    
    1.3
    %Poster Frame Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,989
    
    
    
    1.9
    %Mobile Handset Advertising
Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    0.4
    %Total sales taxes
    
    
    2,788
    
    
    
    9.5
    %
    
    
    6,515
    
    
    
    9.6
    %
    
    
    21,212
    
    
    
    10.0
    %Net Advertising Service Revenue
    
    
    26,321
    
    
    
    90.1
    %
    
    
    66,904
    
    
    
    98.0
    %
    
    
    209,973
    
    
    
    99.1
    %Add:Other revenue:
    
    
    2,889
    
    
    
    9.9
    %
    
    
    1,325
    
    
    
    2.0
    %
    
    
    1,932
    
    
    
    0.9
    %Net revenues:
    
    $
    29,210
    
    
    
    100.0
    %
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    211,905
    
    
    
    100.0
    %
 Advertising Service Revenue
  54




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##### Table of Contents



Factors that Affect Our Advertising Service Revenue.
  
    
    the number of advertising time slots that we have available to sell, which is mostly
determined by the number of cities in which we directly operate and the length of the
advertising cycle, which is currently twelve minutes. 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. The twelve-minute advertising
cycle amounts to the equivalent of 24 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.
  
    
    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; 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
 55




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##### Table of Contents




    
    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; 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 mobile phone users. We charge fees based on the
number of successfully delivered messages; and
    
    the average price we charge per message.
 Movie Theater Network
  
    
    the number of advertising time slots that we have available to sell, which is
determined by the number of movie theaters in which we have leased screen time, our
expansion into additional theaters, and the length of the leased screen time, which is
currently three minutes, or six 30-second equivalent time slots, per theater. As with
our commercial location network and in-store network we calculate the number of time
slots according to the number of 30-second equivalent time slots available; and
    
    the average price we charge per advertising time slot, 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.
 Internet Advertising Agency Services
  
    
    the number of customers who purchase agency services from us. We agree to provide
advertising agency services and technology, and we charge fees based on the size and
duration of the advertising campaign and the number of daily impressions or hits on
the Internet advertisement; and
    
    Our ability to identify relevant Internet user traffic and deliver effective
advertisements for our advertising clients
  Network Expansion
 56




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Seasonality
 Revenue Recognition
   57




---



##### Table of Contents



Other Revenue
  Cost of Revenues
   For the year ended December 31,2004
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Total revenues
    
    $
    29,210
    
    
    
    100.0
    %
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    211,905
    
    
    
    100
    %Cost of revenues:Net advertising service cost:Commercial location network
    
    
    6,804
    
    
    
    23.3
    %
    
    
    18,325
    
    
    
    26.9
    %
    
    
    42,836
    
    
    
    20.2
    %In-store network
    
    
    
    
    
    
    
    
    
    
    7,423
    
    
    
    10.9
    %
    
    
    18,106
    
    
    
    8.5
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,621
    
    
    
    6.4
    %Mobile Handset network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,052
    
    
    
    2.9
    %Advertising service cost
    
    
    6,804
    
    
    
    23.3
    %
    
    
    25,748
    
    
    
    37.8
    %
    
    
    80,615
    
    
    
    38.0
    %Other cost
    
    
    1,934
    
    
    
    6.6
    %
    
    
    976
    
    
    
    1.4
    %
    
    
    765
    
    
    
    0.4
    %Total cost of revenues
    
    
    8,738
    
    
    
    29.9
    %
    
    
    26,724
    
    
    
    39.2
    %
    
    
    81,380
    
    
    
    38.4
    %Gross profit
    
    
    20,472
    
    
    
    70.1
    %
    
    
    41,505
    
    
    
    60.8
    %
    
    
    130,525
    
    
    
    61.6
    %
 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.
   58




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Other Costs
  Operating Expenses and Net Income
  For the year ended December 31,2004
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Gross profit
    
    $
    20,472
    
    
    
    70.1
    %
    
    $
    41,505
    
    
    
    60.8
    %
    
    $
    130,525
    
    
    
    61.6
    %Operating expenses:General and administrative
    
    
    3,988
    
    
    
    13.7
    %
    
    
    9,120
    
    
    
    13.4
    %
    
    
    25,723
    
    
    
    12.1
    %Selling and marketing
    
    
    3,473
    
    
    
    11.9
    %
    
    
    9,599
    
    
    
    14.0
    %
    
    
    25,762
    
    
    
    12.2
    %
 59




---



##### Table of Contents



For the year ended December 31,2004
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Other operating income
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (1,338
    )
    
    
    (0.6
    )%Goodwill impairment loss
    
    
    58
    
    
    
    0.2
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    7,519
    
    
    
    25.8
    %
    
    
    18,719
    
    
    
    27.4
    %
    
    
    50,147
    
    
    
    23.7
    %Income from operations
    
    
    12,953
    
    
    
    44.3
    %
    
    
    22,786
    
    
    
    33.4
    %
    
    
    80,378
    
    
    
    37.9
    %
 General and Administrative
 Selling and Marketing
 Share-based Compensation.
 Critical Accounting Policies
  Share-based Compensation
 Share-Based Payment
 60




---



##### Table of Contents



Income Taxes
 Accounting for Income
Taxes
 Goodwill and Long-lived assets Impairment
  
    
    a significant adverse change in the business climate or legal factors;
    
    an adverse action or assessment by a regulator;
    
    unanticipated competition;
    
    loss of key personnel;
    
    the likelihood that a reporting unit or a significant portion of a reporting unit will be sold or disposed of;
    
    a change in reportable segments;
    
    results of testing for recoverability of a significant asset group within a reporting unit; and/or
    61




---



##### Table of Contents



Taxation
 Cayman Islands, the British Virgin Islands and Hong Kong.
  PRC
     62




---



##### Table of Contents



63




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##### Table of Contents



Recently Issued Accounting Standards
     Acquisitions
   64




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##### Table of Contents




    
    Infoachieve Limited, 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,are available in our registration statement on Form F-1 (File No. 333-134714).
 Quarterly Results of Operation
  For the three months endedSeptember
    
    
    
    
    
    
    
    
    
    
    
    
    
    September
    
    DecemberConsolidated Statement
    
    March 31,
    
    June 30,
    
    30,
    
    December
    
    March 31,
    
    June 30,
    
    30,
    
    31,of Operations Data
    
    2005
    
    2005
    
    2005
    
    31, 2005
    
    2006
    
    2006
    
    2006
    
    2006(in thousands of U.S. dollars)Net revenues:Commercial location network(1)
    
    
    9,432
    
    
    
    13,981
    
    
    
    17,287
    
    
    
    20,735
    
    
    
    21,380
    
    
    
    30,438
    
    
    
    38,519
    
    
    
    41,724In-store network(1)
    
    
    
    
    
    
    339
    
    
    
    1,813
    
    
    
    3,317
    
    
    
    5,294
    
    
    
    6,538
    
    
    
    7,239
    
    
    
    7,836Poster frame network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,067
    
    
    
    9,778
    
    
    
    11,284
    
    
    
    13,775Mobile Handset Advertising Network (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,076
    
    
    
    3,516
    
    
    
    3,509Total advertising service revenue
    
    
    9,432
    
    
    
    14,320
    
    
    
    19,100
    
    
    
    24,052
    
    
    
    32,741
    
    
    
    49,830
    
    
    
    60,558
    
    
    
    66,844Other revenue
    
    
    142
    
    
    
    264
    
    
    
    366
    
    
    
    553
    
    
    
    457
    
    
    
    233
    
    
    
    90
    
    
    
    1,152Total revenues
    
    
    9,574
    
    
    
    14,584
    
    
    
    19,466
    
    
    
    24,605
    
    
    
    33,198
    
    
    
    50,063
    
    
    
    60,648
    
    
    
    67,996Cost of revenues:Commercial location network
    
    
    3,247
    
    
    
    4,174
    
    
    
    5,047
    
    
    
    5,857
    
    
    
    8,226
    
    
    
    11,487
    
    
    
    11,404
    
    
    
    11,719In-store network
    
    
    
    
    
    
    1,366
    
    
    
    2,606
    
    
    
    3,451
    
    
    
    3,973
    
    
    
    4,394
    
    
    
    4,616
    
    
    
    5,123Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,792
    
    
    
    3,222
    
    
    
    3,756
    
    
    
    3,851Mobile Handset Advertising network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,405
    
    
    
    2,219
    
    
    
    1,428Advertising service cost:
    
    
    3,247
    
    
    
    5,540
    
    
    
    7,653
    
    
    
    9,308
    
    
    
    14,991
    
    
    
    21,508
    
    
    
    21,995
    
    
    
    22,121Other cost
    
    
    71
    
    
    
    188
    
    
    
    285
    
    
    
    432
    
    
    
    232
    
    
    
    80
    
    
    
    80
    
    
    
    373Total cost of revenues
    
    
    3,318
    
    
    
    5,728
    
    
    
    7,938
    
    
    
    9,740
    
    
    
    15,223
    
    
    
    21,588
    
    
    
    22,075
    
    
    
    22,494Gross profit
    
    
    6,256
    
    
    
    8,856
    
    
    
    11,528
    
    
    
    14,865
    
    
    
    17,975
    
    
    
    28,475
    
    
    
    38,573
    
    
    
    45,502Operating expenses:General and administrative
    
    
    1,867
    
    
    
    2,331
    
    
    
    2,337
    
    
    
    2,585
    
    
    
    4,395
    
    
    
    6,298
    
    
    
    5,956
    
    
    
    9,074Selling and marketing
    
    
    1,515
    
    
    
    1,984
    
    
    
    2,719
    
    
    
    3,381
    
    
    
    4,407
    
    
    
    5,376
    
    
    
    6,784
    
    
    
    9,195Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (137
    )
    
    
    (5
    )
    
    
    (1,176
    )
 65




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##### Table of Contents



For the three months endedSeptember
    
    
    
    
    
    
    
    
    
    
    
    
    
    September
    
    DecemberConsolidated Statement
    
    March 31,
    
    June 30,
    
    30,
    
    December
    
    March 31,
    
    June 30,
    
    30,
    
    31,of Operations Data
    
    2005
    
    2005
    
    2005
    
    31, 2005
    
    2006
    
    2006
    
    2006
    
    2006(in thousands of U.S. dollars)Total operating expenses
    
    
    3,382
    
    
    
    4,315
    
    
    
    5,056
    
    
    
    5,966
    
    
    
    8,782
    
    
    
    11,537
    
    
    
    12,735
    
    
    
    17,093Income from operations
    
    
    2,874
    
    
    
    4,541
    
    
    
    6,472
    
    
    
    8,899
    
    
    
    9,193
    
    
    
    16,938
    
    
    
    25,838
    
    
    
    28,409Interest income (expenses), net
    
    
    12
    
    
    
    20
    
    
    
    791
    
    
    
    939
    
    
    
    888
    
    
    
    605
    
    
    
    1,070
    
    
    
    1,692Other income (expenses), net
    
    
    5
    
    
    
    (3
    )
    
    
    8
    
    
    
    (171
    )
    
    
    (71
    )
    
    
    (408
    )
    
    
    (175
    )
    
    
    367Income before income taxes and
minority interest
    
    
    2,891
    
    
    
    4,558
    
    
    
    7,271
    
    
    
    9,667
    
    
    
    10,010
    
    
    
    17,135
    
    
    
    26,733
    
    
    
    30,468Total income taxes
    
    
    (248
    )
    
    
    (155
    )
    
    
    (87
    )
    
    
    (204
    )
    
    
    (617
    )
    
    
    (373
    )
    
    
    317
    
    
    
    (371
    )Minority interests
    
    
    
    
    
    
    (55
    )
    
    
    (52
    )
    
    
    (38
    )
    
    
    40
    
    
    
    (91
    )
    
    
    (45
    )
    
    
    (9
    )Net income attributed to shareholders
    
    
    2,643
    
    
    
    4,348
    
    
    
    7,132
    
    
    
    9,425
    
    
    
    9,433
    
    
    
    16,671
    
    
    
    27,005
    
    
    
    30,088
 
 (1)
    
    Advertising service revenue is presented net of sales taxes, the following tables presenst
the unaudited quarterly sales taxes information: For the three months endedSeptember
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September
    
    
    DecemberMarch 31,
    
    
    June 30,
    
    
    30,
    
    
    December
    
    
    March 31,
    
    
    June 30,
    
    
    30,
    
    
    31,2005
    
    
    2005
    
    
    2005
    
    
    31, 2005
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006(in thousands of U.S. dollars)Sales taxes:Commercial location network
    
    $
    936
    
    
    $
    1,419
    
    
    $
    1,769
    
    
    $
    1,867
    
    
    $
    2,082
    
    
    $
    2,968
    
    
    $
    4,062
    
    
    $
    4,529In-store network
    
    
    
    
    
    
    34
    
    
    
    187
    
    
    
    304
    
    
    
    524
    
    
    
    697
    
    
    
    763
    
    
    
    819Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    591
    
    
    
    958
    
    
    
    1,102
    
    
    
    1,338Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    289
    
    
    
    285
    
    
    
    205Total
    
    $
    936
    
    
    $
    1,453
    
    
    $
    1,956
    
    
    $
    2,171
    
    
    $
    3,197
    
    
    $
    4,912
    
    
    $
    6,212
    
    
    $
    6,891
 For the three months endedSeptember
    
    
    
    
    
    
    
    
    
    
    
    
    
    September
    
    DecemberConsolidated Statement
    
    March 31,
    
    June 30,
    
    30,
    
    December
    
    March 31,
    
    June 30,
    
    30,
    
    31,of Operations Data
    
    2005
    
    2005
    
    2005
    
    31, 2005
    
    2006
    
    2006
    
    2006
    
    2006(in thousands of U.S. dollars)Net revenues:Commercial location network
    
    
    98.5
    %
    
    
    95.9
    %
    
    
    88.8
    %
    
    
    84.3
    %
    
    
    64.4
    %
    
    
    60.8
    %
    
    
    63.6
    %
    
    
    61.4
    %In-store network
    
    
    
    
    
    
    2.3
    %
    
    
    9.3
    %
    
    
    13.5
    %
    
    
    15.9
    %
    
    
    13.1
    %
    
    
    11.9
    %
    
    
    11.5
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.3
    %
    
    
    19.5
    %
    
    
    18.6
    %
    
    
    20.2
    %Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.1
    %
    
    
    5.8
    %
    
    
    5.2
    %Other revenues
    
    
    1.5
    %
    
    
    1.8
    %
    
    
    1.9
    %
    
    
    2.2
    %
    
    
    1.4
    %
    
    
    0.5
    %
    
    
    0.1
    %
    
    
    1.7
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues:Net advertising service cost:Commercial location network
    
    
    34.0
    %
    
    
    28.6
    %
    
    
    25.9
    %
    
    
    23.8
    %
    
    
    24.8
    %
    
    
    22.9
    %
    
    
    18.8
    %
    
    
    17.2
    %In-store network
    
    
    
    
    
    
    9.4
    %
    
    
    13.4
    %
    
    
    14.0
    %
    
    
    12.0
    %
    
    
    8.8
    %
    
    
    7.6
    %
    
    
    7.5
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.4
    %
    
    
    6.4
    %
    
    
    6.2
    %
    
    
    5.7
    %Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.8
    %
    
    
    3.7
    %
    
    
    2.1
    %Other costs
    
    
    0.7
    %
    
    
    1.3
    %
    
    
    1.5
    %
    
    
    1.8
    %
    
    
    0.7
    %
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.5
    %Total cost of revenues
    
    
    34.7
    %
    
    
    39.3
    %
    
    
    40.8
    %
    
    
    39.6
    %
    
    
    45.9
    %
    
    
    43.1
    %
    
    
    36.4
    %
    
    
    33.0
    %Gross profit
    
    
    65.3
    %
    
    
    60.7
    %
    
    
    59.2
    %
    
    
    60.4
    %
    
    
    54.1
    %
    
    
    56.9
    %
    
    
    63.6
    %
    
    
    67.0
    %Operating expenses:General and administrative
    
    
    19.5
    %
    
    
    16.0
    %
    
    
    12.0
    %
    
    
    10.5
    %
    
    
    13.2
    %
    
    
    12.6
    %
    
    
    9.8
    %
    
    
    13.3
    %Selling and marketing
    
    
    15.8
    %
    
    
    13.6
    %
    
    
    14.0
    %
    
    
    13.7
    %
    
    
    13.3
    %
    
    
    10.7
    %
    
    
    11.2
    %
    
    
    13.5
    %Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )%
    
    
    (0.3
    )%
    
    
    (0.0
    )%
    
    
    (1.7
    )%Total operating expenses
    
    
    35.3
    %
    
    
    29.6
    %
    
    
    26.0
    %
    
    
    24.2
    %
    
    
    26.4
    %
    
    
    23.0
    %
    
    
    21.0
    %
    
    
    25.1
    %Income from operations
    
    
    30.0
    %
    
    
    31.1
    %
    
    
    33.2
    %
    
    
    36.2
    %
    
    
    27.7
    %
    
    
    33.9
    %
    
    
    42.6
    %
    
    
    41.9
    %Interest income (expenses), net
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    4.1
    %
    
    
    3.8
    %
    
    
    2.7
    %
    
    
    1.2
    %
    
    
    1.8
    %
    
    
    2.5
    %Other income (expenses), net
    
    
    0.1
    %
    
    
    
    
    
    
    0.1
    %
    
    
    (0.7
    )%
    
    
    (0.2
    )%
    
    
    (0.8
    )%
    
    
    (0.3
    )%
    
    
    0.5
    %Income before income taxes and
minority interest
    
    
    30.2
    %
    
    
    31.2
    %
    
    
    37.4
    %
    
    
    39.3
    %
    
    
    30.2
    %
    
    
    34.3
    %
    
    
    44.1
    %
    
    
    44.9
    %Total income taxes
    
    
    (2.6
    )%
    
    
    (1.0
    )%
    
    
    (0.4
    )%
    
    
    (0.8
    )%
    
    
    (1.9
    )%
    
    
    (0.7
    )%
    
    
    0.5
    %
    
    
    (0.5
    )%Minority interest
    
    
    0
    %
    
    
    (0.4
    )%
    
    
    (0.3
    )%
    
    
    (0.2
    )%
    
    
    0.1
    %
    
    
    (0.2
    )%
    
    
    (0.1
    )%
    
    
    0.0
    %Net income attributable to
shareholders
    
    
    27.6
    %
    
    
    29.8
    %
    
    
    36.7
    %
    
    
    38.3
    %
    
    
    28.4
    %
    
    
    33.4
    %
    
    
    44.5
    %
    
    
    44.4
    %
 
 (1)
    
    Advertising service revenue is presented net of sales taxes: the following table presents
the unaudited quarterly percentage of sales taxes against gross revenues: 66




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For the three months endedSeptember
    
    
    
    
    
    
    
    
    
    
    
    
    
    September
    
    DecemberMarch 31,
    
    June 30,
    
    30,
    
    December
    
    March 31,
    
    June 30,
    
    30,
    
    31,2005
    
    2005
    
    2005
    
    31, 2005
    
    2006
    
    2006
    
    2006
    
    2006(in thousands of U.S. dollars)Sales taxes:Commercial location network
    
    
    9.0
    %
    
    
    9.2
    %
    
    
    9.3
    %
    
    
    8.3
    %
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    9.5
    %
    
    
    9.8
    %In-store network
    
    
    
    
    
    
    9.1
    %
    
    
    9.4
    %
    
    
    8.4
    %
    
    
    9.0
    %
    
    
    9.6
    %
    
    
    9.5
    %
    
    
    9.5
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    8.9
    %Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.6
    %
    
    
    7.5
    %
    
    
    5.5
    %Total
    
    
    9.0
    %
    
    
    9.2
    %
    
    
    9.3
    %
    
    
    8.3
    %
    
    
    8.9
    %
    
    
    9.0
    %
    
    
    9.3
    %
    
    
    9.3
    %
  Advertising agency rebates for each fiscal quarter of the fiscal year ended December 31,
2006.
 B. Operating Results
 Results of Operations
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 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 13,943 in 2005 to 23,917 in 2006, as well as the
increase in the average selling price per time slot sold, from $4,461 in 2005 to $5,522
in 2006. Total network capacity, measured by number of available time slots, also
increased from 9,028 as of December 31, 2005 to 15,939 as of December 31, 2006.
    
    Our network reach increased from 58 cities as of December 31, 2005, including 26
cities directly operated by our company and 32 cities operated by our regional
distributors, to 91 cities as of December 31, 2006, including 51 cities directly
operated by our company and 40 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
 67




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##### Table of Contents




    
    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 48,226 flat-panel
displays as of December 31, 2005 to 80,263 displays as of December 31, 2006, including
our regional distributors.
    
    The increase in the average selling price was largely due to increased demand for
time slots with higher 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 $18.3
million in 2005 to $42.8 million in 2006. 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 $11.3 million in
2005 to $25.8 million in 2006 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,
including those previously operated by Target Media; and (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 $3.4 million in 2005 to $9.2
million in 2006, as a result of an increase in the number of flat-panel displays we own
and operate directly from 45,049 as of December 31, 2005 to 80,623 as of December 31,
2006 and to our acquisition of Target Media Group and 3 regional distributors during
this period. Other cost of revenues related to net advertising service cost increased
from $3.2 million in 2005 to $6.1 million in 2006 as a result of (1) increase in number
of personnel responsible for monitoring the network following the acquisition of Target
Media; (2) an increase in the volume of CF cards we purchased even as the per-unit cost
of CF cards decreased and (3) 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 $18.1 million in net advertising service cost for our
in-store network in 2006, consisting of location costs of $12.7 million and
depreciation costs relating to the installation and maintenance of our in-store network
amounting to $3.5 million.
 68




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##### Table of Contents




    
    Other cost. We incurred net advertising equipment costs of $975,747 in 2005 compared
to $764,959 in 2006, 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 $9.1 million in 2005 to $25.7 million in 2006 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 related
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 $6.1 million in 2006 following the adoption of SFAS No. 123 (revised
2005), Share-Based Payment.
    
    Selling and Marketing. Selling and marketing expenses increased substantially from
$9.6 million in 2005 to $25.8 million in 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.
 Income from Operations
 Income Before Income Taxes and Minority Interest
 
    
    Interest Income, net. Interest income, net of interest expenses increased from 1.8
million in 2005 to $4.3 million in 2006. 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 proceeds from our follow-on
offerings.
    
    Other Expense, net. We recorded net other expense of $161,148 in 2005 compared to
other income of $287,539, in 2006.
    
    Income Taxes. Our income taxes were $694,453 in 2005 compared to $1,043,538 in 2006.
    
    Minority Interests. We had minority interests expense of $144,433 and $104,773 in
2005 and 2006, respectively, in connection with the pro rata income attributable to
minority shareholders of our subsidiaries.
 Net Income
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Total Revenues
 69




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##### Table of Contents



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 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 $6.8
million in 2004 to $18.3 million in 2005. This increase was due to the substantial
increase in our advertising service business on our commercial
 70




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##### Table of Contents



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 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 $683,186 in 2005.
    
    Selling and Marketing. Selling and marketing expenses increased substantially from
$3.5 million in 2004 to $9.6 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
 71




---



##### Table of Contents




    
    Interest Income, net. 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, net. We recorded net 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 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 $144,433 in 2004
and 2005, respectively, in connection with the pro rata income attributable to minority
shareholders of four of our subsidiaries.
 Net Income
 C. Liquidity and Capital Resources
 Liquidity and Capital Resources
 Cash Flows and Working Capital
   72




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For the year ended December 31,2004
    
    2005
    
    2006(in thousands of U.S. dollars)Net cash provided by operating activities
    
    $
    4,045
    
    
    $
    11,269
    
    
    $
    93,355Net cash (used) in investing activities
    
    
    (11,070
    )
    
    
    (117,667
    )
    
    
    (121,994
    )Net cash provided by financing activities
    
    
    28,978
    
    
    
    119,169
    
    
    
    153,521Net increase in cash and cash equivalent
    
    
    21,953
    
    
    
    13,984
    
    
    
    127,958
    73




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##### Table of Contents



Transactions with Related Parties
  Capital Expenditures
  For the year ended December 31,2004
    
    
    2005
    
    
    2006(in thousands of U.S. dollars)Total capital expenditure
    
    $6,373
    
    
    $36,765
    
    
    $22,878
  Restricted Net Assets
  74




---



##### Table of Contents



D. Research, Development, Patents and Licenses, Etc.
 Research and Development
  Patents and Trademarks
    E. Trend Information
  F. Off-balance Sheet Arrangements
  75




---



##### Table of Contents



G. Tabular Disclosure of Contractual Obligations
  Payments due December 31TOTAL
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    20010
    
    
    ThereafterDisplay and poster frame
placement agreement obligations
    
    $
    107,242
    
    
    $
    46,186
    
    
    $
    31,363
    
    
    $
    19,098
    
    
    $
    8,683
    
    
    $
    1,912Office premise lease obligations
    
    
    4,198
    
    
    
    1,971
    
    
    
    1,153
    
    
    
    773
    
    
    
    251
    
    
    
    50Total contractual obligations
    
    $
    111,440
    
    
    $
    48,157
    
    
    $
    32,516
    
    
    $
    19,871
    
    
    $
    8,934
    
    
    $
    1,962
   
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
  Name
    
    Age
    
    PositionJason Nanchun Jiang
    
    
    34
    
    
    Chairman of the Board of Directors and Chief Executive OfficerDavid Feng Yu(1)
    
    
    45
    
    
    Co-chairman of the Board of DirectorsJimmy Wei Yu
    
    
    34
    
    
    DirectorFumin Zhuo(2)
    
    
    55
    
    
    DirectorNeil Nanpeng Shen(2)
    
    
    39
    
    
    DirectorCharles Chao(2)
    
    
    41
    
    
    DirectorDaqing Qi(3)
    
    
    43
    
    
    DirectorZhi Tan
    
    
    52
    
    
    President and DirectorDaniel Mingdong Wu
    
    
    40
    
    
    Chief Financial OfficerDiana Congrong Chen
    
    
    39
    
    
    Chief Operating OfficerJuly Lilin Wang
    
    
    35
    
    
    Chief Accounting OfficerCindy Yan Chan
    
    
    41
    
    
    Chief Strategy OfficerErgo Xueyuan Liu
    
    
    36
    
    
    Vice President  Commercial Location NetworkAcer Jiawei Zhang
    
    
    30
    
    
    Vice President  In-store Network
 
 (1)
    
    Mr. Yu was appointed as co-chairman of the board of directors 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
 76




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##### Table of Contents



David Feng Yu
 Jimmy Wei Yu
 Fumin Zhuo
 Neil Nanpeng Shen
 Charles Chao
 77




---



##### Table of Contents



Daqing Qi
 Zhi
Tan
 Daniel Mingdong Wu
 Diana Congrong Chen
 July Lilin Wang
 Cindy Yan Chan
 78




---



##### 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
  79




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##### Table of Contents



.
 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:
 80




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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.
 
    
    In November 2005, we granted:
 
    
    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.
  
    
    In November 2006, we granted options to purchase 11,800,000 of our ordinary shares
to certain of our employees, executive officers and directors. Of these options,
10,300,000 were issued to non-management employees and 1,500,000 were issued to our
directors and officers. The issuance to our officers and directors included a grant to
Jason Nanchun Jiang of options to purchase 500,000 of our ordinary shares. No other
director or officer, upon exercise of all options granted, would beneficially own more
than 1% of our outstanding ordinary shares. All of the options granted vest over a
three year period, beginning one year from the date of issuance. The exercise price of
the options is $5.724 per share which was based on the market price of our ADSs at the
time the options were granted. The options expire on November 14, 2016.
    
    In March 2007, we granted options to purchase 1,200,000 of our ordinary shares to
certain of our employees. The exercise price of the options is $7.20 per share which
was based on the market price of our ADSs at the time the options were granted. The
options expire on March 18, 2017.
     81




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##### Table of Contents



ExerciseNumber of ordinary
    
    pershares to be issued upon
    
    ordinaryexercise of options
    
    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, 2016Zhi Tan
    
    
    *
    
    
    $
    5.72
    
    
    November 16, 2006
    
    November 15, 2015Daniel Mingdong Wu
    
    
    *
    
    
    $
    0.58
    
    
    February 2, 2005
    
    February 1, 2015Daniel Mingdong Wu
    
    
    *
    
    
    $
    0.75
    
    
    February 2, 2005
    
    February 1, 2015Daniel 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;
 82




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
    
    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;
    
    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;
 83




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
    
    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.
  D. Employees
  Number of employees(1)
    
    PercentageSales and marketing
    
    
    797
    
    
    
    22.5Operations
    
    
    1,875
    
    
    
    52.8Management and administration
    
    
    876
    
    
    
    24.7Total number of employees
    
    
    3,548
    
    
    
    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
  84




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
    
    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.
  Shares beneficially ownedNumber
    
    
    PercentPrincipal ShareholdersJJ Media Investment Holding Ltd./
Jason Nanchun Jiang (1)
    
    
    61,494,209
    
    
    
    9.95
    %Total Team Investments Limited (2)
    
    
    35,830,622
    
    
    
    5.80
    %Directors and Executive Officers (3)JJ Media Investment Holding Ltd./
Jason Nanchun Jiang (4)
    
    
    61,494,209
    
    
    
    9.95
    %David Feng Yu
    
    
    *
    
    
    
    *Jimmy Wei Yu
    
    
    *
    
    
    
    *Neil Nanpeng Shen
    
    
    
    
    
    
    *Charles Chao
    
    
    
    
    
    
    *Fumin Zhuo
    
    
    
    
    
    
    *Daqing Qi
    
    
    
    
    
    
    *Zhi Tan(5)
    
    
    35,830,622
    
    
    
    5.80
    %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 53,975,959 ordinary shares owned by JJ Media Investment Holding Ltd. and 5,041,600
and 2,476,650 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)
    
    Total Team, a British Virgin Island company, is 13.37%, 10.79%, 10.46%, 9.99%, 9.30%, 9.23%,
8.14%, 5.81%, 5.76%, 5.54%, 5.23%, 4.04%, 1.74% and 0.58% owned by First Choice Investments
Limited (jointly owned by Zhi Tan, our president, Gongquan Wang and Hong Chen), IDG Technology
Venture Investment III, L.P. (owned by a group of unrelated parties), All in One International
Limited (wholly owned by Lei Liu), Timeleader Profits Limited (wholly owned by Haiqi Zhao), Be
First Investments Limited (wholly owned by Yue Yin), Yee On Investments Limited (wholly owned
by Shisheng Liu), Excellent China (Group) Limited (wholly owned by Chunlong Xu), Dukeland
Investments Limited (wholly owned by Xiaolu Sun who is Mr. Zhi Tans wife), Red Focus Inc.
(wholly owned by Xuxia Yang), Nice Excel Investments Limited (wholly owned by Zhixue Ding),
Sparkle Media Limited (wholly owned by Haijin Li), Yufai Investments Limited (wholly owned by
Yong Shi), Best Star Profits Limited (wholly owned by Zefei Wu) and Hong Chen, respectively.
Each shareholder of Total Team exercises the investment and voting power over our ordinary
shares held by Total Team in proportion to its respective ownership right in Total Team. The
address of Total Team is c/o Offshore Incorporations Limited, P.O. Box 957, Offshore
Incorporations Centre, Road Town, Tortola, British Virgin Islands.(3)
    
    The address of our current directors and executive officers is c/o 28F, Zhao Feng World Trade
Building, 369 Jiangsu Road, Shanghai 200050, China. 85




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(4)
    
    See note 1.(5)
    
    Includes 35,830,622 ordinary shares held by Total Team. Dr. Tan is a joint shareholder of
First Choice Investment Limited, which holds a 13.37% equity interest in Total Team. Dr. Tan
disclaims beneficial ownership in the shares owned by Total Team except to the extent of his
pecuniary interest therein.    B. Related Party Transactions
  Year ended December 31,Name of related parties
    
    Director interested
    
    2004
    
    
    2005
    
    
    2006Shanghai Everease Advertising & Communication Ltd.
    
    Jason Nanchun Jiang
    
    $
    1,302,331
    
    
    $
    1,552,039
    
    
    $
    7,764,977Multimedia Park Venture Capital
    
    Jimmy Wei Yu
    
    
    1,227,267
    
    
    
    2,330,945
    
    
    
    3,885,546Shanghai Jobwell Business Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    411,034
    
    
    
    1,050,258
    
    
    
    1,382,695Shanghai Wealove Wedding Service Co., Ltd.
    
    Jimmy Wei Yu
    
    
    372,488
    
    
    
    757,850
    
    
    
    1,122,945Shanghai Wealove Business Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    
    
    
    
    
    
    
    
    671,488Shanghai Hetong Network Technology Co., Ltd.
    
    Jimmy Wei Yu
    
    
    361,371
    
    
    
    908,100
    
    
    
    982,527Shanghai Shengchu Advertising Agency Co., Ltd.
    
    Jimmy Wei Yu
    
    
    
    
    
    
    1,646,120
    
    
    
    3,230,040Beijing Sina Internet Information Services Co., Ltd.
    
    Charles Chao
    
    
    
    
    
    
    
    
    
    
    190,563Beijing Sohu New-age Information Technology Co., Ltd.
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    119,768Home-Inn Hotel Management (Beijing) Co., Ltd
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    78,742Ctrip Travel Information Technology (Shanghai) Co., Ltd.
    
    Neil Nanpeng Shen
    
    
    48,287
    
    
    
    264,120
    
    
    
    178,933$
    3,722,778
    
    
    $
    8,509,432
    
    
    $
    19,608,224
     December 31,Name of related parties
    

Note
    
    Director interested
    
    2004
    
    
    2005
    
    
    2006Shanghai Everease Advertising & Communication Ltd.
    
    (a)
    
    Jason Nanchun Jiang
    
    $
    1,259,138
    
    
    $
    572,525
    
    
    $
    6,331,549Multimedia Park Venture Capital
    
    (a)
    

    Jimmy Wei Yu
    
    
    690,212
    
    
    
    330,700
    
    
    
    12,705Shanghai Jobwell Business Consulting Ltd.
    
    (a)
    

    Jimmy Wei Yu
    
    
    275,971
    
    
    
    546,207
    
    
    
    Shanghai Wealove Wedding Service Co., Ltd.
    
    (a)
    

    Jimmy Wei Yu
    
    
    251,556
    
    
    
    662,954
    
    
    
    Shanghai Hetong Network Technology Co., Ltd.
    
    (a)
    

    Jimmy Wei Yu
    
    
    263,155
    
    
    
    533,469
    
    
    
    Shanghai Shengchu Advertising Agency Co., Ltd.
    
    (a)
    

    Jimmy Wei Yu
    
    
    
    
    
    
    
    
    
    
    403,889Home-Inn Hotel Management (Beijing) Co., Ltd
    
    (a)
    

    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    39,699David Yu
    
    (b)
    

    David Yu
    
    
    
    
    
    
    
    
    
    
    1,064,947$
    2,740,032
    
    
    $
    3,120,206
    
    
    $
    7,852,789
  December 31,Name of related parties
    

Note
    
    
    Director interested
    
    2004
    
    
    2005
    
    
    2006TanZhi
    
    (c)
    
    
    TanZhi
    
    $
    
    
    
    $
    
    
    
    $
    345,768
    86




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Agreements among Us, Our Wholly Foreign-Owned Subsidiaries, Our PRC Operating Affiliates and Their
Shareholders and Subsidiaries
  Transfer of Ownership When Permitted By Law
  Voting Arrangements
  87




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Equity Pledge Agreements
  Equity Trust Agreements
  Trademark License Agreement
  Cooperation Agreements
  Asset Transfer Agreement
  88




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Technology Transfer Agreement
  Advertisement Dissemination Agreement
  Exclusive Services Agreement
  Other Related Party Transactions
 Shareholders Agreement
  Loans to Shareholders of Our PRC Operating Affiliates
  Loan from Relative of Jason Nanchun Jiang
  Transactions with Everease
  Everease Non-Competition Agreement
  89




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##### Table of Contents



Advertising Services Provided to Everease
  Certain
Services Provided by Everease
  Transactions with Entities Affiliated with Jimmy Wei Yu
   Transactions with Ctrip.com International
  Transactions with Home-Inn Hotel Management (Beijing) Co., Ltd
  Transactions with Beijing Sina Internet Information Services Co., Ltd
  Transactions with Beijing Sohu New-age Information Technology Co., Ltd
  90




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##### Table of Contents



C. Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Statements and Other Financial Information
  Legal Proceedings
   Dividend Policy
   91




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B. Significant Changes
  
    
    We signed a definitive term sheet to acquire 90% of Fengjing Advertisement Company
(Fengjing) in July 2006 to further expand our outdoor LED network in Shanghai. During
the fourth quarter of 2006, we completed the acquisition of Fengjing Advertisement.
Upon the closing of this acquisition, we added an additional 96 4-ft by 6-ft outdoor
LED digital billboards installed on street-sides in major commercial areas in Shanghai
and have the right to operate these LED screens for at least 6 years. By the end of
2006, the number of the LED screens in our street-side outdoor LED network in prime
commercial and shopping areas (iStreet Network) reached 226.
    
    In January 2007, Focus Media and certain of its pre-IPO shareholders completed a
secondary offering. In this offering, including the greenshoe exercised by the
underwriters, Focus Media sold 1,500,000 ADSs of newly issued shares and its selling
shareholders sold 6,154,055 ADSs to the public.
    
    On March 31, 2007, we acquired Allyes Information Technology Company Limited which,
as a result, has become a wholly-owned subsidiary. Allyes operates an advertising
network that allows advertisers to pay by cost per action and directly links
advertising cost with performance.
    
    In May 2007, we announced the launch of our digital frames to upgrade our poster
frame network. These digital frames use high-resolution LCD displays instead of paper
posters.
    
    In May 2007, we released our results of operations for the three month period ended
March 31, 2007. These results are available on our Form 6-K which we filed on EDGAR on
June 15, 2007.
    
    In the three months ended June 30, 2007, we completed acquisitions of a total of eight companies, which primarily
provide mobile handset advertising, Internet advertising and outdoor billboard advertising services. We paid an aggregate
of approximately US$23.8 million to acquire these companies, including US16.3 million in prepayments, which will be deducted
in some instances from possible earn-out payments contingent upon the achievement of certain earnings targets over the next one
to three fiscal years of the relevant acquired entities.
    
    On September 25, 2007, the Audit Committee completed its previously disclosed investigation into allegations made by U.S. Counsel
to an investor described as holding a short position in our stock. The results of the investigation have been discussed with our independent
Registered Public Accounting firm. Based upon its review of the evidence, the Audit Committee concluded that nothing had come to its
attention - apart from the initial allegations that gave rise to the investigation - that would cause the Audit Committee to believe
that we made undisclosed rebate payments to a third party advertising
agency through another advertising agency, namely, Everease. We have
informed the investigators
that we have concluded that Everease is a related party based upon information developed during the investigation. Based upon its review of the
evidence, the Audit Committee concurs with our conclusion that Everease should be deemed a related party.
  
 ITEM 9. THE OFFER AND LISTING
 A. Offer and Listing Details
 Market Price Information for Our American Depositary Shares
  SALE PRICEHIGH
    
    LOWMONTHLY HIGHS AND LOWS
    
    US$
    
    US$2006(from July 1)July
    
    
    33.72
    
    
    
    26.50August
    
    
    31.78
    
    
    
    27.70September
    
    
    31.00
    
    
    
    27.26
 92




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SALE PRICEHIGH
    
    LOWMONTHLY HIGHS AND LOWS
    
    US$
    
    US$October
    
    
    30.46
    
    
    
    26.05November
    
    
    36.44
    
    
    
    26.50December
    
    
    36.56
    
    
    
    33.022007January
    
    
    42.92
    
    
    
    33.50February
    
    
    44.25
    
    
    
    38.00March
    
    
    40.05
    
    
    
    35.63April
    
    
    41.26
    
    
    
    35.81May
    
    
    45.45
    
    
    
    35.23June
    
    
    52.09
    
    
    
    42.22July
    
    
    53.29
    
    
    
    39.25August
    
    
    43.00
    
    
    
    34.57September
(through September 24)
    
    
    50.00
    
    
    
    40.05
  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
  93




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C. Material Contracts
  Framedia
  Share Purchase Agreement
   Structure
 Purchase Price
 Representations and Warranties
 Covenants
 Voting Rights
 94




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Indemnification
  Control Over Framedia
  Target Media
   Purchase Price
 Focus Media Options
 Representations and Warranties
 Covenants
 95




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Indemnification
     Focus Media Wireless
  96




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Purchase Price
 Representations and Warranties
 Covenants
 Indemnification
 Focus Media Movie Theater Advertising network
  Allyes
  97




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Purchase Price
 Representations and Warranties
 Covenants
 Indemnification
      98




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Control Over Allyes
  D. Exchange Controls
     
    
    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,
 99




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##### Table of Contents



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.
    E. Taxation
 Cayman Islands Taxation
     100




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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;
    
    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;
 101




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
    
    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
   Taxation of Dividends
   102




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Passive Foreign Investment Companies
   
    
    at least 75% of our gross income is passive income, or
    
    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.
   103




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Taxation of Capital Gains
  Information Reporting and Backup Withholding
    F. Dividends and Paying Agents
  G. Statement by Experts
  104




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H. Documents on Display
   http://www.sec.gov
   I. Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Risk
  105




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Inflation
  
 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;
   106




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.
 
    
    prior to September 18, 2009 or prior to the time when the shares proposed to be sold
by the former Allyes shareholders may be sold in a 90-day period under Rule 144, any
former Allyes shareholders holding 3 million of our ordinary shares may request that we
effect the registration of the ordinary shares held by them using our existing
registration statement on Form F-3ASR, provided that if the offering is part of an
underwritten offering, the expected proceeds from such an offering would not be less
than US$40 million; we are obligated to effect up to three such registrations; and
    
    certain of the former Allyes shareholders, on a date at least 150 days and no more
than 330 days following March 28, 2007, may request that we effect the registration of
the ordinary shares held by them using our existing registration statement on Form
F-3ASR; we are obligated to effect only one such registration.
   B. Use of Proceeds
  
    
    the registration statements on Form F-1 (File No. 333-131065), or 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;
    
    the registration statement on Form F-1 (File No. 333-134714), or the second
follow-on registration statement, and on Form F-1MEF (File No. 333-135062), or 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; and
    
    the registration statement on Form F-3ASR (File No. 333-137404), dated September 18,
2006, or the shelf registration statement, which we used for a follow-on offering, or
the January 2007 follow-on public offering) conducted on January 25, 2007, which shelf
registration statement automatically became effective with respect to the January 2007
follow-on offering.
   107




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Managements
Annual Report on Internal Control Over Financial Reporting.
       Changes
In Internal Control Over Financial Reporting
  
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  108




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##### Table of Contents



ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the year ended December 31,2005
    
    
    2006(in thousands)Audit Fees (1)
    
    $
    711
    
    
    $
    1,184Audit-related Fees (2)
    
    
    
    
    
    
    Tax Fees (3)
    
    
    46
    
    
    
    83All Other Fees (4)
    
    
    
    
    
    
    Total
    
    $
    757
    
    
    $
    1,267
 
 (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
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  109




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##### Table of Contents



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.
 110




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##### Table of Contents



ITEM 19. EXHIBITS
 ExhibitNumber
    
    Description of Exhibits3.1 *
    
    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).4.4 *
    
    Form of Amended and Restated Deposit Agreement dated April 9, 2007, 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. 333-141820) 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.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.
 111




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.5 *
    
    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.10.13 *
    
    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
 112




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##### Table of Contents



ExhibitNumber
    
    Description of ExhibitsAdvertisement 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.
 113




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.39 *
    
    
    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.10.40 *
    
    
    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.
 114




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.53 *
    
    
    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.10.61 *
    
    
    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.
 115




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.70 *
    
    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.
 116




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.88 *
    
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Shenzhen Bianjie Building Advertisement Co., Ltd.10.89 *
    
    
    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.10.97
    
    
    2006 Share Option Plan, dated August 22, 2006, of Focus Media Holding Ltd.10.98
    
    
    Share Purchase Agreement, dated as of February 28, 2007, among Allyes
Information Technology Company Limited, the selling shareholders named
therein and Focus Media Holding Limited.10.99
    
    
    Asset Transfer Agreement, dated January 30, 2003, by and among Shanghai
Allyes Advertisement Co. Ltd., New Allyes Information Technology
(Shanghai) Co., Ltd., Xiangdong Xiong, and Jiangang Wang10.100
    
    
    Call Option Agreement, dated January 30, 2003, by and among Jiangang Wang,
New Allyes Information Technology (Shanghai) Co., Ltd., and Shanghai
Allyes Advertisement Co., Ltd.10.101
    
    
    Call Option Agreement, dated January 30, 2003, by and among Xiangdong
Xiong, New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Allyes Advertisement Co., Ltd.10.102
    
    
    Equity Interests Pledge Agreement, dated January 30, 2003, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Jiangang Wang.10.103
    
    
    Equity Interest Pledge Agreement, dated January 30, 2003, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Xiangdong Xiong10.104
    
    
    Exclusive Service Agreement, dated January 20, 2003, by and among Shanghai
Allyes Advertisement Co., Ltd. and New Allyes Information Technology
(Shanghai) Co., Ltd.
 117




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.105
    
    
    Loan Agreement, dated January 10, 2003, by and between New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Jiangang Wang
(Borrower).10.106
    
    
    Loan Agreement, dated January 10, 2003, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Xiangdong Xiong
(Borrower).10.107
    
    
    Shareholders Voting Rights Proxy Agreement, dated January 30, 2003, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Allyes Advertisement Co., Ltd. and Xiangdong Xiong.10.108
    
    
    Call Option Agreement, dated November 1, 2004, by and among Jiangang Wang,
New Allyes Information Technology (Shanghai) Co., Ltd. and Shenzhen Baifen
Creation Advertisement Co., Ltd.10.109
    
    
    Call Option Agreement, dated November 1, 2004, by and among Xiangdong
Xiong, New Allyes Information Technology (Shanghai) Co., Ltd. and Shenzhen
Baifen Creation Advertisement Co., Ltd.10.110
    
    
    Equity Interests Pledge Agreement, dated November 1, 2004, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Jiangang Wang.10.111
    
    
    Equity Interests Pledge Agreement, dated November 1, 2004, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Xiangdong
Xiong.10.112
    
    
    Exclusive Service Agreement, dated November 1, 2004, by and between
Shenzhen Baifen Creation Co., Ltd. and New Allyes Information Technology
(Shanghai) Co., Ltd.10.113
    
    
    Loan Agreement, dated November 1, 2004, by and between New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Jiangang Wang
(Borrower).10.114
    
    
    Loan Agreement, dated November 1, 2004, by and between New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Xiangdong Xiong
(Borrower).10.115
    
    
    Shareholders Voting Rights Proxy Agreement, dated November 1, 2004, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shenzhen
Baifen Creation Advertisement Co., Ltd., and Jiangang Wang.10.116
    
    
    Shareholders Voting Rights Proxy Agreement, dated November 1, 2004, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shenzhen
Baifen Creation Advertisement Co., Ltd., and Xiangdong Xiong.10.117
    
    
    Asset Transfer Agreement, dated November 30, 2004, by and among Shanghai
Huxin Advertisement Co., Ltd., New Allyes Information Technology
(Shanghai) Co., Ltd., Suyang Zhang and Hailong Zhu.10.118
    
    
    Call Option Agreement, dated November 30, 2004, by and among Suyang Zhang,
New Allyess Information technology (Shanghai) Co., Ltd. and Shanghai Huxin
Advertisement Co., Ltd.10.119
    
    
    Call Option Agreement, dated November 30, 2004, by and among Hailong Zhu,
New Allyess Information technology (Shanghai) Co., Ltd. and Shanghai Huxin
Advertisement Co., Ltd.10.120
    
    
    Equity Interests Pledge Agreement, dated November 30, 2004, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Suyang Zhang.10.121
    
    
    Equity Interests Pledge Agreement, dated November 30, 2004, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Hailong Zhu.10.122
    
    
    Exclusive Services Agreement, dated November 11, 2004, by and between
Shanghai Huxin Advertisement Co., Ltd. and New Allyess Information
Technology (Shanghai) Co., Ltd.10.123
    
    
    Loan Agreement, dated November 1, 2004, by and between New Allyess
Information Technology (Shanghai) Co., Ltd (Lender) and Suyang Zhang
(Borrower).10.124
    
    
    Loan Agreement, dated November 1, 2004, by and between New Allyess
Information Technology (Shanghai) Co., Ltd (Lender) and Hailong Zhu
(Borrower).
 118




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.125
    
    
    Shareholders Voting Rights Proxy Agreement, dated November 30, 2004, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Huxin Advertisement Co., Ltd. and Suyang Zhang.10.126
    
    
    Shareholders Voting Rights Proxy Agreement, dated November 30, 2004, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Huxin Advertisement Co., Ltd. and Hailong Zhu.10.127
    
    
    Asset Transfer Agreement, dated November 30, 2004, by and among Shanghai
MSN Advertisement Co., Ltd., New Allyes Information Technology (Shanghai)
Co., Ltd., Suyang Zhang and Hailong Zhu.10.128
    
    
    Call Option Agreement, dated November 30, 2004, by and among Suyang Zhang,
New Allyes Information Technology (Shanghai) Co., Ltd. and Shanghai MSN
Advertisement Co., Ltd.10.129
    
    
    Call Option Agreement, dated November 30, 2004, by and among Hailong Zhu,
New Allyes Information Technology (Shanghai) Co., Ltd. and Shanghai MSN
Advertisement Co., Ltd.10.130
    
    
    Equity Interests Pledge Agreement, dated November 30, 2004, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Suyang Zhang.10.131
    
    
    Equity Interests Pledge Agreement, dated November 30, 2004, by and between
New Allyes Information Technology (Shanghai) Co., Ltd. and Hailong Zhu.10.132
    
    
    Exclusive Service Agreement, dated November 3, 2004, by and among Shanghai
MSN Advertisement Co., Ltd. and New Allyes Information Technology
(Shanghai) Co., Ltd.10.133
    
    
    Loan Agreement, dated November 1, 2004, by and between New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Hailong Zhu
(Borrower).10.134
    
    
    Loan Agreement, dated November 1, 2004, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Suyang Zhang
(Borrower).10.135
    
    
    Shareholders Voting Rights Proxy Agreement, dated November 30, 2004, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
MSN Advertisement Co., Ltd. and Suyang Zhang.10.136
    
    
    Shareholders Voting Rights Proxy Agreement, dated November 30, 2004, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
MSN Advertisement Co., Ltd. and Hailong Zhu.10.137
    
    
    Asset Transfer Agreement, dated May 17, 2005, by and among Shanghai
Quanshi Advertisement Co., Ltd., New Allyes Information Technology
(Shanghai) Co., Ltd., Suyang Zhang and Hailong Zhu.10.138
    
    
    Call Option Agreement, dated May 17, 2005, by and among Hailong Zhu, by
and among New Allyes Information Technology (Shanghai) Co., Ltd. and
Shanghai Quanshi Advertisement Co., Ltd.10.139
    
    
    Call Option Agreement, dated May 17, 2005, by and among Hailong Zhu, by
and among New Allyes Information Technology (Shanghai) Co., Ltd. and
Shanghai Quanshi Advertisement Co., Ltd.10.140
    
    
    Equity Interests Pledge Agreement, dated May 17, 2005, by and between New
Allyes Information Technology (Shanghai) Co., Ltd. and Suyang Zhang.10.141
    
    
    Equity Interests Pledge Agreement, dated May 17, 2005, by and between New
Allyes Information Technology (Shanghai) Co., Ltd. and Hailong Zhu.10.142
    
    
    Exclusive Service Agreement, dated April 30, 2005, by and between Shanghai
Quanshi Advertisement Co., Ltd. and New Allyes Information Technology
(Shanghai) Co., Ltd.10.143
    
    
    Loan Agreement, dated April 20, 2005, by and between New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Suyang Zhang
(Borrower).10.144
    
    
    Loan Agreement, dated April 20, 2005, by and between New Allyes
Information Technology (Shanghai) Co., Ltd. (Lender) and Hailong Zhu
(Borrower).
 119




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.145
    
    
    Shareholders Voting Rights Proxy Agreement, dated May 17, 2005, by and
among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Quanshi Advertisement Co., Ltd. and Suyang Zhang.10.146
    
    
    Shareholders Voting Rights Proxy Agreement, dated May 17, 2005, by and
among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Quanshi Advertisement Co., Ltd. and Hailong Zhu.10.147
    
    
    Supplemental Agreement for Loan Agreement, dated March 20, 2006, by and
between New Allyes Information Technology (Shanghai) Co., Ltd. (Lender)
and Suyang Zhang (Borrower).10.148
    
    
    Supplemental Agreement for Loan Agreement, dated March 20, 2006, by and
between New Allyes Information Technology (Shanghai) Co., Ltd. (Lender)
and Hailong Zhu (Borrower).10.149
    
    
    Call Option Agreement, dated July 1, 2006, by and among Jiangang Wang, New
Allyes Information Technology (Shanghai) Co., Ltd. and Shanghai Kuantong
Advertisement Co., Ltd.10.150
    
    
    Call Option Agreement, dated July 1, 2006, by and among Suyang Zhang, New
Allyes Information Technology (Shanghai) Co., Ltd. and Shanghai Kuantong
Advertisement Co., Ltd.10.151
    
    
    Equity Interests Pledge Agreement, dated July 1, 2006, by and between New
Allyes Information Technology (Shanghai) Co., Ltd. and Jiangang Wang.10.152
    
    
    Equity Interests Pledge Agreement, dated July 1, 2006, by and between New
Allyes Information Technology (Shanghai) Co., Ltd. and Suyang Zhang.10.153
    
    
    Exclusive Service Agreement, dated July 1, 2006, by and between Shanghai
Kuantong Advertisement Co., Ltd. and New Allyes Information Technology
(Shanghai) Co., Ltd.10.154
    
    
    Loan Agreement, dated June 20, 2006, by and between New Allyes Information
Technology (Shanghai) Co., Ltd. (Lender) and Jiangang Wang (Borrower).10.155
    
    
    Loan Agreement, dated June 20, 2006, by and between New Allyes Information
Technology (Shanghai) Co., Ltd. (Lender) and Suyang Zhang (Borrower).10.156
    
    
    Shareholders Voting Rights Proxy Agreement, dated July 1, 2006, by and
among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Kuantong Advertisement Co., Ltd. and Jiangang Wang.10.157
    
    
    Shareholders Voting Rights Proxy Agreement, dated July 1, 2006, by and
among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Kuantong Advertisement Co., Ltd. and Suyang Zhang.10.158
    
    
    Share Purchase Agreement, dated July 21, 2006, by and among EFG Partners
Ltd., Focus Media Holding Ltd., Appreciate Capital Ltd., Qingyong Zhang
and Yongmei Wang.10.159
    
    
    Registration Rights Agreement, dated March 28, 2007, by and among Focus
Media Holding Limited, and option holders of Allyes Information Technology
Company Limited10.160
    
    
    Shareholders Voting Rights Proxy Agreement, dated January 30, 2003, by
and among New Allyes Information Technology (Shanghai) Co., Ltd., Shanghai
Allyes Advertisement Co., Ltd. and Jiangang Wang.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.
 120




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits15.1
    
    
    Consent of Conyers Dill & Pearman.15.2
    
    
    Consent of Global Law Office.21.1
    
    
    List of Subsidiaries.
 
 *
    
    Previously filed. 121




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##### Table of Contents



SIGNATURES
  Focus Media Holding LimitedBy:
    
    /s/ Jason Nanchun JiangName:
    
    Jason Nanchun JiangTitle:
    
    Chairman and Chief Executive Officer
  122




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 CONTENTS
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated balance sheets as of December 31, 2004, 2005 and 2006
    
    F-4Consolidated statements of operations for the years ended December 31, 2004, 2005 and 2006
    
    F-5Consolidated statements of shareholders equity (deficiency) and comprehensive income for the years ended December 31, 2004, 2005 and 2006
    
    F-6Consolidated statements of cash flows for the years ended December 31, 2004, 2005 and 2006
    
    F-8Notes to the consolidated financial statements
    
    F-10Additional information  Financial statement schedule I
    
    F-47
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Report by Management on Internal Control over Financial Reporting,
    Internal Control  Integrated Framework
  F-2




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##### Table of Contents



Internal Control  Integrated Framework
   
 F-3




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2004
    
    
    2005
    
    
    2006(In U.S. dollars, except share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    22,669,106
    
    
    $
    36,653,180
    
    
    $
    164,610,942Investment in debt securities
    
    
    
    
    
    
    34,835,850
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $173,837, $396,657 and
$1,308,554 in 2004, 2005 and 2006,
respectively
    
    
    6,619,949
    
    
    
    21,188,531
    
    
    
    61,614,343Inventories
    
    
    1,243,140
    
    
    
    479,529
    
    
    
    519,095Prepaid expenses and other current assets
    
    
    1,746,996
    
    
    
    4,444,303
    
    
    
    5,199,355Deposits paid for acquisition of subsidiaries
    
    
    362,472
    
    
    
    40,919,530
    
    
    
    3,526,370Amounts due from related parties
    
    
    2,740,032
    
    
    
    3,120,206
    
    
    
    7,852,789Total current assets
    
    
    35,381,695
    
    
    
    141,641,129
    
    
    
    243,322,894Rental deposits
    
    
    1,606,378
    
    
    
    11,819,095
    
    
    
    11,833,290Equipment, net
    
    
    9,197,143
    
    
    
    43,694,888
    
    
    
    70,249,324Acquired intangible assets, net
    
    
    708,306
    
    
    
    1,157,920
    
    
    
    34,717,019Goodwill
    
    
    9,058,086
    
    
    
    13,298,072
    
    
    
    739,743,871Other long-term assets
    
    
    463,051
    
    
    
    742,914
    
    
    
    6,375,682Total assets
    
    $
    56,414,659
    
    
    $
    212,354,018
    
    
    $
    1,106,242,080Liabilities, mezzanine equity and shareholders equity (deficiency)Current liabilities:Short-term loans
    
    $
    
    
    
    $
    991,301
    
    
    $
    2,769,459Accounts payable
    
    
    607,091
    
    
    
    5,847,530
    
    
    
    5,987,593Accrued expenses and other current liabilities
    
    
    6,591,435
    
    
    
    11,746,902
    
    
    
    38,674,175Income taxes payable
    
    
    1,435,486
    
    
    
    2,108,071
    
    
    
    4,060,170Amounts due to related parties
    
    
    
    
    
    
    
    
    
    
    345,768Total current liabilities
    
    
    8,634,012
    
    
    
    20,693,804
    
    
    
    51,837,165Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    3,303,110Total liabilities
    
    $
    8,634,012
    
    
    $
    20,693,804
    
    
    $
    55,140,275Commitments (Note 16)Minority interest
    
    
    80,692
    
    
    
    245,563
    
    
    
    357,814Mezzanine equitySeries A convertible redeemable preference shares ($0.00005 par value; 41,967,400 shares
authorized and 41,967,400, nil and nil shares issued and outstanding in 2004, 2005 and
2006, respectively)
    
    
    6,295,110
    
    
    
    
    
    
    
    Series B convertible redeemable preference shares ($0.00005 par value; 48,191,600 shares
authorized and 48,191,600, nil and nil shares issued and outstanding in 2004, 2005 and
2006, respectively)
    
    
    12,062,696
    
    
    
    
    
    
    
    Series C-1 convertible redeemable preference shares ($0.00005 par value; 34,054,000
shares authorized and 34,054,000, nil and nil shares issued and outstanding in 2004,
2005 and 2006, respectively)
    
    
    17,500,350
    
    
    
    
    
    
    
    Series C-2 convertible redeemable preference shares ($0.00005 par value; 34,053,400
shares authorized and 34,053,400, nil and nil shares issued and outstanding in 2004,
2005 and 2006, respectively)
    
    
    17,415,000
    
    
    
    
    
    
    
    Shareholders equity (deficiency)Ordinary shares ($0.00005 par value; 885,516,600, 19,800,000,000 and 19,800,000,000
shares authorized in 2004, 2005 and 2006; 142,464,600, 378,306,000 and 534,896,873
shares issued and outstanding in 2004, 2005 and 2006, respectively)
    
    
    7,124
    
    
    
    18,916
    
    
    
    26,745Additional paid-in capital
    
    
    5,981,154
    
    
    
    177,419,761
    
    
    
    709,196,246Acquisition consideration to be issued
    
    
    
    
    
    
    
    
    
    
    237,879,480Deferred share-based compensation
    
    
    (969,959
    )
    
    
    (246,569
    )
    
    
    Retained earnings (accumulated deficit)
    
    
    (10,550,414
    )
    
    
    12,997,237
    
    
    
    96,194,969Accumulated other comprehensive income (loss)
    
    
    (41,106
    )
    
    
    1,225,306
    
    
    
    7,446,551Total
shareholders equity (deficiency)
    
    $
    (5,573,201
    )
    
    $
    191,414,651
    
    
    $
    1,050,743,991Total liabilities, mezzanine equity and shareholders equity (deficiency)
    
    $
    56,414,659
    
    
    $
    212,354,018
    
    
    $
    1,106,242,080
  F-4




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the years ended December 31,2004
    
    
    2005
    
    
    2006(In U.S. dollars, except share data)Net revenues:Advertising Service Revenue
    
    $
    26,321,179
    
    
    $
    66,903,679
    
    
    $
    209,973,935Other Revenue
    
    
    2,888,720
    
    
    
    1,325,234
    
    
    
    1,931,530Total net revenues
    
    
    29,209,899
    
    
    
    68,228,913
    
    
    
    211,905,465Cost of revenues:Advertising Service Cost
    
    
    6,804,410
    
    
    
    25,748,318
    
    
    
    80,615,408Other Cost
    
    
    1,934,331
    
    
    
    975,747
    
    
    
    764,959Total cost of revenues
    
    
    8,738,741
    
    
    
    26,724,065
    
    
    
    81,380,367Gross profit
    
    
    20,471,158
    
    
    
    41,504,848
    
    
    
    130,525,098Operating expenses/(income):General and administrative
    
    
    3,987,496
    
    
    
    9,119,846
    
    
    
    25,723,413Selling and marketing
    
    
    3,472,088
    
    
    
    9,599,226
    
    
    
    25,761,948Other operating income
    
    
    
    
    
    
    
    
    
    
    (1,338,334
    )Goodwill impairment loss
    
    
    58,397
    
    
    
    
    
    
    
    Total operating expenses/(income)
    
    
    7,517,981
    
    
    
    18,719,072
    
    
    
    50,147,027Income from operations
    
    
    12,953,177
    
    
    
    22,785,776
    
    
    
    80,378,071Interest income
    
    
    9,739
    
    
    
    1,811,782
    
    
    
    4,560,798Interest expense
    
    
    
    
    
    
    (49,873
    )
    
    
    (305,287
    )Other income
    
    
    53,940
    
    
    
    70,471
    
    
    
    271,451Other expense
    
    
    (57,783
    )
    
    
    (231,619
    )
    
    
    (558,990
    )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
    
    
    1,266,786
    
    
    
    24,386,537
    
    
    
    84,346,043Income taxes
    
    
    907,550
    
    
    
    694,453
    
    
    
    1,043,538Net income after income taxes before minority interest
    
    
    359,236
    
    
    
    23,692,084
    
    
    
    83,302,505Minority interest
    
    
    13,516
    
    
    
    (144,433
    )
    
    
    (104,773
    )Net income
    
    
    372,752
    
    
    
    23,547,651
    
    
    
    83,197,732Deemed 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
    
    
    
    
    
    
    
    Net income (loss) attributable to holders of ordinary shares
    
    $
    (10,576,414
    )
    
    $
    23,547,651
    
    
    $
    83,197,732Income (loss) per share  basic
    
    $
    (0.07
    )
    
    $
    0.09
    
    
    $
    0.16Income (loss) per share  diluted
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    0.16Shares used in calculating basic income (loss) per share
    
    
    160,998,600
    
    
    
    252,128,545
    
    
    
    505,411,079Shares used in calculating diluted income (loss) per share
    
    
    160,998,600
    
    
    
    365,938,094
    
    
    
    521,536,381
  F-5




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY) AND COMPREHENSIVE INCOME
 Deferred
    
    
    Retained
    
    
    Accumulated
    
    
    TotalAdditional
    
    
    share
    
    
    earnings
    
    
    other
    
    
    shareholdersOrdinary
    
    
    paid-in
    
    
    based
    
    
    (accumulated
    
    
    comprehensive
    
    
    equity
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    capital
    
    
    compensation
    
    
    deficit)
    
    
    income (loss)
    
    
    (deficiency)
    
    
    income(In U.S. dollars, except share data)Balance at January 1, 2004
    
    
    200,000,000
    
    
    $
    10,000
    
    
    $
    1,188,817
    
    
    $
    
    
    
    $
    26,000
    
    
    $
    (41,755
    )
    
    $
    1,183,062
    
    
    
    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
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    $
    649Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372,752
    
    
    
    
    
    
    
    372,752
    
    
    
    372,752Balance at December 31, 2004
    
    
    142,464,600
    
    
    $
    7,124
    
    
    $
    5,981,154
    
    
    
    (969,959
    )
    
    $
    (10,550,414
    )
    
    $
    (41,106
    )
    
    $
    (5,573,201
    )
    
    $
    373,401Series 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    267,864
    
    
    
    458,639
    
    
    
    
    
    
    
    
    
    
    
    726,503
    
    
    
    Unrealized loss on debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164,150
    )
    
    
    (164,150
    )
    
    $
    (164,150
    )Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,430,562
    
    
    
    1,430,562
    
    
    
    1,430,562Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,547,651
    
    
    
    
    
    
    
    23,547,651
    
    
    
    23,547,651Balance 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
 F-6




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY) AND COMPREHENSIVE 
INCOME  (continued)
 Deferred
    
    
    Retained
    
    
    Accumulated
    
    
    TotalAdditional
    
    
    share
    
    
    earnings
    
    
    other
    
    
    shareholdersOrdinary
    
    
    paid-in
    
    
    based
    
    
    (accumulated
    
    
    comprehensive
    
    
    equity
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    capital
    
    
    compensation
    
    
    deficit)
    
    
    income (loss)
    
    
    (deficiency)
    
    
    income(In U.S. dollars, except share data)Balance at December 31, 2005
    
    
    378,306,000
    
    
    $
    18,916
    
    
    $
    177,419,761
    
    
    $
    (246,569
    )
    
    $
    12,997,237
    
    
    $
    1,225,306
    
    
    $
    191,414,651
    
    
    
    Issuance of ordinary shares upon follow-on offering on
January 27, 2007, net of issuance cost of $3,466,700
    
    
    15,000,000
    
    
    
    750
    
    
    
    61,782,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,783,300
    
    
    
    Issuance of ordinary shares upon follow-on offering on June
16, 2006, net of issuance cost of $2,740,407
    
    
    16,000,000
    
    
    
    800
    
    
    
    80,966,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,967,593
    
    
    
    Issuance of ordinary shares in connection with acquisitions
    
    
    99,254,193
    
    
    
    4,962
    
    
    
    365,660,061
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    365,665,023
    
    
    
    Issuance of ordinary shares pursuant to share option plans
    
    
    26,336,680
    
    
    
    1,317
    
    
    
    15,246,244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,247,561
    
    
    
    Ordinary shares to be issued in connection with acquisitions
    
    
    
    
    
    
    
    
    
    
    237,879,480
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237,879,480
    
    
    
    Adjustment for the adoption of SFAS 123R
    
    
    
    
    
    
    
    
    
    
    (246,569
    )
    
    
    246,569
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    8,367,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,367,406
    
    
    
    Unrealized gain on debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164,150
    
    
    
    164,150
    
    
        $
    164,150Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,057,095
    
    
    
    6,057,095
    
    
    
    6,057,095Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,197,732
    
    
    
    
    
    
    
    83,197,732
    
    
    
    83,197,732Balance at December 31, 2006
    
    
    534,896,873
    
    
    $
    26,745
    
    
    $
    947,075,726
    
    
    $
    
    
    
    $
    96,194,969
    
    
    $
    7,446,551
    
    
    $
    1,050,743,991
    
    
    $
    89,418,977
  F-7




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year ended December 312004
    
    
    2005
    
    
    2006(In U.S. dollars)Operating activities:Income (loss) attributable to holders of ordinary shares
    
    $
    (10,576,414
    )
    
    $
    23,547,651
    
    
    $
    83,197,732Deemed 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
    
    
    372,752
    
    
    
    23,547,651
    
    
    
    83,197,732Adjustments to reconcile net income to net cash provided by (used in) operating
activities:Minority interest
    
    
    (13,516
    )
    
    
    144,433
    
    
    
    104,773Bad debt provision
    
    
    173,837
    
    
    
    235,604
    
    
    
    1,844,605Share-based compensation
    
    
    488,711
    
    
    
    726,503
    
    
    
    8,367,406Depreciation and amortization
    
    
    923,163
    
    
    
    4,927,016
    
    
    
    19,511,552Loss on disposal of equipment
    
    
    22,470
    
    
    
    
    
    
    
    Change in fair value of derivative liability associated with Series B convertible
redeemable preference shares
    
    
    11,692,287
    
    
    
    
    
    
    
    Goodwill impairment
    
    
    58,397
    
    
    
    
    
    
    
    Changes in assets and liabilities, net of effects of acquisitions:Accounts receivable, net
    
    
    (4,525,148
    )
    
    
    (14,710,176
    )
    
    
    (22,289,344
    )Inventories
    
    
    (1,030,529
    )
    
    
    (408,223
    )
    
    
    23,334Prepaid expenses and other current assets
    
    
    (1,740,427
    )
    
    
    (2,347,426
    )
    
    
    7,857,172Amounts due from related parties
    
    
    (2,487,456
    )
    
    
    (380,174
    )
    
    
    (4,732,583
    )Rental deposits
    
    
    (1,035,474
    )
    
    
    (10,076,230
    )
    
    
    3,104,667Accounts payable
    
    
    (1,609,816
    )
    
    
    5,007,564
    
    
    
    (3,174,405
    )Accrued expenses and other current liabilities
    
    
    4,174,214
    
    
    
    3,950,903
    
    
    
    (1,673,496
    )Amounts due to related parties
    
    
    (2,322,276
    )
    
    
    
    
    
    
    Income tax payable
    
    
    825,100
    
    
    
    672,585
    
    
    
    1,276,252Deferred taxes assets
    
    
    78,586
    
    
    
    (20,664
    )
    
    
    (63,383
    )Net cash provided by operating activities
    
    $
    4,044,875
    
    
    $
    11,269,366
    
    
    $
    93,354,282Investing activities:Purchase of equipment and other long-term assets
    
    $
    (6,373,124
    )
    
    $
    (36,765,294
    )
    
    $
    (22,878,254
    )Acquisition of intangible assets
    
    
    
    
    
    
    
    
    
    
    (6,403,114
    )Purchase of subsidiaries, net of cash acquired
    
    
    (4,697,378
    )
    
    
    (4,982,523
    )
    
    
    (124,062,515
    )Deposit paid to acquire subsidiaries
    
    
    
    
    
    
    (40,919,530
    )
    
    
    (3,710,369
    )Disposal of an equity investment
    
    
    
    
    
    
    
    
    
    
    60,005Expiration (investment) in debt securities
    
    
    
    
    
    
    (35,000,000
    )
    
    
    35,000,000Net cash used in investing activities
    
    $
    (11,070,502
    )
    
    $
    (117,667,347
    )
    
    $
    (121,994,247
    )Financing activities:Repayment of short-term loan from a shareholder
    
    
    (500,000
    )
    
    
    
    
    
    
    Proceeds from issuance of ordinary shares, net of issuance costs of $nil in 2004, $13,703,370 in 2005 and $6,207,107 in 2006
    
    
    
    
    
    
    118,174,130
    
    
    
    142,750,893Proceeds from issuance of ordinary shares pursuant to share option plans
    
    
    
    
    
    
    
    
    
    
    15,247,561
 F-8




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##### Table of Contents



For the year ended December 312004
    
    
    2005
    
    
    2006(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 loans
    
    
    
    
    
    
    991,301
    
    
    
    24,598,037Repayment of short-term loans
    
    
    
    
    
    
    
    
    
    
    (29,402,066
    )Capital injection from minority shareholders
    
    
    
    
    
    
    3,089
    
    
    
    326,307Net cash provided by financing activities
    
    $
    28,977,696
    
    
    $
    119,168,520
    
    
    $
    153,520,732Effect of exchange rate changes
    
    $
    649
    
    
    $
    1,213,535
    
    
    $
    3,076,995Net increase in cash and cash equivalents
    
    $
    21,952,718
    
    
    $
    13,984,074
    
    
    $
    127,957,762Cash and cash equivalents, beginning of year
    
    
    716,388
    
    
    
    22,669,106
    
    
    
    36,653,180Cash and cash equivalents, end of year
    
    $
    22,669,106
    
    
    $
    36,653,180
    
    
    $
    164,610,942Supplemental disclosure of cash flow informationIncome taxes paid
    
    $
    738
    
    
    $
    94,391
    
    
    $
    153,526Interest paid
    
    $
    
    
    
    $
    11,581
    
    
    $
    244,702SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIESNon-cash investing activities:Acquisition of subsidiaries:Value of ordinary shares issued
    
    $
    4,484,798
    
    
    $
    
    
    
    $
    365,665,023Ordinary share consideration to be issued
    
    $
    
    
    
    $
    
    
    
    $
    237,879,480Accounts payable
    
    $
    538,860
    
    
    $
    99,130
    
    
    $
    4,530,745Non-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 share
    
    $
    3,064,890
    
    
    $
    
    
    
    $
    Reclassification of Series B convertible redeemable preference shares to
Series C-1 convertible redeemable preference share
    
    $
    976,955
    
    
    $
    
    
    
    $
    
  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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 1. Organization and Principal Activities
      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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 2. Summary of Significant Accounting Policies
 (a) Basis of Presentation
  (b) Basis of Consolidation
  (c) Cash and Cash Equivalents
  (d) Use of Estimates
  (e) Significant Risks and Uncertainties
  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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 (f) Investment in Available-for-sale Debt Securities
  (g) Inventory
  (h) Equipment, Net
  Media display equipment
    
    5 yearsComputers and office equipment
    
    5 yearsVehicles
    
    5 yearsLeasehold Improvements
    
    lesser of the term of the lease or the estimated useful lives of the assets
  (i) Acquired intangible assets, net
  (j) 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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 (k) Goodwill
 Goodwill and Other intangible Assets
   Out-of-Home
    
    
    In-elevator
    
    
    MobileTelevision
    
    
    Poster-frame
    
    
    HandsetAdvertising
    
    
    Advertising
    
    
    AdvertisingServices
    
    
    Services
    
    
    Services
    
    
    Others
    
    
    TotalBalance as of January 1, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Goodwill acquired during the year
    
    
    9,519,658
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,519,658Modification of preliminary
purchase price allocation
    
    
    (18,124
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,124
    )Tax benefits arising from
acquired subsidiaries
    
    
    (385,051
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385,051
    )Impairment losses
    
    
    (58,397
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,397
    )Balance as of December 31, 2004
    
    $
    9,058,086
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,058,086Goodwill acquired during the year
    
    
    4,043,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,043,747Tax benefits arising from
acquired subsidiaries
    
    
    (244,236
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244,236
    )Modification of preliminary
purchase price allocation
    
    
    64,477
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,477Translation adjustments
    
    
    375,998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,998
    
    
    
    
    
    
    
    Balance as of December 31, 2005
    
    $
    13,298,072
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,298,072Goodwill acquired during the year
    
    
    374,932,052
    
    
    
    96,926,862
    
    
    
    8,364,095
    
    
    
    
    
    
    
    480,223,009Modification of preliminary
purchase price allocation
    
    
    5,177,181
    
    
    
    2,756,299
    
    
    
    80,369
    
    
    
    
    
    
    
    8,013,849Goodwill recorded as a result of contingent consideration resolved
    
    
    
    
    
    
    237,879,480
    
    
    
    
    
    
    
    
    
    
    
    237,879,480Translation adjustments
    
    
    329,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,461Balance as of December 31, 2006
    
    $
    393,736,766
    
    
    $
    337,562,641
    
    
    $
    8,444,464
    
    
    $
    
    
    
    $
    739,743,871
 F-13




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 (l) Revenue Recognition
     For the years ended December 31,2004
    
    
    2005
    
    
    2006(In U.S. dollars, except per share data)Advertising Service Revenue, Net of Agency rebatesCommercial Locations Unrelated parties
    
    $
    25,386,634
    
    
    $
    59,434,823
    
    
    $
    130,474,324 Related parties
    
    
    3,722,778
    
    
    
    7,991,434
    
    
    
    15,227,937Total Commercial Locations
    
    
    29,109,412
    
    
    
    67,426,257
    
    
    
    145,702,261In-store Network Unrelated parties
    
    
    
    
    
    
    5,475,192
    
    
    
    25,330,654 Related parties
    
    
    
    
    
    
    517,998
    
    
    
    4,380,287Total in-store network
    
    
    
    
    
    
    5,993,190
    
    
    
    29,710,941In-elevator poster frame Unrelated parties
    
    
    
    
    
    
    
    
    
    
    44,893,004 Related parties
    
    
    
    
    
    
    
    
    
    
    Total In-elevator poster frame
    
    
    
    
    
    
    
    
    
    
    44,893,004Mobile handset advertising Unrelated parties
    
    
    
    
    
    
    
    
    
    
    10,880,075 Related parties
    
    
    
    
    
    
    
    
    
    
    Total mobile handset advertising
    
    
    
    
    
    
    
    
    
    
    10,880,075Advertising Services Revenue:
    
    
    29,109,412
    
    
    
    73,419,447
    
    
    
    231,186,281Less: Sales taxes:Commercial Locations
    
    
    2,788,233
    
    
    
    5,991,497
    
    
    
    13,641,118In-store Network
    
    
    
    
    
    
    524,271
    
    
    
    2,803,349In-elevator poster frame
    
    
    
    
    
    
    
    
    
    
    3,988,769Mobile handset advertising
    
    
    
    
    
    
    
    
    
    
    779,110Total sales taxes
    
    
    2,788,233
    
    
    
    6,515,768
    
    
    
    21,212,346Net Advertising Service Revenue
    
    
    26,321,179
    
    
    
    66,903,679
    
    
    
    209,973,935Add: Other Revenue:
    
    
    2,888,720
    
    
    
    1,325,234
    
    
    
    1,931,530Net revenues:
    
    $
    29,209,899
    
    
    $
    68,228,913
    
    
    $
    211,905,465
 F-14




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 (m) Operating Leases
  (n) Advertising Costs
  (o) Foreign Currency Translation
   (p) Income Taxes
  (q) Comprehensive Income
  (r) Fair Value of Financial Instruments
  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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 (s) Share-based Compensation
 Share-Based
Payment Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
 Periods prior to the adoption of SFAS 123-R
 Accounting for Stock-Based Compensation  Transition and
Disclosures
  Year ended December 31,2004
    
    
    2005Net income, as reported
    
    $
    372,752
    
    
    $
    23,547,651Add: Share-based compensation as reported
    
    
    488,711
    
    
    
    726,503Less: Share-based compensation determined using the fair value
method
    
    
    (566,819
    )
    
    
    (3,225,668
    )Pro forma net income
    
    $
    294,644
    
    
    $
    21,048,486Deemed 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
    )
    
    $
    21,048,486Basic income (loss) per share:As reported
    
    $
    (0.07
    )
    
    $
    0.09Pro forma
    
    $
    (0.07
    )
    
    $
    0.08Diluted income (loss) per share:As reported
    
    $
    (0.07
    )
    
    $
    0.06Pro forma
    
    $
    (0.07
    )
    
    $
    0.06
 F-16




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
   2004
    
    2005
    
    2006Cost of sales
    
    $
    
    
    
    $
    
    
    
    $
    146,942General and administrative
    
    
    461,183
    
    
    
    683,186
    
    
    
    6,130,076Selling and marketing
    
    
    27,528
    
    
    
    43,317
    
    
    
    2,090,388
 (t) Income (loss) per Share
  (u) Recently Issued Accounting Standards
 Fair Value Measurements
  Accounting for Uncertainty in Income
Taxes Accounting
for Income Taxes
 F-17




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##### Table of Contents



How Taxes Collected from Customers and Remitted to Governmental Authorities Should be
Presented in the Income Statement (That Is, Gross Versus Net Presentation)
 (v) Reclassification
  3. Acquisitions
 2004 Acquisitions:
     F-18




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
  AmortizationPeriodNet tangible assets acquired
    
    $
    40,597Intangible assets:Lease Agreements
    
    
    185,947
    
    
    2.3 yearsCustomer base
    
    
    14,016
    
    
    7 yearsGoodwill
    
    
    4,744,238
    
    
    N/ATotal
    
    $
    4,984,798
 2005 Acquisitions:
   AmortizationperiodNet tangible assets acquired
    
    $
    337,252Intangible assets:Lease agreements
    
    
    471,818
    
    
    2.3 yearsCustomer base
    
    
    10,633
    
    
    7 yearsGoodwill
    
    
    1,234,305
    
    
    N/ATotal
    
    $
    2,054,008
 2006 Acquisitions:
  F-19




---



##### Table of Contents



Cash consideration
    
    $
    39,600,000Other acquisition costs
    
    
    311,110Value of the ordinary shares issued
    
    
    54,690,130Value of contingent consideration resolved (ordinary shares to be issued)
    
    
    237,879,480Total consideration
    
    $
    332,480,720
  AmortizationperiodNet tangible liabilities assumed
    
    $
    (8,443,960
    )Intangible assets:Lease agreements
    
    
    8,281,999
    
    
    6 yearsCustomer base
    
    
    2,664,685
    
    
    7 yearsNon-compete agreement
    
    
    463,558
    
    
    3 yearsTrademark
    
    
    939,377
    
    
    1 yearsContract backlog
    
    
    70,120
    
    
    1 yearsGoodwill
    
    
    328,504,941
    
    
    N/ATotal
    
    $
    332,480,720
  F-20




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
   Cash consideration
    
    $
    94,000,000Other acquisition costs
    
    
    2,857,524Value of the ordinary shares issued
    
    
    310,464,000Total consideration
    
    $
    407,321,524
  AmortizationperiodNet tangible assets acquired
    
    $
    19,629,853Intangible assets:Lease agreements
    
    
    4,510,494
    
    
    10 yearsCustomer base
    
    
    449,631
    
    
    7 yearsTrademark
    
    
    5,721,874
    
    
    10 yearsContract backlog
    
    
    148,550
    
    
    1 yearsGoodwill
    
    
    376,861,122
    
    
    N/ATotal
    
    $
    407,321,524
      F-21




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##### Table of Contents



Pro forma (unaudited)
  Pro formaYear ended December 31,2004
    
    2005
    
    2006(unaudited)
    
    (unaudited)
    
    (unaudited)Revenues
    
    $
    29,296,705
    
    
    $
    113,750,432
    
    
    $
    214,973,755Net income (loss) attributable to holders of ordinary shares
    
    
    (10,703,970
    )
    
    
    3,127,583
    
    
    
    74,924,057Income (loss) per share  basic
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    0.14Income (loss) per share  diluted
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    0.14
 4. Investment in Debt Securities
  December 31,2004
    
    
    2005
    
    
    2006Debt Securities
    
    $
    
    
    
    $
    35,000,000
    
    
    $
    Gross unrealized loss
    
    
    
    
    
    
    (164,150
    )
    
    
    Fair Value
    
    $
    
    
    
    $
    34,835,850
    
    
    $
    
 5. Accounts Receivable, net
  F-22




---



##### Table of Contents



December 31,2004
    
    
    2005
    
    
    2006Billed receivables
    
    $
    4,782,521
    
    
    $
    13,684,419
    
    
    $
    37,922,093Unbilled receivables
    
    
    1,837,428
    
    
    
    7,504,112
    
    
    
    23,692,250Total
    
    $
    6,619,949
    
    
    $
    21,188,531
    
    
    $
    61,614,343
  6. Acquired Intangible Assets, Net
  December 31,2004
    
    
    2005
    
    
    2006Cost:Operation and broadcasting rights
    
    $
    
    
    
    $
    
    
    
    $
    6,403,114Lease agreements
    
    
    511,929
    
    
    
    1,249,843
    
    
    
    16,336,586Customer bases
    
    
    273,820
    
    
    
    430,879
    
    
    
    7,827,587Trademark
    
    
    
    
    
    
    
    
    
    
    6,861,065Acquired technology
    
    
    
    
    
    
    
    
    
    
    2,546,519Others
    
    
    
    
    
    
    
    
    
    
    1,177,276Total
    
    $
    785,749
    
    
    $
    1,680,722
    
    
    $
    41,152,147Accumulated amortization:Operation and broadcasting rights
    
    $
    
    
    
    $
    
    
    
    $
    80,039Lease agreements
    
    
    58,888
    
    
    
    447,578
    
    
    
    3,015,639Customer bases
    
    
    18,555
    
    
    
    75,224
    
    
    
    1,051,403Trademark
    
    
    
    
    
    
    
    
    
    
    1,462,163Acquired technology
    
    
    
    
    
    
    
    
    
    
    381,978Others
    
    
    
    
    
    
    
    
    
    
    443,906Total
    
    $
    77,443
    
    
    $
    522,802
    
    
    $
    6,435,128Intangible assets, net:
    
    $
    708,306
    
    
    $
    1,157,920
    
    
    $
    34,717,019
  Year December 31,2004
    
    
    2005
    
    
    2006Cost of revenues
    
    $
    58,888
    
    
    $
    382,359
    
    
    $
    3,207,079Selling and marketing
    
    
    18,555
    
    
    
    55,478
    
    
    
    2,567,002Total
    
    $
    77,443
    
    
    $
    437,837
    
    
    $
    5,774,081
  F-23




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##### Table of Contents



7. Equipment, Net
  December 31,2004
    
    
    2005
    
    
    2006Media display equipment
    
    $
    9,384,262
    
    
    $
    40,191,968
    
    
    $
    77,088,464Computers and office equipment
    
    
    675,053
    
    
    
    1,267,696
    
    
    
    3,360,590Leasehold improvements
    
    
    167,932
    
    
    
    537,130
    
    
    
    713,524Vehicles
    
    
    83,834
    
    
    
    349,575
    
    
    
    658,825$
    10,311,081
    
    
    $
    42,346,369
    
    
    $
    81,821,403Less: accumulated depreciation and amortization
    
    
    (1,142,742
    )
    
    
    (5,975,119
    )
    
    
    (22,767,910
    )9,168,339
    
    
    
    36,371,250
    
    
    
    59,053,493Assembly in progress
    
    
    28,804
    
    
    
    7,323,638
    
    
    
    11,195,831Total
    
    $
    9,197,143
    
    
    $
    43,694,888
    
    
    $
    70,249,324
   8. Short-term Loans
 December 31,2004
    
    
    2005
    
    
    2006Short term bank loan (a)
    
    $
    
    
    
    $
    991,301
    
    
    $
    Other loan due to ex-shareholders of Framedia (b)
    
    $
    
    
    
    $
    
    
    
    $
    2,769,459Total
    
    $
    
    
    
    $
    991,301
    
    
    $
    2,769,459
 
 (a)
    
    The Group had $nil, $991,301 and $nil outstanding under line of credit arrangement as
of December 31, 2004, 2005 and 2006, respectively. The amount available for additional
borrowings under this line of credit at December 31, 2004, 2005 and 2006 was $nil, $2,106,516
and $nil, respectively. The line of credit was subject to an interest rate of 10%, discounted
by an amount equal to the six month loan interest rate of The Peoples Bank of China. As of
December 31, 2005, the line of credit bore interest at 4.698% per annum. The Group recorded
interest expense under the line of credit in 2004, 2005 and 2006 of $nil, $49,873 and $305,287,
respectively.(b)
    
    At December 31, 2006, the short-term loan from ex-shareholders of Framedia are non-interest
bearing, all of which are repayable within one year. F-24




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 9. Accrued Expenses and Other Current Liabilities
  December 31,2004
    
    
    2005
    
    
    2006Accrued sales commissions
    
    $
    691,888
    
    
    $
    2,583,270
    
    
    $
    5,813,761Other accrued expenses
    
    
    67,929
    
    
    
    577,863
    
    
    
    1,844,781Other taxes payables
    
    
    1,728,850
    
    
    
    3,037,443
    
    
    
    7,451,787Advance from customers
    
    
    1,459,976
    
    
    
    3,387,224
    
    
    
    6,381,032Accrued employee payroll and welfare
    
    
    473,054
    
    
    
    1,059,717
    
    
    
    1,465,142Accrued offering costs
    
    
    767,821
    
    
    
    
    
    
    
    Payables related to acquisitions
    
    
    538,860
    
    
    
    99,130
    
    
    
    4,530,745Amount due to minority shareholders of subsidiary
    
    
    426,858
    
    
    
    200,848
    
    
    
    Withholding individual PRC income tax
    
    
    
    
    
    
    
    
    
    
    9,046,576Others
    
    
    436,199
    
    
    
    801,407
    
    
    
    2,140,351Total
    
    $
    6,591,435
    
    
    $
    11,746,902
    
    
    $
    38,674,175
 10. Share-based Compensation
    2004
    
    2005
    
    2006Option granted to employees:Average risk-free rate of return
    
    
    2.97%
    
    3.10-4.43%
    
    
    4.74% - 4.80%Weighted average expected option life
    
    1-3
    years

    
    2-3 years
    
    
2 yearsVolatility rate
    
    
    36.2%
    
    30.49%-36.2%
    
    
    40.0-53.7%Dividend yield
    
    
    0%
    
    0%
    
    
    0%
  F-25




---



##### Table of Contents



WeightedWeighted
    
    
    remaining
    
    
    AggregateNumber
    
    
    average
    
    
    contract term
    
    
    intrinsicof shares
    
    
    exercise price
    
    
    (in years)
    
    
    valueOptions outstanding at January 1, 2006
    
    
    49,051,830
    
    
    $
    0.89Granted
    
    
    14,800,000
    
    
    
    5.60Cancelled
    
    
    
    
    
    
    Exercised
    
    
    26,336,680
    
    
    
    0.58Options outstanding at December 31, 2006
    
    
    37,515,150
    
    
    $
    2.97
    
    
    8.81 years
    
    $
    137,600,699Options vested or expected to vest at
December 31, 2006
    
    
    34,000,844
    
    
    $
    0.66
    
    
    7.82 years
    
    $
    203,335,095Options exercisable at December 31, 2006
    
    
    7,664,164
    
    
    $
    0.94
    
    
    8.00 years
    
    $
    43,688,834
   F-26




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 11. Income Taxes
 Cayman Islands
  British
Virgin Islands
  Hong Kong
  PRC
    F-27




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Composition of income tax expense
  2004
    
    
    2005
    
    
    2006Current income tax expense
    
    $
    828,962
    
    
    $
    715,117
    
    
    $
    1,106,921Deferred income tax expense (benefit)
    
    
    78,588
    
    
    
    (20,664
    )
    
    
    (63,383
    )Income tax expense
    
    $
    907,550
    
    
    $
    694,453
    
    
    $
    1,043,538
 Reconciliation of the differences between statutory tax rate and the effective tax rate
  Years ended December 31,2004
    
    2005
    
    2006Statutory rate
    
    
    33.0
    %
    
    
    33.0
    %
    
    
    33.0
    %Effect of
different tax rate of group entities operation in other jurisdiction
    
    
    318.4
    %
    
    
    0.0
    %
    
    
    2.4
    %Effect on tax holiday
    
    
    -182.8
    %
    
    
    -31.5
    %
    
    
    -35.6
    %Permanent differences
    
    
    -78.4
    %
    
    
    1.1
    %
    
    
    2.2
    %Change in valuation allowance
    
    
    -18.6
    %
    
    
    0.2
    %
    
    
    -0.7
    %Effective tax rate
    
    
    71.6
    %
    
    
    2.8
    %
    
    
    1.3
    %
  Year ended December 31,2004
    
    2005
    
    2006Tax holiday effect
    
    $
    7,007,620
    
    
    $
    23,212,97
    
    
    $
    99,641,998Net income per share effect  basic
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.20Net income per share effect  diluted
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    0.19
 F-28




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
  December 31,2004
    
    
    2005
    
    
    2006Deferred tax assets:Net operating loss carry forwards
    
    $
    276,673
    
    
    $
    545,208
    
    
    $
    2,317,316Accrued expenses temporarily non-deductible
    
    
    54,281
    
    
    
    46,695
    
    
    
    242,106Pre-operating expenses
    
    
    62,862
    
    
    
    80,102
    
    
    
    Bad debt provision
    
    
    57,147
    
    
    
    130,897
    
    
    
    704,429Total deferred tax assets
    
    $
    450,963
    
    
    $
    802,902
    
    
    $
    3,263,851Valuation allowance on deferred tax assets
    
    
    
    
    
    
    (59,988
    )
    
    
    (2,438,008
    )Net deferred tax assets
    
    $
    450,963
    
    
    $
    742,914
    
    
    $
    825,843
 December 31,2004
    
    
    2005
    
    
    2006Deferred tax
liabilities:Intangible
asset basis difference
    
    $
    
    
    
    $
    
    
    
    $
    3,303,110Total
deferred tax liabilities
    
    $
    
    
    
    $
    
    
    
    $
    3,303,110
   F-29




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 12. Net income (loss) per Share
  Years Ended December 31,2004
    
    
    2005
    
    
    2006Income (loss) attributable to holders of ordinary shares (numerator):
    
    $
    (10,576,414
    )
    
    $
    23,547,651
    
    
    $
    83,197,732Shares (denominator):Weighted average ordinary shares outstanding used in computing basic
income (loss) per share
    
    
    160,998,600
    
    
    
    252,128,545
    
    
    
    505,411,079Plus weighted average preference shares outstanding
    
    
    
    
    
    
    84,119,675
    
    
    
    Plus incremental weighted average ordinary shares from assumed
conversions of stock option using treasury stock method
    
    
    
    
    
    
    29,689,874
    
    
    
    16,125,302Weighted average ordinary shares outstanding used in computing
diluted income (loss) per share
    
    
    160,998,600
    
    
    
    365,938,094
    
    
    
    521,536,381Net income (loss) per share  basic
    
    $
    (0.07
    )
    
    $
    0.09
    
    
    $
    0.16Net income (loss) per share  diluted
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    0.16
  December 31,2004
    
    2005
    
    2006Series A convertible redeemable preference shares
    
    
    41,967,400
    
    
    
    
    
    
    
    Series B convertible redeemable preference shares
    
    
    48,191,600
    
    
    
    
    
    
    
    Series C-1 convertible redeemable preference shares
    
    
    34,054,000
    
    
    
    
    
    
    
    Series C-2 convertible redeemable preference shares
    
    
    34,053,400
    
    
    
    
    
    
    
    Outstanding options to purchase ordinary shares
    
    
    25,208,200
    
    
    
    49,051,830
    
    
    
    37,515,150Total
    
    
    183,474,600
    
    
    
    49,051,830
    
    
    
    37,515,150
 F-30




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 13. Convertible Redeemable Preference Shares
  a)
 b)
  c)
 F-31




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 d)
 e)
   Conversion
    F-32




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
    Voting Rights
  Dividends
  Liquidation Preference
    F-33




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 14. Ordinary Shares
               15. Mainland China Contribution Plan and Profit Appropriation
   F-34




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 16. Commitments
 Leases commitments
   For the year endedDecember 31,2007
    
    $
    48,156,6472008
    
    
    32,515,8652009
    
    
    19,871,3792010
    
    
    8,933,2762011 and thereafter
    
    
    1,961,718Total
    
    $
    111,438,885
 17. Segment Information
     F-35




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Out-of-home
    
    
    In-elevator
    
    
    Mobiletelevision
    
    
    poster frame
    
    
    handsetadvertising
    
    
    advertising
    
    
    advertisingservices
    
    
    services
    
    
    services
    
    
    Others
    
    
    Elimination
    
    
    TotalNet revenues  external
    
    $
    160,210,414
    
    
    $
    40,904,235
    
    
    $
    10,100,965
    
    
    $
    689,851
    
    
    
    
    
    
    $
    211,905,465Net revenues  intersegment
    
    
    
    
    
    
    245,274
    
    
    
    
    
    
    
    
    
    
    
    (245,274
    )
    
    
    Total net revenues
    
    
    160,210,414
    
    
    
    41,149,509
    
    
    
    10,100,965
    
    
    
    689,851
    
    
    
    (245,274
    )
    
    
    211,905,465Cost of revenues  external
    
    
    60,948,103
    
    
    
    13,622,059
    
    
    
    6,051,846
    
    
    
    758,359
    
    
    
    
    
    
    
    81,380,367Cost of revenues  intersegment
    
    
    245,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (245,274
    )
    
    
    Total cost of revenues
    
    
    61,193,377
    
    
    
    13,622,059
    
    
    
    6,051,846
    
    
    
    758,359
    
    
    
    (245,274
    )
    
    
    81,380,367Gross profit (loss)
    
    
    99,017,037
    
    
    
    27,527,450
    
    
    
    4,049,119
    
    
    
    (68,508
    )
    
    
    
    
    
    
    130,525,098Interest income
    
    
    4,419,572
    
    
    
    123,740
    
    
    
    17,194
    
    
    
    292
    
    
    
    
    
    
    
    4,560,798Interest expense
    
    
    304,294
    
    
    
    52
    
    
    
    941
    
    
    
    
    
    
    
    
    
    
    
    305,287Depreciation and amortization
    
    
    15,008,162
    
    
    
    3,599,827
    
    
    
    843,896
    
    
    
    59,667
    
    
    
    
    
    
    
    19,511,552Income taxes
    
    
    1,060,314
    
    
    
    103,434
    
    
    
    (120,210
    )
    
    
    
    
    
    
    
    
    
    
    1,043,538Net income (loss)
    
    $
    61,447,995
    
    
    $
    20,006,067
    
    
    $
    2,222,970
    
    
    $
    (479,300
    )
    
    
    
    
    
    $
    83,197,732
 Geographic Information
  Major Customers
  Major Service lines
  For the year ended December 31,2004
    
    
    2005
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    totalrevenues
    
    
    
    
    
    
    revenues
    
    
    
    
    
    
    revenuesNet revenues:Commercial location network
    
    $
    26,321,179
    
    
    
    90.1
    %
    
    $
    61,434,760
    
    
    
    90.0
    %
    
    $
    131,371,292
    
    
    
    62.0
    %In-store network
    
    
    
    
    
    
    
    
    
    
    5,468,919
    
    
    
    8.0
    %
    
    
    26,907,592
    
    
    
    12.7
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,904,235
    
    
    
    19.3
    %Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,100,965
    
    
    
    4.7
    %Movie theatres
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    689,851
    
    
    
    0.3
    %Advertising service revenue
    
    
    26,321,179
    
    
    
    90.1
    %
    
    
    66,903,679
    
    
    
    98.0
    %
    
    
    209,973,935
    
    
    
    99.0
    %Equipment revenue
    
    
    2,888,720
    
    
    
    9.9
    %
    
    
    1,325,234
    
    
    
    2.0
    %
    
    
    945,606
    
    
    
    0.5
    %Franchise revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    985,924
    
    
    
    0.5
    %Total net revenues
    
    $
    29,209,899
    
    
    
    100.0
    %
    
    $
    68,228,913
    
    
    
    100.0
    %
    
    $
    211,905,465
    
    
    
    100.0
    %
 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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 18. Related Party Transactions
  Year ended December 31,Name of related parties
    
    Director interested
    
    2004
    
    
    2005
    
    
    2006Shanghai
Everease Advertising & Communication Ltd. (Everease)
    
    Jason Nanchun Jiang
    
    $
    1,302,331
    
    
    $
    1,552,039
    
    
    $
    7,764,977Multimedia Park Venture Capital
    
    Jimmy Wei Yu
    
    
    1,227,267
    
    
    
    2,330,945
    
    
    
    3,885,546Shanghai Jobwell Business Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    411,034
    
    
    
    1,050,258
    
    
    
    1,382,695Shanghai Wealove Wedding Service Co., Ltd.
    
    Jimmy Wei Yu
    
    
    372,488
    
    
    
    757,850
    
    
    
    1,122,945Shanghai Wealove Business Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    
    
    
    
    
    
    
    
    671,488Shanghai Hetong Network Technology Co., Ltd.
    
    Jimmy Wei Yu
    
    
    361,371
    
    
    
    908,100
    
    
    
    982,527Shanghai Shengchu Advertising Agency Co., Ltd.
    
    Jimmy Wei Yu
    
    
    
    
    
    
    1,646,120
    
    
    
    3,230,040Beijing Sina Internet Information Services Co., Ltd.
    
    Charles Chao
    
    
    
    
    
    
    
    
    
    
    190,563Beijing Sohu New-age Information Technology Co., Ltd.
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    119,768Home-Inn Hotel Management (Beijing) Co., Ltd
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    78,742Ctrip Travel Information Technology (Shanghai) Co., Ltd.
    
    Neil Nanpeng Shen
    
    
    48,287
    
    
    
    264,120
    
    
    
    178,933Total
    
    
    
    $
    3,722,778
    
    
    $
    8,509,432
    
    
    $
    19,608,224
  December 31,Name of related parties
    
    Note
    
    Director interested
    
    2004
    
    
    2005
    
    
    2006Shanghai Everease Advertising & Communication
Ltd.
    
    (a)
    
    Jason Nanchun Jiang
    
    $
    1,259,138
    
    
    $
    572,525
    
    
    $
    6,331,549Multimedia Park Venture Capital
    
    (a)
    
    Jimmy Wei Yu
    
    
    690,212
    
    
    
    330,700
    
    
    
    12,705Shanghai Jobwell Business Consulting Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    275,971
    
    
    
    546,207
    
    
    
    Shanghai Wealove Wedding Service Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    251,556
    
    
    
    662,954
    
    
    
    Shanghai Hetong Network Technology Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    263,155
    
    
    
    533,469
    
    
    
    Shanghai Shengchu Advertising Agency Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    
    
    
    
    474,351
    
    
    
    403,889Home-Inn Hotel Management (Beijing) Co., Ltd
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    39,699David Yu
    
    (b)
    
    David Yu
    
    
    
    
    
    
    
    
    
    
    1,064,947Total
    
    
    
    
    
    $
    2,740,032
    
    
    $
    3,120,206
    
    
    $
    7,852,789
   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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
  December 31,Name of related parties
    
    Note
    
    Director interested
    
    2004
    
    2005
    
    2006Tan Zhi
    
    (c)
    
    Tan Zhi
    
    $
    
    
    
    $
    
    
    
    $
    345,768
  Other related party transactions
    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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 19. Restricted Net Assets
  20. Subsequent Event
      Cash consideration
    
    $
    70,000,000Other acquisition costs
    
    
    417,362Value of the ordinary shares issued
    
    
    154,281,112Total consideration
    
    $
    224,698,474
 F-39




---



##### Table of Contents



AmortizationperiodNet tangible assets acquired
    
    $
    25,415,921Intangible assets:Acquired technology
    
    
    11,832,000
    
    
    6 yearsCustomer
relationship
    
    
    10,249,000
    
    
    7 yearsOther
    
    
    2,373,729
    
    
    1-7 yearsGoodwill
    
    
    171,664,220
    
    
    
    N/ATotal
    
    $
    224,698,474
    F-40




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Holding Limited
  Place of
    
    PercentageSubsidiary
    
    Incorporation
    
    of ownershipFocus Media (China) Holding Ltd.
    
    Hong Kong
    
    
    100
    %Focus Media Technology (Shanghai) Co., Ltd.
    
    PRC
    
    
    100
    %British Virgin IslandsPerfect Media Holding Ltd.
    
    (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., Ltd.
    
    PRC
    
    
    90
    %Shanghai New Focus Media Agency Co., Ltd.
    
    PRC
    
    
    90
    %Shanghai Focus Media Defeng Advertisement Co., Ltd.
    
    PRC
    
    
    90
    %Shanghai Focus Media Baiwang Advertising Co., Ltd.
    
    PRC
    
    
    70
    %Shanghai Focus Media Xiangkun Advertising Co., Ltd.
    
    PRC
    
    
    70
    %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
    %ProfitBest Worldwide Limited
    
    BVI
    
    
    100
    %Wiseglobal Investments Limited
    
    BVI
    
    
    100
    %Summitworld Limited
    
    BVI
    
    
    100
    %Newking Investment Limited
    
    BVI
    
    
    100
    %Surge Zhenghe Holding Limited
    
    BVI
    
    
    100
    %Speedaccess Limited
    
    BVI
    
    
    100
    %Peakbright Group Limited
    
    BVI
    
    
    100
    %Homesky Investment Limited
    
    BVI
    
    
    100
    %Bestwin Partners Limited
    
    BVI
    
    
    100
    %Glomedia Holdings Limited
    
    BVI
    
    
    100
    %Appreciate Capital Ltd.
    
    BVI
    
    
    70
    %Richcrest Pacific Limited
    
    BVI
    
    
    100
    %Wealthstar Holdings Limited
    
    BVI
    
    
    100
    %Highmark Asia Limited
    
    BVI
    
    
    100
    %Plentiworth Investment Limited
    
    BVI
    
    
    100
    %Directwealth Holdings Limited
    
    BVI
    
    
    100
    %Better off Investments Limited
    
    BVI
    
    
    100
    %Topstart Holdings Limited
    
    BVI
    
    
    100
    %Vast Well Development Limited
    
    BVI
    
    
    100
    %Crownsky Limited
    
    BVI
    
    
    100
    %
 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, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement
  Focus MediaAdvertisementsOwnership
    
    Region ofPercentage
    
    Operations
    
    Primary BusinessShanghai 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
locationsGuangzhou 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)Shanghai Focus Media Digital Information
Technology Co., Ltd.
    
    
    10%
    (3)
    
    Shanghai
    
    Technical and business consultancyShenzhen Bianjie Building Advertisement
Co., Ltd.
    
    
    90.0%
    (2)
    
    Shenzhen
    
    Operation and maintenance of
frame advertising networkHebei Tianma Weiye Advertising Company Ltd.
    
    
    90.0%
    (2)
    
    Hebei
    
    Operation and maintenance of
out-of-home television
advertising network (former
regional distributor)
 F-42




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued)
 Focus MediaAdvertisementsOwnership
    
    Region ofPercentage
    
    Operations
    
    Primary BusinessXiamen 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 networkHefei 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)Shenyang 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)
 F-43




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued)
 Focus MediaAdvertisementsOwnership
    
    Region ofPercentage
    
    Operations
    
    Primary BusinessBeijing Focus Media Wireless Co., Ltd.
    
    90.0% (2)
    
    Beijing
    
    Operation of mobile
handset advertising
service networkGuangzhou Feisha Advertisement Co., Ltd.
    
    90.0% (2)
    
    Guangzhou
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)DongGuan Focus Media Advertisement &
Communications Co., Ltd.
    
    90.0% (2)
    
    Dongguan
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shanghai FengJing Advertisement &
Communications Co., Ltd.
    
    95.0% (2)
    
    Shanghai
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)
 F-44




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued)
 Focus MediaAdvertisementsOwnership
    
    Region ofPercentage
    
    Operations
    
    Primary BusinessZhengzhou Focus Media Advertisement &
Communications Co., Ltd.
    
    85.0% (2)
    
    Zhengzhou
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shijiazhuang Focus Media HuiHuang
Business Advertisement Co., Ltd.
    
    90.0% (2)
    
    Shijiazhuang
    
    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)Yunnan Focus Media Co., Ltd.
    
    89.5% (2)
    
    Kunming
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Tianjin Focus Tongsheng Advertising
Company Ltd.
    
    80.0% (2)
    
    Tianjin
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Zhejiang Ruihong Focus Media Advertising
Communications Co., Ltd.
    
    80.0% (2)
    
    Hangzhou
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Wuhan Geshi Focus Media Advertising Co.,
Ltd.
    
    75.0% (2)
    
    Wuhan
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Xian 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)Chongqing Geyang Focus Media Culture &
Broadcasting Co., Ltd.
    
    60.0% (2)
    
    Chongqing
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)
 F-45




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued)
 Focus MediaAdvertisementsOwnership
    
    Region ofPercentage
    
    Operations
    
    Primary BusinessShanghai On-Target Advertisement Co., Ltd.
    
    
    60.0%
    (3)
    
    Shanghai
    
    Advertising agencyShanghai Jiefang Focus Media Advertisement &
Communications Co., Ltd.
    
    
    70.0%
    (3)
    
    Shanghai
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)City Billboard (BeiJing) Advertisement Co., Ltd.
    
    
    75.0%
    (3)
    
    BeiJing
    
    Advertising agencyBeiJing YangShiSanWei Advertisement Co., Ltd.
    
    
    70.0%
    (3)
    
    BeiJing
    
    Advertising agency
 
 (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 parties.(4)
    
    The remaining equity interest in this entity is owned by Focus Media Digital. F-46




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##### Table of Contents



Additional Information  Financial Statement Schedule 1
 FOCUS MEDIA HOLDING LIMITED
  Financial information of parent company
 BALANCE SHEETS
 December 31,2004
    
    
    2005
    
    
    2006(In U.S. Dollars, except share data)AssetsCash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    37,483,101Prepaid expenses and other current assets
    
    
    
    
    
    
    121,482
    
    
    
    151,257Amounts due from related parties
    
    
    25,072,466
    
    
    
    94,813,430
    
    
    
    94,949,887Acquired intangible assets, net
    
    
    
    
    
    
    
    
    
    
    6,323,076Investments in subsidiaries and affiliates
    
    
    23,806,034
    
    
    
    96,877,616
    
    
    
    925,981,259Total assets
    
    $
    48,878,500
    
    
    $
    191,812,528
    
    
    $
    1,064,888,580Liabilities, mezzanine equity and shareholders equity (deficiency)Current liabilities:Accrued expenses and other current liabilities
    
    
    1,178,545
    
    
    
    397,877
    
    
    
    14,144,589Total current liabilities
    
    
    1,178,545
    
    
    
    397,877
    
    
    
    14,144,589Mezzanine equitySeries A convertible redeemable preference shares ($0.00005 par value; 41,967,400 shares
authorized and 41,967,400, nil and nil shares issued and outstanding in 2004, 2005 and
2006, respectively)
    
    
    6,295,110
    
    
    
    
    
    
    
    Series B convertible redeemable preference shares ($0.00005 par value; 48,191,600 shares
authorized and 48,191,600, nil and nil shares issued and outstanding in 2004, 2005 and
2006, respectively)
    
    
    12,062,696
    
    
    
    
    
    
    
    Series C-1 convertible redeemable preference shares ($0.00005 par value; 34,054,000
shares authorized and 34,054,000, nil and nil shares issued and outstanding in 2004,
2005 and 2006, respectively)
    
    
    17,500,350
    
    
    
    
    
    
    
    Series C-2 convertible redeemable preference shares ($0.00005 par value; 34,053,400
shares authorized and 34,053,400, nil and nil shares issued and outstanding in 2004,
2005 and 2006, respectively)
    
    
    17,415,000
    
    
    
    
    
    
    
    Shareholders equity (deficiency)Ordinary shares ($0.00005 par value; 885,516,600, 19,800,000,000 and 19,800,000,000
shares authorized in 2004, 2005 and 2006; 142,464,600, 378,306,000 and 534,896,873
shares issued and outstanding in 2004, 2005 and 2006, respectively)
    
    
    7,124
    
    
    
    18,916
    
    
    
    26,745Additional paid-in capital
    
    
    5,981,154
    
    
    
    177,419,761
    
    
    
    709,196,246Acquisition consideration to be issued
    
    
    
    
    
    
    
    
    
    
    237,879,480Deferred share-based compensation
    
    
    (969,959
    )
    
    
    (246,569
    )
    
    
    Retained earnings (accumulated deficit)
    
    
    (10,550,414
    )
    
    
    12,997,237
    
    
    
    96,194,969Accumulated other comprehensive income (loss)
    
    
    (41,106
    )
    
    
    1,225,306
    
    
    
    7,446,551Total
shareholders equity (deficiency)
    
    $
    (5,573,201
    )
    
    $
    191,414,651
    
    
    $
    1,050,743,991Total liabilities, mezzanine equity and shareholders equity (deficiency)
    
    $
    48,878,500
    
    
    $
    191,812,528
    
    
    $
    1,064,888,580
 F-47




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##### Table of Contents



Financial Information of parent company
 STATEMENTS OF OPERATIONS
 For the years ended December 31,2004
    
    
    2005
    
    
    2006(In U.S. dollars)Net revenues:
    
    $
    
    
    
    $
    
    
    
    $
    719,978Cost of revenues:
    
    
    
    
    
    
    
    
    
    
    146,943Gross profit
    
    
    
    
    
    
    
    
    
    
    573,035Operating expenses:General and administrative
    
    
    461,183
    
    
    
    1,300,511
    
    
    
    7,894,125Selling and marketing
    
    
    27,528
    
    
    
    43,317
    
    
    
    2,090,387Amortization of acquired intangible assets
    
    
    
    
    
    
    
    
    
    
    79,377Total operating expenses
    
    
    488,711
    
    
    
    1,343,828
    
    
    
    10,063,889Loss from operations
    
    
    (488,711
    )
    
    
    (1,343,828
    )
    
    
    (9,490,854
    )Interest income
    
    
    
    
    
    
    
    
    
    
    791,669Other expense
    
    
    
    
    
    
    (7,339
    )
    
    
    (44,755
    )Equity in earnings of subsidiaries and equity affiliates
    
    
    12,553,750
    
    
    
    24,898,818
    
    
    
    91,941,672Change in fair value of derivative liability associated with Series B
convertible redeemable preference shares
    
    
    (11,692,287
    )
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    372,752
    
    
    
    23,547,651
    
    
    
    83,197,732Income tax expenses
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    372,752
    
    
    
    23,547,651
    
    
    
    83,197,732Deemed 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
    
    $
    (10,576,414
    )
    
    $
    23,547,651
    
    
    $
    83,197,732
 F-48




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##### Table of Contents



Financial Information of parent company
 STATEMENTS OF CASHFLOWS
 For the year ended December 312004
    
    
    2005
    
    
    2006(In U.S. dollars)Operating activities:Income (loss) attributable to holders of ordinary shares
    
    $
    (10,576,414
    )
    
    $
    23,547,651
    
    
    $
    83,197,732Deemed 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 (loss)
    
    
    372,752
    
    
    
    23,547,651
    
    
    
    83,197,732Adjustments to reconcile net income to net cash provided by (used in) operating
activities:Share-based compensation
    
    
    488,711
    
    
    
    726,503
    
    
    
    8,367,406Amortization of intangibles
    
    
    
    
    
    
    
    
    
    
    80,039Change in fair value of derivative liability associated with Series B convertible
redeemable preference shares
    
    
    11,692,287
    
    
    
    
    
    
    
    Equity in earning of subsidiaries
    
    
    (12,553,750
    )
    
    
    (24,898,818
    )
    
    
    (91,941,672
    )Changes in assets and liabilities:Prepaid expenses and other current assets
    
    
    
    
    
    
    (121,482
    )
    
    
    (29,775
    )Amounts due from related parties
    
    
    (23,915,404
    )
    
    
    (69,740,965
    )
    
    
    (136,456
    )Accrued expenses and other current liabilities
    
    
    1,178,545
    
    
    
    (780,665
    )
    
    
    9,239,041Net cash used in operating activities
    
    $
    (22,736,859
    )
    
    $
    (71,267,776
    )
    
    $
    8,776,315Investing activities:Investments in subsidiaries and affiliates
    
    
    (6,741,485
    )
    
    
    (8,208,870
    )
    
    
    (124,508,517
    )Deposit paid to acquire subsidiaries
    
    
    
    
    
    
    (40,919,530
    )
    
    
    (696,228
    )Purchase of intangibles
    
    
    
    
    
    
    
    
    
    
    (3,225,161
    )Net cash used in investing activities
    
    $
    (6,741,485
    )
    
    $
    (49,128,400
    )
    
    $
    (128,429,906
    )Financing activities:Proceeds from issuance of ordinary shares
    
    
    
    
    
    
    118,174,130
    
    
    
    142,750,893Proceeds from issuance of ordinary shares pursuant to stock option plans
    
    
    
    
    
    
    
    
    
    
    15,247,561Proceeds 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
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    $
    29,477,696
    
    
    $
    118,174,130
    
    
    $
    157,998,454Effect of exchange rate changes
    
    
    648
    
    
    
    2,222,046
    
    
    
    (861,762
    )Net increase in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    37,483,101Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents, end of year
    
    $
    
    
    
    $
    
    
    
    $
    37,483,101
 F-49