##### 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, 2007.
 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)
 Contact Person: Mr. Daniel Wu
Chief Financial Officer
Phone: +86 21 3212 4661
Facsimile: +86 21 5240 0228
Address: 28-30/F, Zhaofeng World Trade Building
369 Jiangsu Road, Shanghai 200050, P.R.C.
*(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredOrdinary Shares, par value US$0.00005 per share
    
    Nasdaq National Market Inc.
  (Title of Class)
  (Title of Class)
  643,144,062 Ordinary Shares
  o þ
  o þ
   þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  þ
 o
  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, 2007
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
    
    
    31ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    53ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    79ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    88ITEM 8. FINANCIAL INFORMATION
    
    
    95ITEM 9. THE OFFER AND LISTING
    
    
    96ITEM 10. ADDITIONAL INFORMATION
    
    
    97ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    111ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    111PART II
    
    
    111ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    111ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    111ITEM 15. CONTROLS AND PROCEDURES
    
    
    113ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    113ITEM 16B. CODE OF ETHICS
    
    
    113ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    113ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    114ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    114PART III
    
    
    114ITEM 17. FINANCIAL STATEMENTS
    
    
    114ITEM 18. FINANCIAL STATEMENTS
    
    
    114ITEM 19. EXHIBITS
    
    
    116EX-10.161 2007 SHARE OPTION PLANEX-10.162 SHARE PURCHASE AGREEMENTEX-10.163 REGISTRATION RIGHTS AGREEMENTEX-10.164 EQUITY PLEDGE AGREEMENTEX-10.165 CALL OPTION AGREEMENTEX-10.166 SHAREHOLDERS' VOTING RIGHTS AGREEMENTEX-10.167 TECHNOLOGY AND CONSULTING 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 Limited, and its consolidated
subsidiary and affiliate, 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;
    
    CGEN refers to CGEN Digital Media Company Limited, and its consolidated
subsidiaries and affiliates, which we acquired in January 2008; and
    
    This annual report on Form 20-F includes our audited consolidated financial
statements for the years ended December 31, 2005, 2006 and 2007, and as of December 31,
2006 and 2007.
  
 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;
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##### Table of Contents




    
    projected revenues, profits, earnings and other estimated financial information;
    
    our ability to complete acquisitions we have entered into and costs related to and
potential liabilities resulting from completing such acquisitions and integrating the
acquired companies into our business;
    
    achieving anticipated or potential synergies with companies we acquire or have
acquired, including Framedia, Target Media, Focus Media Wireless, Allyes and CGEN;
    
    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 Form F-3 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 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(in thousands of U.S. dollars)Selected Consolidated Statements of
Operations Data:Gross revenues
    
    $
    3,671
    
    
    $
    29,109
    
    
    $
    73,419
    
    
    $
    231,186
    
    
    $
    543,879Net revenues:Commercial location network(1)
    
    $
    3,369
    
    
    $
    26,321
    
    
    $
    61,435
    
    
    $
    132,061
    
    
    $
    220,683In-store network(1)
    
    
    
    
    
    
    
    
    
    
    5,469
    
    
    
    26,907
    
    
    
    27,444Poster frame network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,904
    
    
    
    85,472Mobile Handset Advertising network(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,101
    
    
    
    46,909Internet advertising
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,938Advertising service revenue(1)
    
    
    3,369
    
    
    
    26,321
    
    
    
    66,904
    
    
    
    209,973
    
    
    
    505,446Other revenues
    
    
    389
    
    
    
    2,889
    
    
    
    1,325
    
    
    
    1,932
    
    
    
    1,114Total net revenues
    
    
    3,758
    
    
    
    29,210
    
    
    
    68,229
    
    
    
    211,905
    
    
    
    506,560Cost of revenues:
 3




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##### Table of Contents



For the year ended December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(in thousands of U.S. dollars)Net advertising service cost:Commercial location network
    
    
    1,566
    
    
    
    6,804
    
    
    
    18,325
    
    
    
    42,836
    
    
    
    79,625In-store network
    
    
    
    
    
    
    
    
    
    
    7,423
    
    
    
    18,106
    
    
    
    23,502Poster frame network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,621
    
    
    
    28,086Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,052
    
    
    
    23,193Internet advertising
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,238Advertising service cost
    
    
    1,566
    
    
    
    6,804
    
    
    
    25,748
    
    
    
    80,615
    
    
    
    247,644Other costs
    
    
    275
    
    
    
    1,934
    
    
    
    976
    
    
    
    765
    
    
    
    798Total cost of revenues
    
    
    1,841
    
    
    
    8,738
    
    
    
    26,724
    
    
    
    81,380
    
    
    
    248,442Gross profit
    
    
    1,917
    
    
    
    20,472
    
    
    
    41,505
    
    
    
    130,525
    
    
    
    258,118Operating expenses:General and administrative
    
    
    985
    
    
    
    3,988
    
    
    
    9,120
    
    
    
    25,723
    
    
    
    49,456Selling and marketing
    
    
    407
    
    
    
    3,473
    
    
    
    9,599
    
    
    
    25,762
    
    
    
    69,931Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,338
    )
    
    
    (5,124
    )Total operating expenses
    
    
    1,392
    
    
    
    7,519
    
    
    
    18,719
    
    
    
    50,147
    
    
    
    114,263Income from operations
    
    
    525
    
    
    
    12,953
    
    
    
    22,786
    
    
    
    80,378
    
    
    
    143,855Interest income net
    
    
    1
    
    
    
    10
    
    
    
    1,762
    
    
    
    4,255
    
    
    
    9,752Other income (expenses), net
    
    
    (9
    )
    
    
    (4
    )
    
    
    (161
    )
    
    
    (287
    )
    
    
    2,568Change 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
    
    
    
    84,346
    
    
    
    156,175Total income taxes
    
    
    482
    
    
    
    908
    
    
    
    694
    
    
    
    1,044
    
    
    
    11,045Minority interest
    
    
    (8
    )
    
    
    (13
    )
    
    
    145
    
    
    
    105
    
    
    
    694Equity loss of affiliates
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    25
    
    
    $
    372
    
    
    $
    23,548
    
    
    $
    83,197
    
    
    $
    144,436
 For the year ended December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(in thousands of U.S. dollars, except share and per share data)Earnings per share data:Deemed dividend on Series A
convertible redeemable preference
shares(2)
    
    
    
    
    
    
    (8,308
    )
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on Series B
convertible redeemable preference
shares(2)
    
    
    
    
    
    
    (2,191
    )
    
    
    
    
    
    
    
    
    
    
    Deemed dividend on Series C-1
convertible redeemable preference
shares(2)
    
    
    
    
    
    
    (13,356
    )
    
    
    
    
    
    
    
    
    
    
    Premium of Series B convertible
redeemable preference shares
    
    
    
    
    
    
    12,906
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) attributable to
holders of ordinary shares
    
    $
    25
    
    
    $
    (10,577
    )
    
    $
    23,548
    
    
    $
    83,197
    
    
    $
    144,436Income (loss) per share  basic
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    0.09
    
    
    $
    0.16
    
    
    $
    0.24Income (loss) per share  diluted
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.24Shares used in calculating basic
income per share
    
    
    144,657,600
    
    
    
    160,998,600
    
    
    
    252,128,545
    
    
    
    505,411,079
    
    
    
    590,387,396Shares used in calculating
diluted income per share
    
    
    144,657,600
    
    
    
    160,998,600
    
    
    
    365,938,094
    
    
    
    521,536,381
    
    
    
    608,326,450
 As of December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands of U.S. dollars, except share data)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    716
    
    
    $
    22,669
    
    
    $
    36,653
    
    
    $
    164,611
    
    
    $
    450,416Other current assets(3)
    
    
    1,902
    
    
    
    12,713
    
    
    
    104,988
    
    
    
    78,712
    
    
    
    431,043Non-current assets(4)
    
    
    2,688
    
    
    
    21,033
    
    
    
    70,713
    
    
    
    862,919
    
    
    
    1,258,079Total assets
    
    
    5,306
    
    
    
    56,415
    
    
    
    212,354
    
    
    
    1,106,242
    
    
    
    2,139,538Total current liabilities
    
    
    4,119
    
    
    
    8,634
    
    
    
    20,694
    
    
    
    51,837
    
    
    
    276,287Total non-current liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,303
    
    
    
    6,394Total liabilities
    
    
    4,119
    
    
    
    8,634
    
    
    
    20,694
    
    
    
    55,140
    
    
    
    282,681Minority interest
    
    
    4
    
    
    
    81
    
    
    
    245
    
    
    
    358
    
    
    
    1,913Mezzanine equity
    
    
    
    
    
    
    53,273
    
    
    
    
    
    
    
    
    
    
    
    
 4




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##### Table of Contents



As of December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(in thousands of U.S. dollars, except share data)Ordinary shares (200,000,000,
142,464,600, 378,306,000,
534,896,873,and 640,230,852 shares
issued and outstanding in 2003, 2004,
2005, 2006 and 2007, respectively)
    
    
    10
    
    
    
    7
    
    
    
    19
    
    
    
    27
    
    
    
    32Other shareholders equity (deficiency)
    
    
    1,173
    
    
    
    (5,580
    )
    
    
    191,396
    
    
    
    1,050,717
    
    
    
    1,854,912Total shareholders equity (deficiency)
    
    $
    1,183
    
    
    $
    (5,573
    )
    
    $
    191,415
    
    
    $
    1,050,744
    
    
    $
    1,854,944
 As of December 31,2005
    
    2006
    
    2007Selected Operating Data:Number of displays in our commercial location network:Our direct cities
    
    
    45,049
    
    
    
    80,263
    
    
    
    107,533Our regional distributors(5)
    
    
    3,177
    
    
    
    5,197
    
    
    
    4,765Total
    
    
    48,226
    
    
    
    85,460
    
    
    
    112,298Number of displays in our in-store network(6)
    
    
    27,849
    
    
    
    38,742
    
    
    
    49,452Number of stores in our in-store network(6)
    
    
    4,130
    
    
    
    3,898
    
    
    
    4,063Number of installed frames in our poster frame
network(7)
    
    
    
    
    
    
    99,784
    
    
    
    190,468
 
 (1)
    
    Advertising service revenue is presented net of business tax. Business tax on advertising
service revenue from our commercial location network amounted to $6.0 million, $13.6 million
and $19.9 million in 2005, 2006 and 2007, respectively. Business tax on advertising service
revenue for our in-store network amounted to $2.8 million and $2.8 million in 2006 and 2007,
respectively. Business tax on advertising service revenue for our poster frame network
amounted to $4.0 million and $7.9 million for 2006 and 2007, respectively. Business tax on
advertising service revenue for our mobile handset advertising network amounted to $0.8
million and $1.6 million in 2006 and 2007, respectively. Business tax for our Internet
advertisings service revenue amounted to $5.0 million in 2007. Business tax includes business
tax ranging from 3% to 5.55% and cultural industries tax ranging from 0% to 4.0% of our gross
advertising service revenue.(2)
    
    We are no longer required to record deemed dividends prospectively following conversion at
the closing of our initial public offering of our Series A, Series B, Series C-1 and Series
C-2 convertible redeemable preference shares into ordinary shares.(3)
    
    Other current assets are equal to total current assets less cash and cash equivalents.(4)
    
    Non-current assets are equal to total assets less total current assets.(5)
    
    Data that has been provided by our regional distributors is based on the results of surveys
we requested them to provide to us and it is possible such data is not entirely accurate or
exact.(6)
    
    As we completed our acquisition of CGEN on January 2, 2008, operating data for our in-store
network as of December 31, 2007 does not include data from CGENs business and operations.(7)
    
    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. Data includes both traditional poster frames and, for periods starting
from June 30, 2007, digital frames. Currency Translations and Exchange Rates
  5




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##### Table of Contents



RENMINBI PER U.S. DOLLAR NOON BUYING RATEAVERAGE
    
    HIGH
    
    LOW
    
    PERIOD-END2002
    
    
    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
    
    
    
    7.80872007
    
    
    7.6072
    
    
    
    7.8127
    
    
    
    7.2946
    
    
    
    7.2946
 B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Our business and operations are subject to various risks, many of which are beyond our
control. If any of the risks described below actually occurs, our business, financial condition or
results of operations could be seriously harmed.
 Risks Relating to Our Business and Industry
 We have been named as a defendant in certain purported shareholder class action lawsuits that could
have a material adverse impact on our operating results and financial condition.
  We have a limited operating history, which may make it difficult for you to evaluate our business
and prospects.
 6




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##### Table of Contents



We derive a substantial majority of our revenues from the provision of advertising services, and
advertising is particularly sensitive to changes in economic conditions and advertising trends.
  
    
    a general decline in economic conditions;
    
    a decline in economic conditions in the particular cities where we conduct business;
    
    a decision to shift advertising expenditures to other available advertising media;
    
    a decline in advertising spending in general; or
    
    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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##### Table of Contents



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.
    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.
  8




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##### Table of Contents



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.
    Our acquisitions of Framedia, Target Media, Focus Media Wireless, Allyes, CGEN, any smaller
acquisitions we have made, and any future acquisitions may expose us to potential risks and have an
adverse effect on our ability to manage our business.
   9




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##### Table of Contents



There may be unknown risks inherent in our acquisitions of Framedia, Target Media, Focus Media
Wireless, Allyes, CGEN and smaller acquisitions we have made.
  Our strategic alliances and partnerships may not succeed or yield the benefits we anticipated,
which could materially and adversely affect our business and results of operations.
  Our recent entry into mobile handset advertising and Internet advertising services through our
acquisitions of Focus Media Wireless, Allyes and other smaller acquisitions, 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;
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
    
    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;
    
    if regulations changes in the future, regulation of the telecommunications sector in
China that could impose burdensome approval, licensing, technical or other requirements
on value-added service
providers such as advertising companies that sell advertising time on mobile
telecommunications networks;
    
    a decision by either or both China Mobile and China Unicom to directly enter into
the WAP-based advertising business or other businesses directly competing with us;
    
    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; and
    
    the continued growth of the Internet and e-commerce industries.
    One or more of our regional distributors could engage in activities that are harmful to our
reputation in the industry and to our business.
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Failure to manage our growth could strain our management, operational and other resources and we
may not be able to achieve anticipated levels of growth in the new networks and media platforms we
are beginning to operate, either of which could materially and adversely affect our business and
growth potential.
   If advertisers or the viewing public do not accept, or lose interest in, our out-of-home
advertising network, our revenues may be negatively affected and our business may not expand or be
successful.
  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.
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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.
  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.
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
    
    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
  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.
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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.
  We depend on the leadership and services of Jason Nanchun Jiang, who is our founder, executive
chairman 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.
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
    
    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 regulatory requirements or 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.
  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 digital out-of-home
advertising networks mobile handset advertising network or Internet advertising services network.
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We may be subject to intellectual property infringement claims, which may force us to incur
substantial legal expenses and, if determined adversely against us, may materially disrupt our
business.
  Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.
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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.
  We may become a passive foreign investment company, or PFIC, which could result in adverse United
States federal income tax consequences to U.S. investors.
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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.
   
    
    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;
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
    
    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.
   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.
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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 the proceeds of this offering to make loans or additional capital
contributions to our PRC operating subsidiaries and affiliates.
  
    
    loans by us to our foreign invested enterprises to finance their respective
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.
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Risks Relating to the Peoples Republic of China
  The PRCs economic, political and social conditions, as well as governmental policies, could affect
the financial markets in China and our liquidity and access to capital and our ability to operate
our business.
   The PRC legal system embodies uncertainties which could limit the legal protections available to
you and us.
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If tax benefits currently available to us in PRC were no longer available under the new Enterprise
Income Taxes (EIT) law which became effective on January 1, 2008, our effective income tax rates
for our PRC operations could increase.
     Dividends we receive from our operating subsidiaries located in the PRC may be subject to PRC
withholding tax.
  We may be deemed a PRC resident enterprise under the EIT Law and be subject to the PRC taxation on
our worldwide income.
  Dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary
shares may become subject to taxes under PRC tax laws.
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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.
    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.
  A new PRC rule on mergers and acquisitions may subject us to sanctions, fines and other penalties
and affect our future business growth through acquisition of complementary business.
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Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
  Fluctuations in exchange rates could result in foreign currency exchange losses.
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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.
   We have in the past failed to comply with Nasdaq Marketplace Rules, including the timely filing of
our annual report and maintaining a majority of independent directors on our board of directors.
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A significant percentage of our outstanding ordinary shares is beneficially owned by Jason Nanchun
Jiang, our founder and chairman, 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.
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We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than under U.S. law, you may have less
protection of your shareholder rights than you would under U.S. law.
   Judgments obtained against us by our shareholders may not be enforceable.
  The voting rights of holders of ADSs are limited by the terms of the deposit agreement.
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The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares
underlying your ADSs if you do not vote at shareholders meetings, except in limited circumstances,
which could adversely affect your interests.
  
    
    we have failed to timely provide the depositary with our notice of meeting and
related voting materials;
    
    we have instructed the depositary that we do not wish a discretionary proxy to be
given;
    
    we have informed the depositary that there is substantial opposition as to a matter
to be voted on at the meeting;
    
    a matter to be voted on at the meeting would have a material adverse impact on
shareholders; or
    
    voting at the meeting is made on a show of hands.
  You may not receive distributions on our ordinary shares or any value for them if it is illegal or
impractical to make them available to you.
  You may be subject to limitations on transfer of your ADSs.
  Dividends payable by us to our foreign investors may become subject to withholding taxes under PRC
tax laws.
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Gains on the sales of our shares or ADSs may become subject to PRC income taxes.
  
 ITEM 4. INFORMATION ON THE COMPANY
 A.
    
    History and Development of the Company
 www.focusmedia.cn
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B. Business Overview
  Our Digital Out-of-home Advertising Network
 
    
    our commercial location network, consisting of:
 
    
    our LCD display network,which refers to our network of flat-panel
television displays placed in high-traffic areas of commercial and public
buildings marketed to advertisers as a network or as seven separate
channels targeting different types of consumersour premier A and B office
building channels, travel, fashion, elite, IT mall and, though our
strategic investment in Yanhuang Health Media Limited, healthcare channels;
    
    our outdoor LED billboard 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 advertising network, which refers to our right to sell
advertising time on movie screens for the three minutes prior to movie
screenings at movie theaters in China.
 
    
    our in-store network, which refers to our network of flat-panel television
displays placed in specific product areas inside stores with high-traffic
concentrations such as selected consumer product sections, the main aisles and
check-out lines in large-scale chain retail stores, or hypermarkets, as well as
inside selected supermarkets and convenience stores; and
    
    our poster frame network, which refers to our network of traditional and
digital 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
 Our Internet Advertising Services Network
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
    
    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;
    
    through March 31, 2008, selling advertisements on our WAP-based mobile handset
advertising network, and starting April 1, 2008, providing advertising services to
customers who provide mobile content to handset users; and
    
    following our acquisition of Allyes in March 2007, providing advertising agency and
technology services for on-line advertising through Allyes.
      
    
    Substantially all of the content we broadcast or place on our digital out-of-home
advertising network consists of advertisements.
    
    The advertising cycle on our commercial location network consists of advertising
content broadcast repeatedly and is sold to advertising clients according to
advertising packages purchased from us, and for three minutes before the screening of
each showing of a film in the case of our movie theater advertising network.
    
    The advertising cycle of our out-of-home television advertising networks is
broadcast repeatedly for approximately twelve-hours per day.
    
    The majority of our flat-panel displays contain LCD screens, while the remainder
contains larger-sized plasma or LCD screens.
    
    Over 190,000 450 mm x 600 mm advertising poster frames, including approximately
10,000 digital poster frames have been installed in elevators on our poster frame
network.
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
    
    Approximately 200 5 x 5 LED digital billboards that we lease from a third party
and that are installed on the street-sides in major shopping districts and other
locations with high pedestrian traffic in Shanghai.
    
    An Internet advertising services network that offers performance-based advertising
services and Internet advertising publishing software suites.
   For and as of the three months endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,2006
    
    2006
    
    2006
    
    2006
    
    2007
    
    2007
    
    2007
    
    2007Commercial location network:Number of displays:Our direct cities
    
    
    71,230
    
    
    
    69,446
    
    
    
    68,723
    
    
    
    80,263
    
    
    
    83,256
    
    
    
    85,010
    
    
    
    90,375
    
    
    
    107,533Our regional distributors(1)
    
    
    3,779
    
    
    
    3,712
    
    
    
    5,290
    
    
    
    5,197
    
    
    
    4,010
    
    
    
    4,677
    
    
    
    5,023
    
    
    
    4,765Total
    
    
    75,009
    
    
    
    73,158
    
    
    
    74,013
    
    
    
    85,460
    
    
    
    87,296
    
    
    
    89,687
    
    
    
    95,398
    
    
    
    112,298In-store network:Number of displays in our in-
store network
    
    
    33,765
    
    
    
    35,511
    
    
    
    36,387
    
    
    
    38,742
    
    
    
    40,736
    
    
    
    41,322
    
    
    
    43,315
    
    
    
    49,452Number of stores in our
in-store network
    
    
    5,218
    
    
    
    4,174
    
    
    
    3,894
    
    
    
    3,898
    
    
    
    3,935
    
    
    
    3,995
    
    
    
    4,041
    
    
    
    4,063Poster Frame Network:Number of frames installed in
our poster frame network
(2)
    
    
    74,353
    
    
    
    82,200
    
    
    
    95,878
    
    
    
    99,784
    
    
    
    124,542
    
    
    
    161,435
    
    
    
    170,605
    
    
    
    190,468
 
 (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)
    
    Includes both traditional poster frames and, for periods starting from June 30, 2007, digital
frames. Our Competitive Strengths
  Effective and Focused Advertising Network Accepted by Both Advertisers and Consumers.
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
    
    Targets Segmented Consumer Groups.Our flat-panel displays, LED billboards and
poster 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, travel, fashion, elite, IT mall, and, through
our strategic alliance with Yanhuang Health Media Limited, healthcare channels, which
are marketed as stand-alone channels of our commercial location network. Because our
network is able to target specific consumer groups, it allows advertisers to more
cost-effectively reach consumers with demographic profiles desirable to them.
    
    Reaches Captive Viewers in Low Distraction Environments.Our displays are placed in
lobbies, near elevator banks, in elevators, on high-traffic urban curbsides 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.
    
    Tailored advertising solutions. Through the various media platforms and specialized
channels on our network, we are able to offer tailored advertising solutions to our
customers to enable them to target the consumers and locations that are most important
to them. For example, we are increasingly providing custom advertising packages to our
customers that focus exclusively on a certain suite of buildings, networks and channels
accordingly to their requests and needs.
  The Largest Digital Out-of-home Advertising Network in China with Nation-wide Coverage
  
    
    107,533 flat-panel displays installed in over 90 cities in China, and through our
regional distributors, we also operated approximately 4,765 flat-panel displays in
approximately 40 cities in China;
    
    49,452 flat-panel displays installed in 1,398 hypermarkets, 638 supermarkets and
2,027 convenience stores in cities in China; and
    
    179,649 poster frames available for sale installed in elevators primarily in
residential buildings. As of December 31, 2007, our poster frame network also included
10,819 digital poster frames;
    
    over 200 5 by 5 LED digital billboards placed in high pedestrian traffic outdoor
locations in Shanghai and one 1,500 square foot digital LED billboard on a boat
navigating roundtrips along the Bund area of Shanghai; and
    
    the right to broadcast advertising on movie theater screens for three minutes prior
to the screening of each movie in major cities in China.
 Out-of-home Advertising Network with Multiple Media Platforms Provides Advertisers with
Complementary and Reinforcing Avenues to Reach Targeted Consumers
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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 and one 1,500 square foot digital LED billboard on a boat navigating
roundtrips along the Bund area of 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.
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Our Brand Name And Reputation Have Attracted A Large Base Of Leading Advertising Clients.
   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 Expand Network Capacity.
 In-store Network
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Targeted Advertising Channels
 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
  
    
    our digital out-of-home advertising network, including our commercial location
network (LCD display, outdoor LED billboard and movie theater advertising networks),
in-store network and poster frame network;
    
    our mobile handset advertising services network; and
    
    our Internet advertising services network.
 
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Digital Out-of-home Advertising Networks
 Commercial Location Network
 LCD display network
    Outdoor LED billboard network.
 Movie theater advertising network
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In-store Network
  Poster Frame Network
  Mobile Handset Advertising Network
  Internet Advertising Services Network
  Advertising Clients, Sales and Marketing
 Our Advertising Clients
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Sales
 Advertising Contracts
   Network Monitoring and Media Measurement
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Programming
   Pricing
  Relationships with Location Providers
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Technology and Suppliers
    Competition
  Facilities
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Regulatory Matters
   Limitations on Foreign Ownership in the Advertising Industry
  
    
    The Catalogue for Guiding Foreign Investment in Industry (2004); and
    
    The Administrative Regulations on Foreign-invested Advertising Enterprises (2004).
   
    
    we are able to exert effective control over our PRC operating affiliates and their
respective subsidiaries;
    
    a substantial portion of the economic benefits of our PRC operating affiliates and
their respective subsidiaries will be transferred to us; and
    
    we have an exclusive option to purchase all or part of the equity interests in our
PRC operating affiliates and all or part of the equity interests in Focus Media
Advertisements subsidiaries that are owned by Focus Media Advertisement or its nominee
holders, as well as all or a part of the assets of our PRC operating affiliates, in
each case when and to the extent permitted by PRC law.
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
    
    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).
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Advertising Content
    Outdoor Advertising
  
    
    utilize traffic safety facilities and traffic signs;
    
    impede the use of public facilities, traffic safety facilities and traffic signs;
    
    obstruct commercial and public activities or create an eyesore in urban areas;
    
    be placed in restrictive areas near government offices, cultural landmarks or
historical or scenic sites; and
    
    be placed in areas prohibited by the local governments from having outdoor
advertisements.
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Print Advertising
  Regulation of Telecommunications Value-added Service Providers
  Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions
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
    
    prior to establishing or assuming control of an offshore company for the purpose of
financing that offshore company with assets or equity interests in an onshore
enterprise in the PRC, each PRC resident, whether a natural or legal person, must
complete the overseas investment foreign exchange registration procedures with the
relevant local SAFE branch;
    
    an amendment to the registration with the local SAFE branch is required to be filed
by any PRC resident that directly or indirectly holds interests in that offshore
company upon either (1) the injection of equity interests or assets of an onshore
enterprise to the offshore company, or (2) the completion of any overseas fund raising
by such offshore company; and
    
    an amendment to the registration with the local SAFE branch is also required to be
filed by such PRC resident when there is any material change involving a change in the
capital of the offshore company, such as (1) an increase or decrease in its capital,
(2) a transfer or swap of shares, (3) a merger or division, (4) a long term equity or
debt investment, or (5) the creation of any security interests over the relevant assets
located in China.
    C. Organizational Structure
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Our Corporate Structure and Contractual Arrangements
  
    
    with regard to the operation of our digital out-of-home advertising network, 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, Focus Media Defeng Advertisement and Shanghai CGEN Digital
Media Network Co., Ltd.; and 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.
  50




---



##### 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)
    
    Agreements 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 or more PRC shareholders, which are in
each case either (i) PRC citizens designated by us or our subsidiaries or (ii) 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 comprise our commercial location, in-store,
outdoor LED and movie theater networks.
   51




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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, CGEN, 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, CGEN, their respective PRC operating affiliates, subsidiaries and shareholders,
in each case governed by PRC law are valid, binding and enforceable, and will not
result in any violation of PRC laws or regulations currently in effect; and
    
    the PRC business operations of Focus Media, Framedia, Focus Media Wireless, Allyes,
CGEN 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.
  52




---



##### Table of Contents



Subsidiaries of Focus Media Holding Limited
   
    
    with respect to our digital out-of-home advertising networks, Focus Media
Advertisement and its subsidiaries, 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
  Overview
  53




---



##### 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 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
  54




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##### Table of Contents



For the year ended December 31,2005
    
    
    2006
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Net revenues:Commercial location network(1)
    
    $
    61,435
    
    
    
    90.0
    %
    
    $
    132,601
    
    
    
    62.3
    %
    
    $
    220,683
    
    
    
    43.5
    %In-store network:(1)
    
    
    5,469
    
    
    
    8.0
    %
    
    
    26,907
    
    
    
    12.7
    %
    
    
    27,444
    
    
    
    5.4
    %Poster frame network(1)
    
    
    
    
    
    
    
    
    
    
    40,904
    
    
    
    19.3
    %
    
    
    85,472
    
    
    
    16.9
    %Mobile Handset Advertising Network
    
    
    
    
    
    
    
    
    
    
    10,101
    
    
    
    4.8
    %
    
    
    46,909
    
    
    
    9.3
    %Internet Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,938
    
    
    
    24.7
    %Advertising service revenue
    
    
    66,904
    
    
    
    98.0
    %
    
    
    209,973
    
    
    
    99.1
    %
    
    
    505,446
    
    
    
    99.8
    %Other revenue
    
    
    1,325
    
    
    
    2.0
    %
    
    
    1,932
    
    
    
    0.9
    %
    
    
    1,114
    
    
    
    0.2
    %Total revenues
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    211,905
    
    
    
    100.0
    %
    
    $
    506,560
    
    
    
    100.0
    %Net revenues:
 
 (1)
    
    Advertising service revenue is presented net of business tax. Business tax on advertising
service revenue from our commercial location network amounted to $6.0 million, $13.6 million
and $19.9 million in 2005, 2006 and 2007, respectively. Business tax on advertising service
revenue for our in-store network amounted to $2.8 million and $2.8 million in 2006 and 2007,
respectively. Business tax on advertising service revenue for our poster frame network
amounted to $4.0 million and $7.9 million for 2006 and 2007, respectively. Business tax on
advertising service revenue for our mobile handset advertising network amounted to $0.8
million and $1.6 million in 2006 and 2007, respectively. Business tax for our Internet
advertisings service revenue amounted to $5.0 million in 2007. Business tax includes business
tax ranging from 3% to 5.55% and cultural industries tax of ranging from 0% to 4.0% of our
gross advertising service revenue.  For the year ended December 31,2005
    
    
    2006
    
    
    2007(in thousands of U.S. dollars, except percentages)Gross Revenue:Commercial Locations Unrelated parties
    
    $
    59,435
    
    
    
    87.1
    %
    
    $
    130,474
    
    
    
    61.6
    %
    
    $
    238,119
    
    
    
    47.0
    % Related parties
    
    
    7,991
    
    
    
    11.7
    %
    
    
    15,228
    
    
    
    7.2
    %
    
    
    2,468
    
    
    
    0.5
    %Total Commercial Locations
    
    
    67,426
    
    
    
    98.8
    %
    
    
    145,702
    
    
    
    68.8
    %
    
    
    240,587
    
    
    
    47.5
    %In-store Network Unrelated parties
    
    
    5,475
    
    
    
    8.0
    %
    
    
    25,330
    
    
    
    12.0
    %
    
    
    28,986
    
    
    
    5.7
    % Related parties
    
    
    518
    
    
    
    0.8
    %
    
    
    4,380
    
    
    
    2.0
    %
    
    
    1,301
    
    
    
    0.3
    %Total in-store network
    
    
    5,993
    
    
    
    8.8
    %
    
    
    29,710
    
    
    
    14.0
    %
    
    
    30,287
    
    
    
    6.0
    %Poster Frame Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    44,893
    
    
    
    21.2
    %
    
    
    93,157
    
    
    
    18.4
    % Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244
    
    
    
    0.0
    %Total Poster Frame Network
    
    
    
    
    
    
    
    
    
    
    44,893
    
    
    
    21.2
    %
    
    
    93,401
    
    
    
    18.4
    %Mobile Handset Advertising Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    10,880
    
    
    
    5.1
    %
    
    
    48,407
    
    
    
    9.6
    % Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    0.0
    %Total Mobile Handset Advertising
network
    
    
    
    
    
    
    
    
    
    
    10,880
    
    
    
    5.1
    %
    
    
    48,521
    
    
    
    9.6
    %Internet Advertising Network Unrelated parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128,830
    
    
    
    25.4
    % Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,140
    
    
    
    0.2
    %Total Internet Advertising network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129,970
    
    
    
    25.7
    %Gross Advertising Services
Revenue:
    
    
    73,419
    
    
    
    107.6
    %
    
    
    231,185
    
    
    
    109.1
    %
    
    
    542,766
    
    
    
    107.4
    %Less: Sales taxes:Commercial Locations
    
    
    5,991
    
    
    
    8.8
    %
    
    
    13,641
    
    
    
    6.4
    %
    
    
    19,904
    
    
    
    3.9
    %In-store Network
    
    
    524
    
    
    
    0.8
    %
    
    
    2,803
    
    
    
    1.3
    %
    
    
    2,843
    
    
    
    0.6
    %Poster Frame Network
    
    
    
    
    
    
    
    
    
    
    3,989
    
    
    
    1.9
    %
    
    
    7,929
    
    
    
    1.6
    %
 55




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For the year ended December 31,2005
    
    
    2006
    
    
    2007(in thousands of U.S. dollars, except percentages)Mobile Handset Advertising Network.
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    0.4
    %
    
    
    1,612
    
    
    
    0.3
    %Internet Advertising Network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,032
    
    
    
    1.0
    %Total sales taxes
    
    
    6,515
    
    
    
    9.6
    %
    
    
    21,212
    
    
    
    10.0
    %
    
    
    37,320
    
    
    
    7.4
    %Net Advertising Service Revenue
    
    
    66,904
    
    
    
    98.0
    %
    
    
    209,973
    
    
    
    99.1
    %
    
    
    505,446
    
    
    
    99.8
    %Add:Other revenue:
    
    
    1,325
    
    
    
    2.0
    %
    
    
    1,932
    
    
    
    0.9
    %
    
    
    1,114
    
    
    
    0.2
    %Net revenues:
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    211,905
    
    
    
    100.0
    %
    
    $
    506,560
    
    
    
    100.0
    %
 Advertising Service Revenue
    Factors that Affect Our Advertising Service Revenue.
 Digital Out-of-home Advertising Service Revenues
  Commercial Location Network
  
    
    LCD display network.The number of flat-panel displays in our network and the
desirability, quality and pedestrian traffic of the locations where we are able to
lease space to install our flat-panel displays;
    
    Outdoor LED billboard network.The number of publicly placed LED billboards in our
network and the desirability, quality and pedestrian traffic of the locations of the
LED billboards we own or lease from third-parties; and
 56




---



##### Table of Contents




    
    Movie theater advertising network.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 per screening per theater prior to
movie screenings at movie theaters.
 In-store Network
  Poster Frame Network
  
    
    the number of frames in our poster frame network. We sell frame space on our poster
frame network on a per frame basis. Increasing the number of residential and other
locations on our poster frame network allows us to increase the number of frames on our
network, thereby increases the available frame space for sale to advertisers As we
upgrade the network to incorporate more digital poster frames, we will also increase
the available space as multiple advertisements can be placed on a digital frame on
time-shared basis; and
    
    the average price we charge for frame space on a per frame basis, after taking into
account any discount offered.
 Mobile Handset Advertising Service Revenues
  
    
    the number of messages we deliver to mobile phone users. We charge advertisers fees
based on the number of successfully delivered messages; and
    
    the average price we charge per message.
  
    
    the number of times mobile phone users access WAP-based content that contains our
advertising content. We charge advertisers fees based on the number of user accesses;
and
    
    the average price we charge per access.
 Internet Advertising Service Revenues
  
    
    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
 57




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Network Expansion
 Seasonality
 Revenue Recognition
   58




---



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Other Revenue
  Cost of Revenues
   For the year ended December 31,2005
    
    
    2006
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Total revenues
    
    $
    68,229
    
    
    
    100.0
    %
    
    $
    211,905
    
    
    
    100
    %
    
    $
    506,560
    
    
    
    100
    %Cost of revenues:Net advertising service cost:Commercial location network
    
    
    18,611
    
    
    
    27.3
    %
    
    
    42,836
    
    
    
    20.2
    %
    
    
    79,625
    
    
    
    15.7
    %In-store network
    
    
    7,137
    
    
    
    10.5
    %
    
    
    18,106
    
    
    
    8.5
    %
    
    
    23,502
    
    
    
    4.6
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    13,621
    
    
    
    6.4
    %
    
    
    28,086
    
    
    
    5.5
    %Mobile Handset network
    
    
    
    
    
    
    
    
    
    
    6,052
    
    
    
    2.9
    %
    
    
    23,193
    
    
    
    4.6
    %Internet Advertising
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,238
    
    
    
    18.4
    %Advertising service cost
    
    
    25,748
    
    
    
    37.8
    %
    
    
    80,615
    
    
    
    38.0
    %
    
    
    247,644
    
    
    
    48.8
    %Other cost
    
    
    976
    
    
    
    1.4
    %
    
    
    765
    
    
    
    0.4
    %
    
    
    798
    
    
    
    0.2
    %Total cost of revenues
    
    
    26,724
    
    
    
    39.2
    %
    
    
    81,380
    
    
    
    38.4
    %
    
    $
    248,442
    
    
    
    49.0
    %Gross profit
    
    $
    41,505
    
    
    
    60.8
    %
    
    $
    130,525
    
    
    $
    61.6
    %
    
    $
    258,118
    
    
    
    51.0
    %
 59




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##### Table of Contents



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.
   Commercial Location Network
 In-store Network
 Poster Frame Network
 60




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##### Table of Contents



Wireless handset advertising network
 Internet advertising services network
 Other Cost
  Operating Expenses and Net Income
  For the year ended December 31,2005
    
    
    2006
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    total
    
    
    
    
    
    
    total$
    
    
    revenues
    
    
    $
    
    
    revenues
    
    
    $
    
    
    revenues(in thousands of U.S. dollars, except percentages)Gross profit
    
    $
    41,505
    
    
    
    60.8
    %
    
    $
    130,525
    
    
    
    61.6
    %
    
    $
    258,118
    
    
    
    51.0
    %Operating expenses:General and administrative
    
    
    9,120
    
    
    
    13.4
    %
    
    
    25,723
    
    
    
    12.1
    %
    
    
    49,456
    
    
    
    9.8
    %Selling and marketing
    
    
    9,599
    
    
    
    14.0
    %
    
    
    25,762
    
    
    
    12.2
    %
    
    
    69,932
    
    
    
    13.8
    %Other operating income
    
    
    
    
    
    
    
    
    
    
    (1,338
    )
    
    
    (0.6
    %)
    
    
    (5,125
    )
    
    
    (1.0
    %)Total
    
    
    18,719
    
    
    
    27.4
    %
    
    
    50,147
    
    
    
    23.7
    %
    
    
    114,263
    
    
    
    22.6
    %Income from operations
    
    
    22,786
    
    
    
    33.4
    %
    
    
    80,378
    
    
    
    37.9
    %
    
    
    143,855
    
    
    
    28.4
    %
 General and Administrative
 Selling and Marketing
 61




---



##### Table of Contents



Share-based Compensation.
 Amortization of Acquired Intangibles
 Critical Accounting Policies
  Share-based Compensation
 Share-Based Payment
  62




---



##### 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; and/or
    
    results of testing for recoverability of a significant asset group within a reporting unit.
      63




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##### Table of Contents



Taxation
 Cayman Islands, the British Virgin Islands and Hong Kong.
  Taxable Presence Exposure in the PRC
  PRC
     64




---



##### Table of Contents



65




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##### Table of Contents




    
    the technology researched and developed by the company falling into the high technology category promulgated by PRC
government;
    
    a minimum level of revenue generated from high technology related sales or services as a percentage of total revenue;
    
    a minimum number of employees engaged in research and development;
    
    a minimum requirement for the education degree of employees; and
    
    a minimum level of research and development expenses as a percentage of total revenue
    Recently Issued Accounting Standards
 Fair Value Measurement
 The Fair Value Option for Financial
Assets and Financial Liabilities
 Business
Combinations Business Combination
 66




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##### Table of Contents



Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB 51
 Acquisitions
    
    
    Allyes Information Technology Company Limited, for the year ended, and as of,
December 31, 2006;
    
    Target Media Holdings, for the periods ended, and as of, December 31, 2004 and 2005;
and
    
    Infoachieve Limited, for the periods ended, and as of, December 31, 2003, 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,
   67




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##### Table of Contents



Quarterly Results of Operation
  For the three months endedConsolidated Statement of
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Operations Data
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(in thousands of U.S. dollars)Net revenues:Digital out-of-homeCommercial location(1)
    
    $
    21,380
    
    
    $
    30,438
    
    
    $
    38,519
    
    
    $
    41,724
    
    
    $
    31,644
    
    
    $
    51,060
    
    
    $
    64,589
    
    
    $
    73,390In-store network(1)
    
    
    5,294
    
    
    
    6,538
    
    
    
    7,239
    
    
    
    7,836
    
    
    
    6,638
    
    
    
    7,244
    
    
    
    7,087
    
    
    
    6,475Poster frame network(1)
    
    
    6,067
    
    
    
    9,778
    
    
    
    11,284
    
    
    
    13,775
    
    
    
    12,669
    
    
    
    18,548
    
    
    
    23,063
    
    
    
    31,192Mobile handset advertising (1)
    
    
    
    
    
    
    3,076
    
    
    
    3,516
    
    
    
    3,509
    
    
    
    6,008
    
    
    
    10,882
    
    
    
    14,025
    
    
    
    15,994Internet advertising services (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,236
    
    
    
    42,511
    
    
    
    57,191Total advertising service revenue
    
    
    32,741
    
    
    
    49,830
    
    
    
    60,558
    
    
    
    66,844
    
    
    
    56,959
    
    
    
    112,970
    
    
    
    151,275
    
    
    
    184,242Other revenue
    
    
    457
    
    
    
    233
    
    
    
    90
    
    
    
    1,152
    
    
    
    381
    
    
    
    305
    
    
    
    117
    
    
    
    310Total revenues
    
    
    33,198
    
    
    
    50,063
    
    
    
    60,648
    
    
    
    67,996
    
    
    
    57,340
    
    
    
    113,275
    
    
    
    151,392
    
    
    
    184,552Cost of revenues:Digital out-of-homeCommercial location network
    
    
    8,226
    
    
    
    11,487
    
    
    
    11,404
    
    
    
    11,719
    
    
    
    12,898
    
    
    
    17,868
    
    
    
    22,825
    
    
    
    26,034In-store network
    
    
    3,973
    
    
    
    4,394
    
    
    
    4,616
    
    
    
    5,123
    
    
    
    5,027
    
    
    
    5,187
    
    
    
    5,832
    
    
    
    7,456Poster frame network
    
    
    2,792
    
    
    
    3,222
    
    
    
    3,756
    
    
    
    3,851
    
    
    
    4,746
    
    
    
    5,265
    
    
    
    6,656
    
    
    
    11,419Mobile handset advertising network
    
    
    
    
    
    
    2,405
    
    
    
    2,219
    
    
    
    1,428
    
    
    
    2,754
    
    
    
    4,569
    
    
    
    6,145
    
    
    
    9,725Internet advertising services network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,405
    
    
    
    32,718
    
    
    
    42,115Advertising service cost:
    
    
    14,991
    
    
    
    21,508
    
    
    
    21,995
    
    
    
    22,121
    
    
    
    25,425
    
    
    
    51,294
    
    
    
    74,176
    
    
    
    96,749Other cost
    
    
    232
    
    
    
    80
    
    
    
    80
    
    
    
    373
    
    
    
    165
    
    
    
    138
    
    
    
    121
    
    
    
    373Total cost of revenues
    
    
    15,223
    
    
    
    21,588
    
    
    
    22,075
    
    
    
    22,494
    
    
    
    25,590
    
    
    
    51,432
    
    
    
    74,297
    
    
    
    97,122Gross profit
    
    
    17,975
    
    
    
    28,475
    
    
    
    38,573
    
    
    
    45,502
    
    
    
    31,750
    
    
    
    61,843
    
    
    
    77,095
    
    
    
    87,430Operating expenses:General and administrative
    
    
    4,395
    
    
    
    6,298
    
    
    
    5,956
    
    
    
    9,074
    
    
    
    8,683
    
    
    
    11,646
    
    
    
    12,095
    
    
    
    17,032Selling and marketing
    
    
    4,407
    
    
    
    5,376
    
    
    
    6,784
    
    
    
    9,195
    
    
    
    9,886
    
    
    
    13,154
    
    
    
    19,081
    
    
    
    27,810Other operating income
    
    
    (20
    )
    
    
    (137
    )
    
    
    (5
    )
    
    
    (1,176
    )
    
    
    (1,263
    )
    
    
    (1,121
    )
    
    
    (1,203
    )
    
    
    (1,537
    )Total operating expenses
    
    
    8,782
    
    
    
    11,537
    
    
    
    12,735
    
    
    
    17,093
    
    
    
    17,306
    
    
    
    23,679
    
    
    
    29,973
    
    
    
    43,305Income from operations
    
    
    9,193
    
    
    
    16,938
    
    
    
    25,838
    
    
    
    28,409
    
    
    
    14,444
    
    
    
    38,164
    
    
    
    47,122
    
    
    
    44,125Interest income (expenses), net
    
    
    888
    
    
    
    605
    
    
    
    1,070
    
    
    
    1,692
    
    
    
    2,693
    
    
    
    1,934
    
    
    
    1,595
    
    
    
    3,530Other income (expenses), net
    
    
    (71
    )
    
    
    (408
    )
    
    
    (175
    )
    
    
    367
    
    
    
    92
    
    
    
    (52
    )
    
    
    5
    
    
    
    2,523Income before income taxes and minority
interest
    
    
    10,010
    
    
    
    17,135
    
    
    
    26,733
    
    
    
    30,468
    
    
    
    17,229
    
    
    
    40,046
    
    
    
    48,722
    
    
    
    50,178Total income taxes
    
    
    (617
    )
    
    
    (373
    )
    
    
    317
    
    
    
    (371
    )
    
    
    (968
    )
    
    
    (2,318
    )
    
    
    (2,109
    )
    
    
    (5,649
    )Minority interests
    
    
    40
    
    
    
    (91
    )
    
    
    (45
    )
    
    
    (9
    )
    
    
    31
    
    
    
    (13
    )
    
    
    
    
    
    
    (713
    )Net income attributed to shareholders
    
    $
    9,433
    
    
    $
    16,671
    
    
    $
    27,005
    
    
    $
    30,088
    
    
    $
    16,292
    
    
    $
    37,715
    
    
    $
    46,613
    
    
    $
    43,816
 
 (1)
    
    Advertising service revenue is presented net of sales taxes. The following tables presents
the unaudited quarterly sales taxes information: For the three months endedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(in thousands of U.S. dollars)Sales taxes:Commercial location network
    
    $
    2,082
    
    
    $
    2,968
    
    
    $
    4,062
    
    
    $
    4,529
    
    
    $
    3,274
    
    
    $
    4,308
    
    
    $
    5,584
    
    
    $
    6,738In-store network
    
    
    524
    
    
    
    697
    
    
    
    763
    
    
    
    819
    
    
    
    688
    
    
    
    754
    
    
    
    726
    
    
    
    675Poster frame network
    
    
    591
    
    
    
    958
    
    
    
    1,102
    
    
    
    1,338
    
    
    
    1,185
    
    
    
    1,799
    
    
    
    2,058
    
    
    
    2,887Mobile handset advertising network
    
    
    
    
    
    
    289
    
    
    
    285
    
    
    
    205
    
    
    
    12
    
    
    
    386
    
    
    
    602
    
    
    
    612Internet advertising services network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,182
    
    
    
    1,723
    
    
    
    2,127Total
    
    $
    3,197
    
    
    $
    4,912
    
    
    $
    6,212
    
    
    $
    6,891
    
    
    $
    5,159
    
    
    $
    8,429
    
    
    $
    10,693
    
    
    $
    13,039
 68




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##### Table of Contents



For the three months endedConsolidated Statement of
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Operations Data
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(in thousands of U.S. dollars)Digital out-of-homeCommercial location network
    
    
    64.4
    %
    
    
    60.8
    %
    
    
    63.6
    %
    
    
    61.4
    %
    
    
    55.2
    %
    
    
    45.1
    %
    
    
    42.7
    %
    
    
    39.8
    %In-store network
    
    
    15.9
    %
    
    
    13.1
    %
    
    
    11.9
    %
    
    
    11.5
    %
    
    
    11.6
    %
    
    
    6.4
    %
    
    
    4.7
    %
    
    
    3.5
    %Poster frame network
    
    
    18.3
    %
    
    
    19.5
    %
    
    
    18.6
    %
    
    
    20.2
    %
    
    
    22.1
    %
    
    
    16.4
    %
    
    
    15.2
    %
    
    
    16.8
    %Mobile handset advertising network
    
    
    
    
    
    
    6.1
    %
    
    
    5.8
    %
    
    
    5.2
    %
    
    
    10.5
    %
    
    
    9.6
    %
    
    
    9.3
    %
    
    
    8.7
    %Internet advertising services network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.3
    %
    
    
    28.0
    %
    
    
    31.0
    %Other revenues
    
    
    1.4
    %
    
    
    0.5
    %
    
    
    0.1
    %
    
    
    1.7
    %
    
    
    0.6
    %
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.2
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues:Digital out-of-homeCommercial location network
    
    
    24.8
    %
    
    
    22.9
    %
    
    
    18.8
    %
    
    
    17.2
    %
    
    
    22.5
    %
    
    
    15.8
    %
    
    
    15.1
    %
    
    
    14.1
    %In-store network
    
    
    12.0
    %
    
    
    8.8
    %
    
    
    7.6
    %
    
    
    7.5
    %
    
    
    8.8
    %
    
    
    4.6
    %
    
    
    3.9
    %
    
    
    4.0
    %Poster frame network
    
    
    8.4
    %
    
    
    6.4
    %
    
    
    6.2
    %
    
    
    5.7
    %
    
    
    8.3
    %
    
    
    4.6
    %
    
    
    4.4
    %
    
    
    6.2
    %Mobile Handset Advertising Network
    
    
    
    
    
    
    4.8
    %
    
    
    3.7
    %
    
    
    2.1
    %
    
    
    4.8
    %
    
    
    4.1
    %
    
    
    4.1
    %
    
    
    5.3
    %Internet advertising services network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.2
    %
    
    
    21.5
    %
    
    
    22.8
    %Other costs
    
    
    0.7
    %
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.5
    %
    
    
    0.3
    %
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.2
    %Total cost of revenues
    
    
    45.9
    %
    
    
    43.1
    %
    
    
    36.4
    %
    
    
    33.0
    %
    
    
    44.7
    %
    
    
    45.4
    %
    
    
    49.1
    %
    
    
    52.6
    %Gross profit
    
    
    54.1
    %
    
    
    56.9
    %
    
    
    63.6
    %
    
    
    67.0
    %
    
    
    55.3
    %
    
    
    54.6
    %
    
    
    50.9
    %
    
    
    47.4
    %Operating expenses:General and administrative
    
    
    13.2
    %
    
    
    12.6
    %
    
    
    9.8
    %
    
    
    13.3
    %
    
    
    15.1
    %
    
    
    10.3
    %
    
    
    8.0
    %
    
    
    9.2
    %Selling and marketing
    
    
    13.3
    %
    
    
    10.7
    %
    
    
    11.2
    %
    
    
    13.5
    %
    
    
    17.2
    %
    
    
    11.6
    %
    
    
    12.6
    %
    
    
    15.1
    %Other operating income
    
    
    (0.1
    )%
    
    
    (0.3
    )%
    
    
    (0.0
    )%
    
    
    (1.7
    )%
    
    
    (2.2
    )%
    
    
    (1.0
    )%
    
    
    (0.8
    )%
    
    
    (0.8
    )%Total operating expenses
    
    
    26.4
    %
    
    
    23.0
    %
    
    
    21.0
    %
    
    
    25.1
    %
    
    
    30.1
    %
    
    
    20.9
    %
    
    
    19.8
    %
    
    
    23.5
    %Income from operations
    
    
    27.7
    %
    
    
    33.9
    %
    
    
    42.6
    %
    
    
    41.9
    %
    
    
    25.2
    %
    
    
    33.7
    %
    
    
    31.1
    %
    
    
    23.9
    %Interest income (expenses), net
    
    
    2.7
    %
    
    
    1.2
    %
    
    
    1.8
    %
    
    
    2.5
    %
    
    
    4.7
    %
    
    
    1.7
    %
    
    
    1.1
    %
    
    
    1.9
    %Other income (expenses), net
    
    
    (0.2
    )%
    
    
    (0.8
    )%
    
    
    (0.3
    )%
    
    
    0.5
    %
    
    
    0.2
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    1.4
    %Income before income taxes andminority interest
    
    
    30.2
    %
    
    
    34.3
    %
    
    
    44.1
    %
    
    
    44.9
    %
    
    
    30.1
    %
    
    
    35.4
    %
    
    
    32.2
    %
    
    
    27.2
    %Total income taxes
    
    
    (1.9
    )%
    
    
    (0.7
    )%
    
    
    0.5
    %
    
    
    (0.5
    )%
    
    
    (1.7
    )%
    
    
    (2.0
    )%
    
    
    (1.4
    )%
    
    
    (3.1
    )%Minority interest
    
    
    0.1
    %
    
    
    (0.2
    )%
    
    
    (0.1
    )%
    
    
    0.0
    %
    
    
    0.1
    %
    
    
    0.0
    %
    
    
    
    
    
    
    (0.4
    )%Net income attributable to shareholders
    
    
    28.4
    %
    
    
    33.4
    %
    
    
    44.5
    %
    
    
    44.4
    %
    
    
    28.5
    %
    
    
    33.4
    %
    
    
    30.8
    %
    
    
    23.7
    %
 
 (1)
    
    Advertising service revenue is presented net of sales taxes. The following table presents
the unaudited quarterly percentage of sales taxes against gross revenues: For the three months endedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(in thousands of U.S. dollars)Sales taxes:Commercial location network
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    9.5
    %
    
    
    9.8
    %
    
    
    9.4
    %
    
    
    7.8
    %
    
    
    8.0
    %
    
    
    8.4
    %In-store network
    
    
    9.0
    %
    
    
    9.6
    %
    
    
    9.5
    %
    
    
    9.5
    %
    
    
    9.4
    %
    
    
    9.4
    %
    
    
    9.3
    %
    
    
    9.4
    %Poster frame network
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    8.9
    %
    
    
    8.6
    %
    
    
    8.8
    %
    
    
    8.2
    %
    
    
    8.5
    %Mobile handset advertising network
    
    
    
    
    
    
    8.6
    %
    
    
    7.5
    %
    
    
    5.5
    %
    
    
    0.2
    %
    
    
    3.4
    %
    
    
    4.1
    %
    
    
    3.7
    %Internet advertising services network
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5
    %
    
    
    3.9
    %
    
    
    3.6
    %Total
    
    
    8.9
    %
    
    
    9.0
    %
    
    
    9.3
    %
    
    
    9.3
    %
    
    
    8.3
    %
    
    
    6.9
    %
    
    
    6.6
    %
    
    
    6.6
    %
  Advertising agency rebates for each fiscal quarter of the fiscal year ended December 31, 2006.
 A. Operating Results
 Results of Operations
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 69




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##### Table of Contents



Total Revenues.
 Digital Out-of-home Advertising Network.
 
    
    Commercial location network.Advertising service revenue from our
commercial location network increased 67.1% from $132.1 million in
2006 to $220.7 million in 2007. The increase in advertising service
revenue is attributable to: (i) continued acceptance of our media by
an increasing number of advertising clients; (ii) the steady expansion
of our media network, including the number of LCD displays and LED
billboards on our network; and (iii) the sale of tailored advertising
packages including through the seven specialized channels on our
commercial location network and by targeting advertising campaigns on
specific lists of buildings requested by advertising clients.
    
    In-store network.Advertising service revenue from our in-store
network, increased 2.0% to $27.4 million in 2007 from $26.9 million in
2006. This increase was attributable to steady sales of advertising
services on the network as it continued to increase in size.
Specifically, the number of displays installed in the in-store network
amounted to 49,452 as of December 31, 2007, up from 38,742 as of
December 31, 2006, offset in part by relatively strong competition in
this area, mainly from CGEN Digital Media Company Limited, which we
subsequently acquired in January 2008. The number of hypermarkets in
our networks, from which we derive most of our in-store network
revenue, increased from 1,100 as of December 31, 2006 to 1,398 as of
December 31, 2007.
    
    Poster frame network.Advertising service revenue from our poster
frame network more than doubled to $85.5 million in 2007 compared to
$40.9 million in 2006. This increase in revenue is primarily
attributable to robust sales as the total number of frames installed
more than doubled from 95,878 as of December 31, 2006 to 190,468 as of
December 31, 2007, including 10,819 digital frames which we introduced
in 2007.
 Mobile Handset Advertising Network.
 Internet Advertising Services Network.
 Cost of Revenues.
 Digital out-of-home advertising costs.
 70




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##### Table of Contents




    
    Net advertising service cost  commercial location network.Our net
advertising service cost for our commercial location network increased
85.9% from $42.8 million in 2006 to $79.6 million in 2007. This
increase was due to (i) the substantial increase in our advertising
service business on our commercial location network between these two
periods including substantial increases in our location costs due to a
substantial increase in the number of commercial locations where we
entered into display placement agreements, including those we operate
in our ourdoor billboard business; (ii) an increase in flat-panel
display depreciation costs as a result of an increase in the number of
flat-panel displays we own and operate directly from 80,623 as of
December 31, 2006 to 107,533 as of December 31, 2007; (iii) our
acquisition of 8 regional distributors during this period, (iv) an
increase in other direct costs associated with maintaining the network
and (v) payments associated with our lease of curbside LED billboards
and screen time at movie theaters.
    
    Net advertising service cost  in-store network.We incurred $23.5
million in net advertising service cost for our in-store network in
2007 compared to $18.1 million in 2006, consisting of location costs
and depreciation costs relating to the installation and maintenance of
our in-store network.
    
    Net advertising service cost  poster frame network.Our net
advertising service cost for our poster frame network increased
significantly to $28.1 million in 2007 compared to $13.6 million in
2006, attributable to location costs and depreciation costs relating
to the installation and maintenance of poster frames on our network as
we significantly increased the number of traditional poster frames on
our network and, in June 2007, began to incur location costs
associated with our digital poster frames.
 
    
    Net advertising service cost  mobile handset advertising network.Net advertising
service cost associated with our mobile handset advertising network increased significantly
from $6.1 million in 2006 to $23.2 million in 2007. These costs consist primarily of message
costs charged by mobile operators.
 
    
    Net advertising service cost  Internet advertising service network.We incurred net
advertising service costs of $93.2 million in 2007. These costs consist primarily of
advertising space leasing costs charged by gateway websites.
 Gross Profit.
 Year ended December 31,2006
    
    
    2007US$000
    
    
    US$000Gross profitCommercial location network
    
    $
    89,225
    
    
    $
    141,058In-store network
    
    
    8,801
    
    
    
    3,942Poster frame network
    
    
    27,283
    
    
    
    57,386Digital out-of-home
    
    
    125,309
    
    
    
    202,386Mobile Handset Advertising Network
    
    
    4,049
    
    
    
    23,716Internet Advertising
    
    
    
    
    
    
    31,700Others
    
    
    1,167
    
    
    
    316Total
    
    $
    130,525
    
    
    $
    258,118Gross marginCommercial location network
    
    
    67.6
    %
    
    
    63.9
    %In-store network
    
    
    32.7
    %
    
    
    14.4
    %Poster frame network
    
    
    66.7
    %
    
    
    67.1
    %
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Year ended December 31,2006
    
    
    2007US$000
    
    
    US$000Digital out-of-home
    
    
    62.7
    %
    
    
    60.7
    %Mobile Handset Advertising Network
    
    
    40.1
    %
    
    
    50.6
    %Internet Advertising
    
    
    
    
    
    
    25.4
    %Others
    
    
    60.4
    %
    
    
    28.4
    %Total
    
    
    61.6
    %
    
    
    51.0
    %
  Operating Expenses.
 
    
    General and Administrative.General and administrative expenses increased substantially
from $25.7 million in 2006 to $49.5 million in 2007 mainly due to an increase in the size
of our administrative staff and corresponding increases in expenses for salary and
benefits as our operations have grown, increases in share-based compensation expense and
increases in costs associated with being a publicly listed company.
    
    Selling and Marketing.Selling and marketing expenses increased substantially from $25.8
million in 2006 to $69.9 million in 2007 due to increases in marketing and promotional
expenses by our sales force, and in salary and benefits associated with the expansion of
our sales force as well as share-based compensation expenses and amortization of
acquisition related intangible assets.
 Other operating income.
 Income from Operations.
 Income Before Income Taxes and Minority Interest.
 
    
    Interest Income.Interest income increased from $4.5 million in 2006
to $9.8 million in 2007. This interest income was the result of a
significant increase in our cash and cash equivalents balances
resulting from our follow-on public offerings.
    
    Income Taxes.Our income taxes were $1.0 million in 2006 with an
effective tax rate of 1.2% compared to $11.0 million in 2007 with an
effective tax rate of 7.1%.
 Net Income.
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Total Revenues.
  72




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Digital Out-of-home Advertising Network.
 
    
    Commercial location network.Advertising service revenue from our
commercial location network increased significantly from $61.4 million
in 2005 to $132.1 million, including $15.4 million to related parties
in 2006. The increase in advertising service revenue for our
commercial location network is attributable to:
 
    
    An increase in the number of flat-panel displays on our network from
48,226 as of December 31, 2005 to 85,460 as of December 31, 2006
including our regional distributors;
    
    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 the regional distributors we acquired between January 1, 2006
and December 31, 2006; and
    
    The increase in the average selling price was largely due to increased
demand 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 .Advertising service revenue from our in-store
network, which commenced operations in April 2005, totaled $26.9
million in 2006. We expect the contribution to our total revenues from
our in-store network to increase in the near future.
    
    Poster frame network.We generated $40.9 million in net revenues from
our poster frame network in 2006. We commenced operation of our poster
frame network in 2006 following our acquisition of Framedia.
 Mobile handset advertising network.
  Cost of Revenues.
 Net Advertising Service Cost  Digital Out-of-home Advertising Network.
 
    
    Net advertising service cost  commercial location network.Our net
advertising service cost for our commercial location network increased
substantially from $18.6 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
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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)
average increased rental payments for the renewal of display placement
agreements in the more desirable locations on our commercial location
network. 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 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) an 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.
    
    Net advertising service cost  poster frame network.We began
incurring net advertising service cost relating to our poster frame
network in 2006 following our acquisition of Framedia. We incurred
$13.6 million in net advertising service cost for our poster frame
network in 2006, consisting primarily of frame costs and depreciation
costs relating to the installation and maintenance of the poster
frames.
    
    Net advertising service cost  mobile handset advertising network.
We began incurring net advertising service cost relating to our mobile
handset advertising network in 2006 following our acquisition of
Dotad, now known as Focus Media Wireless. We incurred $6.1 million in
net advertising service cost for our mobile handset advertising
network in 2006, primarily consisting of message costs charged by
mobile network providers
    
    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
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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.
 B. Liquidity and Capital Resources
 Liquidity and Capital Resources
 Cash Flows and Working Capital
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For the year ended December 31,2005
    
    2006
    
    2007(in thousands of U.S. dollars)Net cash provided by operating activities
    
    $
    11,269
    
    
    $
    93,355
    
    
    $
    166,960Net cash (used) in investing activities
    
    
    (117,667
    )
    
    
    (121,994
    )
    
    
    (342,881
    )Net cash provided by financing activities
    
    
    119,168
    
    
    
    153,521
    
    
    
    442,976Effect of exchange rate changes
    
    
    1,214
    
    
    
    3,076
    
    
    
    18,750Net increase in cash and cash equivalent
    
    
    13,984
    
    
    
    127,958
    
    
    
    285,805
     76




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##### Table of Contents



Transactions with Related Parties
  Capital Expenditures
  For the year ended December 31,2005
    
    2006
    
    2007(in thousands of U.S. dollars)Total capital expenditure
    
    $
    36,765
    
    
    $
    22,878
    
    
    $
    55,776
  Restricted Net Assets
  C. Research, Development, Patents and Licenses, etc.
 Research and Development
  Patents and Trademarks
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D. Trend Information
  E. Off-balance Sheet Arrangements
  F. Tabular Disclosure of Contractual Obligations
  Payments due December 31TOTAL
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterDisplay and poster frame
placement agreement obligations
    
    $
    194,068
    
    
    $
    96,042
    
    
    $
    54,958
    
    
    $
    23,786
    
    
    $
    10,278
    
    
    $
    9,004Office premise lease obligations
    
    
    13,283
    
    
    
    6,014
    
    
    
    4,068
    
    
    
    1,711
    
    
    
    1,282
    
    
    
    208Total contractual obligations
    
    $
    207,351
    
    
    $
    102,056
    
    
    $
    59,026
    
    
    $
    25,497
    
    
    $
    11,560
    
    
    $
    9,212
  78




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
  Name
    
    Age
    
    PositionJason Nanchun Jiang
    
    
    35
    
    
    Executive Chairman of the Board of DirectorsZhi Tan
    
    
    53
    
    
    Chief Executive Officer and DirectorDavid Feng Yu(1)
    
    
    46
    
    
    Co-chairman of the Board of DirectorsJimmy Wei Yu
    
    
    35
    
    
    DirectorFumin Zhuo(2)
    
    
    56
    
    
    DirectorNeil Nanpeng Shen(2)
    
    
    40
    
    
    DirectorCharles Chao(2)(3)
    
    
    42
    
    
    DirectorDaqing Qi(4)
    
    
    45
    
    
    DirectorDavid Ying Zhang(5)
    
    
    34
    
    
    DirectorDaniel Mingdong Wu
    
    
    41
    
    
    Chief Financial OfficerDavid Hailong Zhu
    
    
    40
    
    
    Senior Vice President  Internet AdvertisingMaodong Xu
    
    
    40
    
    
    Senior Vice President  Mobile Handset Advertising
 
 (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)
    
    In the year ended December 31, 2007, SINA Corporation and Focus Media were involved in
transactions exceeding 5% of SINAs revenues, and accordingly, under Nasdaq rules, Mr. Chao
has lost his status as an independent director. We intend to replace Mr. Chao with another
independent director at our next annual shareholders meeting, as is consistent with Nasdaq
requirements, as well as to appoint additional directors at that time. We intend for Mr. Chao
to remain on at that time as an executive (non-independent) director.(4)
    
    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.(5)
    
    David Ying Zhang was appointed as an independent director on September 28, 2007 by our
nominations committee and board of directors in order to restore a majority of independent
directors to our board. Jason Nanchun Jiang
 Zhi Tan
 79




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##### Table of Contents



David Feng Yu
 Jimmy Wei Yu
 Fumin Zhuo
 Neil Nanpeng Shen
 Charles Chao
 80




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##### Table of Contents



Daqing Qi
 David Ying Zhang
 Daniel Mingdong Wu
 David Hailong Zhu
 Maodong Xu
  Duties of Directors
  81




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##### Table of Contents




    
    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
 .
 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
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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:
 
    
    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
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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 and May 2007, we granted options to purchase 1,200,000 and 100,000 of
our ordinary shares to certain of our employees. The exercise price of the options is
$7.20 and $7.394 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 and May 8, 2017, respectively.
    
    In October 2007, we granted options to purchase 9,592,685 of our ordinary shares to
certain of our employees, executive officers and directors. Of these options, 6,982,500
were issued to non-management employees and 2,610,185 were issued to our directors and
officers. The issuance to our officers and directors included grants to Jason Nanchun
Jiang and Zhi Tan of options to purchase 210,185 and 250,000 of our ordinary shares,
respectively. 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 four year period, beginning one year from the date of issuance. The
exercise price of the options is $11.422 per share which was based on the market price
of our ADSs at the time the options were granted. The options expire on October 3,
2017.
  
    
    In January 2008, we granted options to purchase 4,500,000 of our ordinary shares to
certain of our non-management employees. All of the options granted vest over a four
year period, beginning one year from the date of issuance. The exercise price of the
options is $9.10 per share which was based on the market price of our ADSs at the time
the options were granted. The options expire on January 29, 2018.
 
    
    In March 2008, we granted options to purchase 2,750,000 of our ordinary shares to
certain of our executive officers. Of these options, 2,500,000 were issued to Zhi Tan.
All of the options granted vest over a four year period, beginning one year from the
date of issuance. The exercise price of the options is $8.262 per share which was based
on the market price of our ADSs at the time the options were granted. The options
expire on March 9, 2018.
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Number of ordinaryshares to be issuedupon exercise of
    
    Exercise peroptions
    
    ordinary share
    
    Date of grant
    
    Date of expiration(in U.S. dollars)Jason Nanchun Jiang
    
    
    5,882,000
    
    
    $
    0.24
    
    
    August 25, 2004
    
    August 24, 2014
    
    
    3,080,000
    
    
    $
    2.60
    
    
    November 2, 2005
    
    November 1, 2015
    
    
    1,051,100
    
    
    $
    2.70
    
    
    November 16, 2005
    
    November 15, 2015
    
    
    210,185
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017David Feng Yu
    
    
    *
    
    
    $
    5.09
    
    
    March 10, 2006
    
    March 9, 2016Jimmy Wei Yu
    
    
    *
    
    
    $
    0.24
    
    
    July 5, 2004
    
    July 4, 2014
    
    
    *
    
    
    $
    0.24
    
    
    August 25, 2004
    
    August 24, 2014
    
    
    *
    
    
    $
    1.70
    
    
    July 13, 2005
    
    July 13, 2015
    
    
    *
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017Fuming Zhuo
    
    
    *
    
    
    $
    0.24
    
    
    August 10, 2004
    
    August 9, 2014
    
    
    *
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017Neil Nanpeng Shen
    
    
    *
    
    
    $
    0.58
    
    
    January 1, 2005
    
    December 31, 2014
    
    
    *
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017Charles Chao
    
    
    *
    
    
    $
    2.60
    
    
    November 2, 2005
    
    November 1, 2015
    
    
    *
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017Daqing Qi
    
    
    *
    
    
    $
    5.09
    
    
    March 10, 2006
    
    March 9, 2016
    
    
    *
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017Zhi Tan
    
    
    *
    
    
    $
    5.72
    
    
    November 16, 2006
    
    November 15, 2015
    
    
    *
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017
    
    
    *
    
    
    $
    8.262
    
    
    March 10, 2008
    
    March 9, 2018Daniel Mingdong Wu
    
    
    *
    
    
    $
    0.58
    
    
    February 2, 2005
    
    February 1, 2015
    
    
    *
    
    
    $
    0.75
    
    
    February 2, 2005
    
    February 1, 2015
    
    
    *
    
    
    $
    1.70
    
    
    July 13, 2005
    
    July 13, 2015
    
    
    *
    
    
    $
    11.42
    
    
    October 3, 2007
    
    October 2, 2017
    
    
    *
    
    
    $
    8.262
    
    
    March 10, 2008
    
    March 9, 2018
 
 *
    
    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.
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
    
    recommending to our shareholders, if appropriate, the annual re-appointment of our
independent auditors and pre-approving all auditing and non-auditing services permitted
to be performed by the independent auditors;
    
    annually reviewing an independent auditors report describing the auditing firms
internal quality-control procedures, any material issues raised by the most recent
internal quality control review, or peer review, of the independent auditors and all
relationships between the independent auditors and our company;
    
    setting clear hiring policies for employees or former employees of the independent
auditors;
    
    reviewing with the independent auditors any audit problems or difficulties and
managements response;
    
    reviewing and approving all proposed related-party transactions, as defined in Item
404 of Regulation S-K under the U.S. securities laws;
    
    discussing the annual audited financial statements with management and the
independent auditors;
    
    discussing with management and the independent auditors major issues regarding
accounting principles and financial statement presentations;
    
    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.
 86




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##### Table of Contents




    
    determining and recommending the compensation of our chief executive officer;
    
    reviewing and making recommendations to our board of directors regarding our
compensation policies and forms of compensation provided to our directors and officers;
    
    reviewing and determining bonuses for our officers;
    
    reviewing and determining share-based compensation for our directors and officers;
    
    administering our equity incentive plans in accordance with the terms thereof; and
    
    such other matters that are specifically delegated to the compensation committee by
our board of directors from time to time.
 Nominations Committee.
  D. Employees
  Number ofemployees(1)
    
    PercentageSales and marketing
    
    
    1,429
    
    
    
    28
    %Operations
    
    
    2,665
    
    
    
    51
    %Management and administration
    
    
    1,081
    
    
    
    21
    %Total number of employees
    
    
    5,175
    
    
    
    100
    %
 
 (1)
    
    This excludes employees our regional distributors and agents who are not directly under our
employ.   87




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##### Table of Contents



E. Share Ownership
  
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
  
    
    each person known to us to own beneficially more than 5% of our ordinary shares and
    
    each of our directors and executive officers who beneficially own our ordinary shares.
  Shares beneficially ownedNumber
    
    PercentPrincipal ShareholdersJJ Media Investment Holding Ltd./
Jason Nanchun Jiang (1)
    
    
    69,104,595
    
    
    
    10.55
    %Pequot Capital Management, Inc.(2)
    
    
    48,869,600
    
    
    
    7.55
    %FMR LLC(2)
    
    
    45,502,190
    
    
    
    7.03
    %Directors and Executive Officers (3)JJ Media Investment Holding Ltd./
Jason Nanchun Jiang (4)
    
    
    68,604,595
    
    
    
    10.55
    %David Feng Yu
    
    
    *
    
    
    
    *Jimmy Wei Yu
    
    
    *
    
    
    
    *Neil Nanpeng Shen
    
    
    
    
    
    
    *Charles Chao
    
    
    
    
    
    
    *Fumin Zhuo
    
    
    
    
    
    
    *Daqing Qi
    
    
    
    
    
    
    *Zhi Tan
    
    
    *
    
    
    
    *Daniel Mingdong Wu
    
    
    
    
    
    
    *David Hailong Zhu
    
    
    
    
    
    
    *Maodong Xu
    
    
    
    
    
    
    *
 
 *
    
    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 beneficially owned by JJ Media Investment Holding Ltd.,
500,000 ordinary shares beneficially owned by JJ Media Investment Holding Ltd. in the form of
ADSs through Citi (Nominees) Limited, and 5,041,600 and 2,476,650 options to purchase our
ordinary shares owned by Target Sales International Limited and Target 88




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##### Table of Contents



Management Group Limited. JJ Media Investment Holding Ltd., Target Sales International Limited
and Target Management Group Limited are 100% owned by Jason Nanchun Jiang, our founder and
executive chairman.(2)
    
    Information based on the most recent Form 13G filed by these entities.(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.(4)
    
    See note 1.    B. Related Party Transactions
  Year ended December 31,Name of related parties
    
    Director interested
    
    
    2005
    
    
    2006
    
    
    2007Shanghai Everease Advertising &
Communication Ltd. (Everease)
    
    Jason Nanchun Jiang
    
    $
    1,552,039
    
    
    $
    7,764,977
    
    
    $
    3,132,954Multimedia Park Venture Capital
    
    Jimmy Wei Yu
    
    
    2,330,945
    
    
    
    3,885,546
    
    
    
    104Shanghai Jobwell Business
Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    1,050,258
    
    
    
    1,382,695
    
    
    
    Shanghai Wealove Wedding Service
Co., Ltd.
    
    Jimmy Wei Yu
    
    
    757,850
    
    
    
    1,122,945
    
    
    
    Shanghai Wealove Business
Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    
    
    
    
    671,488
    
    
    
    Shanghai Hetong Network
Technology Co., Ltd.
    
    Jimmy Wei Yu
    
    
    908,100
    
    
    
    982,527
    
    
    
    Shanghai Shengchu Advertising
Agency Co., Ltd.
    
    Jimmy Wei Yu
    
    
    1,646,120
    
    
    
    3,230,040
    
    
    
    44,542Beijing Sina Internet Information
Services Co., Ltd.
    
    Charles Cao
    
    
    
    
    
    
    190,563
    
    
    
    1,095,814Beijing Sohu New-age Information
Technology Co., Ltd.
    
    Daqing Qi
    
    
    
    
    
    
    119,768
    
    
    
    608,150Home-Inn Hotel Management
(Beijing) Co., Ltd
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    78,742
    
    
    
    82,356Ctrip Travel Information
Technology (Shanghai) Co., Ltd.
    
    Neil Nanpeng Shen
    
    
    264,120
    
    
    
    178,933
    
    
    
    51.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    19,611Qihoo.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    12,151UUSEE
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    27,789Yadu Huang Ke Technology Co., Ltd.
    
    Fuming Zhuo
    
    
    
    
    
    
    
    
    
    
    243,628Total
    
    
    
    
    
    $
    8,509,432
    
    
    $
    19,608,224
    
    
    $
    5,267,099
 89




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##### Table of Contents



Year ended December 31,Name of related parties
    
    Director interested
    
    2005
    
    
    2006
    
    
    2007Beijing Sina Internet
Information Services Co., Ltd.
    
    Charles Cao
    
    $
    
    
    
    $
    
    
    
    $
    24,755,004Beijing Sohu New-age
Information Technology Co.,
Ltd.
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    14,596,893Ctrip Travel Information
Technology (Shanghai) Co., Ltd.
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    130,23051.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    204,612Qihoo.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    305,413UUSEE
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    15,929E-House (China) Holdings Limited
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    2,008Total
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,010,089
  December 31,Name of related parties
    
    Note
    
    Director interested
    
    2005
    
    
    2006
    
    
    2007Shanghai Everease Advertising &
Communication Ltd. (Everease)
    
    (a)
    
    Jason Nanchun Jiang
    
    $
    572,525
    
    
    $
    6,331,549
    
    
    $
    133,543Multimedia Park Venture Capital
    
    (a)
    
    Jimmy Wei Yu
    
    
    330,700
    
    
    
    12,705
    
    
    
    Shanghai Jobwell Business
Consulting Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    546,207
    
    
    
    
    
    
    
    Shanghai Wealove Wedding Service
Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    662,954
    
    
    
    
    
    
    
    Shanghai Hetong Network
Technology Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    533,469
    
    
    
    
    
    
    
    Shanghai Shengchu Advertising
Agency Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    474,351
    
    
    
    403,889
    
    
    
    Beijing Sina Internet Information
Services Co., Ltd.
    
    (a)
    
    Charles Cao
    
    
    
    
    
    
    
    
    
    
    3,385,671Beijing Sohu New-age Information
Technology Co., Ltd.
    
    (a)
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    1,198,429Ctrip Travel Information
Technology (Shanghai) Co., Ltd.
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    89,94651.com
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    105,147UUSEE
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    10,952Home-Inn Hotel Management
(Beijing) Co., Ltd
    
    (d)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    39,699Yadu Huang Ke Technology Co., Ltd.
    
    (a)
    
    Fuming Zhuo
    
    
    
    
    
    
    
    
    
    
    150,158Qihoo.com
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    17,683David Yu
    
    (b)
    
    David Yu
    
    
    
    
    
    
    1,064,947
    
    
    
    Total
    
    
    
    
    
    $
    3,120,206
    
    
    $
    7,852,789
    
    
    $
    5,091,529
  90




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##### Table of Contents



December 31,Name of related parties
    
    Note
    
    Director interested
    
    2005
    
    
    2006
    
    
    2007Beijing Sina Internet
Information Services
Co., Ltd.
    
    (d)
    
    Charles Cao
    
    $
    
    
    
    $
    
    
    
    $
    12,491,999Beijing Sohu New-age
Information Technology
Co., Ltd.
    
    (d)
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    301,52051.com
    
    (d)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    179,750UUSEE
    
    (d)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    3,696Home-Inn Hotel
Management (Beijing)
Co., Ltd
    
    (d)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    171Tan Zhi
    
    (c)
    
    Tan Zhi
    
    
    
    
    
    
    345,768
    
    
    
    Total
    
    
    
    
    
    $
    
    
    
    $
    345,768
    
    
    $
    12,977,136
  Agreements among Us, Our Wholly Foreign-Owned Subsidiaries, Our PRC Operating Affiliates and Their Shareholders and Subsidiaries
  Transfer of Ownership When Permitted By Law
  91




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Voting Arrangements
  Equity Pledge Agreements
  Equity Trust Agreements
  Trademark License Agreement
  Cooperation Agreements
  92




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Asset Transfer Agreement
  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
  93




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##### Table of Contents



Transactions with Everease
  Everease Non-Competition Agreement
  Advertising Services Provided to Everease
  Transactions with Entities Affiliated with Jimmy Wei Yu
    94




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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
   95




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##### Table of Contents



B. Significant Changes
  
    
    On January 2, 2008, we completed the acquisition of CGEN Digital Media Company
Limited, or CGEN. In accordance with the share purchase agreement entered into on
December 10, 2007, we made a cash payment of US$168.4 million to the former CGEN
shareholders and the former CGEN shareholders delivered 100% of the equity interest in
CGEN to us.
    
    On March 5, 2008, we appointed Dr. Zhi Tan, formerly president of Focus Media, as
our chief executive officer. Our previous chief executive officer, Jason Nanchun Jiang
remained on as executive chairman. On the same date, we also appointed David Hailong
Zhu, former chief executive officer of Allyes, as our executive vice president 
Internet advertising and Maodong Xu, formerly chief executive officer of Focus Media
Wireless, as executive vice president  mobile handset advertising.
    
    In March 2008, we announced the existence of our internal policy strictly
prohibiting the sending of SMS or MMS messages without the explicit consent of the
receiving mobile user. We also provide a toll-free telephone number to enable mobile
users to report spam and unauthorized messages to us directly.
    
    On March 20, 2008, our executive chairman Jason Jiang purchased 100,000 Focus Media
ADSs at an average price of USD 34.19 per ADS in the open market.
    
    On April 10, 2008, due to recent uncertainties in the mobile handset advertising
business in China, we significantly lowered the guidance for our revenue from our
mobile handset advertising business for 2008 from the previously announced range of
between $54.0 million and $55.8 million to between $14.0 million to $15.8 million, or
$40 million less than the previously announced range. We also announced a revised
range for full year 2008 revenue guidance to a range of from $860 million to $890
million from previously announced $900 million to $930 million, and full year 2008 net
income excluding share-based compensation expenses and amortization of intangible
assets resulting from acquisitions (non-GAAP) to be between US$260 million and US$280
million, as compared to the original guidance of between US$280 million and US$300
million. We also expect the resulting non-cash impairment charge of goodwill and
acquired intangible assets of mobile advertising business to range from $75 million to
$95 million in the first quarter of 2008 due to a restructuring of our mobile handset
advertising business and termination of earn-outs based acquisition agreements with
certain mobile handset advertising subsidiaries. We also announced that going forward,
our mobile handset advertising business will focus on building a pull-based advertising
model for our mobile business and will only send advertising information to consumers
in China based on their explicit consent.
  
 ITEM 9. THE OFFER AND LISTING
 A. Offer and Listing Details
 Market Price Information for Our American Depositary Shares
  96




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##### Table of Contents



SALE PRICEHIGH
    
    LOWUS$
    
    US$MONTHLY HIGHS AND LOWS2007(from July 1)July
    
    
    53.29
    
    
    
    39.25August
    
    
    43.00
    
    
    
    34.57September
    
    
    60.07
    
    
    
    40.56October
    
    
    62.00
    
    
    
    55.00November
    
    
    65.88
    
    
    
    50.35December
    
    
    58.96
    
    
    
    52.462008January
    
    
    58.98
    
    
    
    45.05February
    
    
    53.50
    
    
    
    44.92March
    
    
    51.82
    
    
    
    29.25April
    
    
    42.01
    
    
    
    30.00
  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
  97




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C. Material Contracts
  Framedia
   Structure
 Purchase Price
 Representations and Warranties
 Covenants
 Voting Rights
 Indemnification
 98




---



##### Table of Contents



Target Media
   Purchase Price
 Focus Media Options
 Representations and Warranties
 Covenants
  Indemnification
 99




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##### Table of Contents



Focus Media Wireless
   Purchase Price
 Representations and Warranties
 100




---



##### Table of Contents



Covenants
 Indemnification
 Focus Media Movie Theater Advertising network
  Allyes
   Purchase Price
 Representations and Warranties
 101




---



##### Table of Contents



Covenants
 Indemnification
      CGEN
   Purchase Price
 Representations and Warranties
 102




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Covenants
 Indemnification
 Control Over Acquired Entities
  D. Exchange Controls
   103




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
    
    prior to establishing or assuming control of an offshore company for the purpose of
financing that offshore company with assets or equity interests in an onshore
enterprise in the PRC, each PRC resident, whether a natural or legal person, must
complete the overseas investment foreign exchange registration procedures with the
relevant local SAFE branch;
    
    an amendment to the registration with the local SAFE branch is required to be filed
by any PRC resident that directly or indirectly holds interests in that offshore
company upon either (1) the injection of equity interests or assets of an onshore
enterprise to the offshore company, or (2) the completion of any overseas fund raising
by such offshore company; and
    
    an amendment to the registration with the local SAFE branch is also required to be
filed by such PRC resident when there is any material change involving a change in the
capital of the offshore company, such as (1) an increase or decrease in its capital,
(2) a transfer or swap of shares, (3) a merger or division, (4) a long term equity or
debt investment, or (5) the creation of any security interests over the relevant assets
located in China.
    E. Taxation
 Cayman Islands Taxation
  104




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Peoples Republic of China Taxation
   United States Federal Income Taxation
  105




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##### Table of Contents




    
    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 ordinary shares or 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 or is deemed to own 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 ORDINARY SHARES OR
ADSS, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES TO YOU IN LIGHT OF YOUR PARTICULAR SITUATION AS WELL AS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
  
    
    an individual citizen or resident of the United States;
    
    a corporation (or other entity treated as a corporation for United States federal
income tax purposes) created or organized in or under the laws of the United States,
any state thereof or the District of Columbia;
    
    an estate the income of which is subject to United States federal income taxation
regardless of its source; or
    
    a trust which either (1) is subject to the primary supervision of a court within the
United States and one or more United States persons have the authority to control all
substantial decisions of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a United States person.
 106




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ADSs
   Taxation of Dividends
   107




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##### Table of Contents



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 ordinary shares or 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.
 108




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Taxation of Capital Gains
  109




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##### Table of Contents



Information Reporting and Backup Withholding
    F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
   http://www.sec.gov
   110




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##### Table of Contents



I. Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Risk
  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
  111




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##### Table of Contents




    
    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;
   .
 
    
    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.
   112




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B. Use of Proceeds
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting.
       ATTESTATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal
Control  Integrated Framework
    Internal Control
 Integrated Framework
   
 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  113




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##### Table of Contents



For the year ended December 31,2006
    
    
    2007(in thousands, US dollar)Audit Fees (1)
    
    $
    1,184
    
    
    $
    1,960Audit-related Fees (2)
    
    
    
    
    
    
    Tax Fees (3)
    
    
    83
    
    
    
    394All Other Fees (4)
    
    
    
    
    
    
    Total
    
    $
    1,267
    
    
    $
    2,354
 
 (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 transfer study 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
  
 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.
 PageReport of Independent Registered Public Accounting
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2006
    
    F-3Consolidated Statements of Operations for each of the years ended December 31, 2005, 2006 and 2007
    
    F-4Consolidated Statements of Changes in Shareholders Equity (Deficiency) and Comprehensive Income (Loss) for the years ended December 31, 2005, 2006 and 2007
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007
    
    F-6Notes to the Consolidated Financial Statements
    
    F-7
 114




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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).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.10.5*
    
    Call Option Agreement, dated March 28, 2005, among Jason Nanchun Jiang,
Jimmy Wei Yu, Shanghai Focus Media Advertisement Co., Ltd. and Focus Media
Technology (Shanghai) Co., Ltd.10.6*
    
    Shareholders Voting Rights Proxy Agreement, dated March 28, 2005, among
Jason Nanchun Jiang,
 115




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##### Table of Contents



ExhibitNumber
    
    Description of ExhibitsJimmy 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 Advertisement Co., Ltd., Focus Media Technology
(Shanghai) Co., Ltd., Focus Media Digital Information Technology
(Shanghai) Co., Ltd. and subsidiaries of Shanghai Focus Media
Advertisement Co., Ltd.10.23*
    
    Share Option Plan 2005.
 116




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.24*
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Fuzhou Fukesi Advertisement Co., Ltd.10.25*
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Hefei Fukesi Advertisement Co., Ltd.10.26*
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated
January 13, 2006, of Shanghai Focus Media Co., Ltd. and Hefei Fukesi
Advertisement Co., Ltd.10.27*
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Shenyang Focus Media Advertisement Co., Ltd.10.28*
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Shenzhen Bianjie Building Advertisement Co., Ltd.10.29*
    
    Acknowledgement Letter for Participation of Equity Pledge Agreement, dated
January 13, 2006, of Shanghai Focus Media Co., Ltd. and Shenzhen Bianjie
Building Advertisement Co., Ltd.10.30*
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Fuzhou Fukesi Advertisement Co., Ltd.10.31*
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Hefei Fukesi Advertisement Co., Ltd.10.32*
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated
January 13, 2006, of Shanghai Focus Media Co., Ltd. and Hefei Fukesi
Advertisement Co., Ltd.10.33*
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Shenyang Focus Media Advertisement Co., Ltd.10.34*
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated
January 13, 2006, of Shanghai Focus Media Advertisement Co., Ltd. and
Shenzhen Bianjie Building Advertisement Co., Ltd.10.35*
    
    Acknowledgement Letter for Participation of Call Option Agreement, dated
January 13, 2006, of Shanghai Focus Media Co., Ltd. and Shenzhen Bianjie
Building Advertisement Co., Ltd.10.36*
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights
Proxy Agreement, dated January 13, 2006, of Shanghai Focus Media
Advertisement Co., Ltd. and Fuzhou Fukesi Advertisement Co., Ltd.10.37*
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights
Proxy Agreement, dated January 13, 2006, of Shanghai Focus Media
Advertisement Co., Ltd. and Hefei Fukesi Advertisement Co., Ltd.10.38*
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights
Proxy Agreement, dated January 13, 2006, of Shanghai Focus Media Co., Ltd.
and Hefei Fukesi Advertisement Co., Ltd.10.39*
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights
Proxy Agreement, dated January 13, 2006, of Shanghai Focus Media
Advertisement Co., Ltd. and Shenyang Focus Media Advertisement Co., Ltd.
 117




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.40*
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights
Proxy Agreement, dated January 13, 2006, of Shanghai Focus Media
Advertisement Co., Ltd. and Shenzhen Bianjie Building Advertisement Co.,
Ltd.10.41*
    
    Acknowledgement Letter for Participation of Shareholders Voting Rights
Proxy Agreement, dated January 13, 2006, of Shanghai Focus Media Co., Ltd.
and Shenzhen Bianjie Building Advertisement Co., Ltd.10.42*
    
    Equity Pledge Agreement, dated January 13, 2006, by and among Shanghai
Focus Media Advertisement Co., Ltd., Shanghai Focus Media Co., Ltd.,
Shanghai Framedia Investment Consultancy Co., Ltd. and the Local
Advertisement Companies named therein.10.43*
    
    Call Option Agreement, dated January 13, 2006, by and among Shanghai Focus
Media Advertisement Co., Ltd., Shanghai Focus Media Co., Ltd., Shanghai
Framedia Investment Consultancy Co., Ltd. and the Local Advertisement
Companies named therein.10.44*
    
    Shareholders Voting Rights Proxy Agreement, dated January 13, 2006, by
and among Shanghai Focus Media Advertisement Co., Ltd., Shanghai Focus
Media Co., Ltd., Shanghai Framedia Investment Consultancy Co., Ltd. and
the Local Advertisement Companies named therein.10.45*
    
    Equity Pledge Agreement, dated January 13, 2006, by and among Lei Liu,
Yong Shi, Shanghai Framedia Investment Consultancy Co., Ltd. and Guangdong
Century Shenghuo Advertisement Co., Ltd.10.46*
    
    Call Option Agreement, dated January 13, 2006, by and among Lei Liu, Yong
Shi, Shanghai Framedia Investment Consultancy Co., Ltd. and Guangdong
Century Shenghuo Advertisement Co., Ltd.10.47*
    
    Shareholders Voting Rights Proxy Agreement, dated January 13, 2006, by
and among Lei Liu, Yong Shi, Shanghai Framedia Investment Consultancy Co.,
Ltd. and Guangdong Century Shenghuo Advertisement Co., Ltd.10.48*
    
    Share Purchase Agreement, dated October 15, 2005, as amended and
supplemented, among Focus Media Holding Limited, Infoachieve Limited,
Total Team Investments Limited and the other Infoachieve parties named
therein.10.49*
    
    Share Purchase Agreement, dated as of January 7, 2006, among Focus Media
Holding Limited, Target Media Holdings Limited and Its Shareholders.10.50*
    
    Asset Transfer Agreement, dated December 31, 2005, by and between Focus
Media Digital Information Technology (Shanghai) Co., Ltd. and Shanghai New
Focus Media Advertisement Co., Ltd.10.51*
    
    Share Purchase Agreement, dated March 7, 2006, by and among Focus Media
Holding Limited and Dotad Wireless Holdings Co., Ltd.10.52*
    
    Equity Pledge Agreement, dated May 22, 2006, by and among Shanghai Focus
Media Advertisement Co., Ltd., Shanghai Focus Media Advertising Agency
Co., Ltd., Beijing Dotad Technology Co., Ltd and Beijing Focus Media
Wireless Co., Ltd.10.53*
    
    Call Option Agreement, dated May 22, 2006, by and among Shanghai Focus
Media Advertisement Co., Ltd., Shanghai Focus Media Advertising Agency
Co., Ltd., Beijing Dotad Technology Co., Ltd and Beijing Focus Media
Wireless Co., Ltd.10.54*
    
    Shareholders Voting Rights Proxy Agreement, dated May 22, 2006, by and
among Shanghai Focus
 118




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##### Table of Contents



ExhibitNumber
    
    Description of ExhibitsMedia 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.10.70*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Fuzhou Fukesi Advertising Co., Ltd.
 119




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.71*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Fuzhou Fukesi Advertising Co., Ltd.10.72*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Fuzhou Fukesi Advertising Co.,
Ltd.10.73*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Hefei Fukesi Advertising Co., Ltd.10.74*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Hefei Fukesi Advertising Co., Ltd.10.75*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Hefei Fukesi Advertising Co., Ltd.10.76*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Shanghai On-Target Advertisement Co., Ltd.10.77*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Shanghai On-Target Advertisement Co., Ltd.10.78*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Shanghai On-Target Advertisement
Co., Ltd.10.79*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Shanghai Jiefang Focus Media Advertisement Co., Ltd.10.80*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Shanghai Jiefang Focus Media Advertisement Co., Ltd.10.81*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Shanghai Jiefang Focus Media
Advertisement Co., Ltd.10.82*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Shanghai Perfect Media Advertising Agency Co., Ltd.10.83*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Shanghai Perfect Media Advertising Agency Co., Ltd.10.84*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Shanghai Perfect Media Advertising
Agency Co., Ltd.10.85*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Shenzhen E-Time Commercial Consulting Co., Ltd.10.86*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Shenzhen E-Time Commercial Consulting Co., Ltd.10.87*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Shenzhen E-Time Commercial
Consulting Co., Ltd.10.88*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Shenzhen Bianjie Building Advertisement Co., Ltd.
 120




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.89*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Shenzhen Bianjie Building Advertisement Co., Ltd.10.90*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Shenzhen Bianjie Building
Advertisement Co., Ltd.10.91*
    
    Acknowledgement Letter of Participation of Equity Pledge Agreement, dated
May 22, 2006, of Shenyang Focus Media Advertising Co., Ltd.10.92*
    
    Acknowledgement Letter of Participation of Call Option Agreement, dated
May 22, 2006, of Shenyang Focus Media Advertising Co., Ltd.10.93*
    
    Acknowledgement Letter of Participation of Shareholders Voting Rights
Proxy Agreement, dated May 22, 2006, of Shenyang Focus Media Advertising
Co., Ltd.10.94*
    
    Cooperation Agreement, dated May 22, 2006, by and among Shanghai Focus
Media Advertisement Co. Ltd. and its local advertising subsidiaries named
therein and Shanghai New Focus Media Advertisement Co. Ltd.10.95*
    
    Technology Transfer Agreement, dated as of May 22, 2006, by and between
Focus Media Digital Information Technology (Shanghai) Co., Ltd. and
Shanghai New Focus Media Advertisement Co., Ltd.10.96*
    
    Advertisement Dissemination Agreement, dated May 22, 2006, by and between
Shanghai Focus Media Advertising Agency Co., Ltd. and Shanghai New Focus
Media Advertisement Co., Ltd.10.97*
    
    2006 Share Option Plan.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 as of January 30, 2003, among Shanghai
Allyes Advertisement Co., Ltd., New Allyes Information Technology
(Shanghai) Co., Ltd., Xiangdong Xiong and Jiangang Wang.10.100*
    
    Call Option Agreement, dated as of January 30, 2003, among Jiangang Wang,
New Allyes Information Technology (Shanghai) Co., Ltd. and Shanghai Allyes
Advertisement Co., Ltd.10.101*
    
    Call Option Agreement, dated as of January 30, 2003, among Xiangdong
Xiong, new Allyes Information Technology (Shanghai) Co., Ltd. and Shanghai
Allyes Advertisement Co., Ltd.10.102*
    
    Equity Interests Pledge Agreement, dated as of January 30, 2003, between
New Allyes Information Technology (Shanghai) Co., Ltd. and Jianggang Wang.10.103*
    
    Equity Interests Pledge Agreement, dated as of January 30, 2003, between
New Allyes Information Technology (Shanghai) Co., Ltd. and Xiangdong
Xiong.10.104*
    
    Exclusive Service Agreement, dated as of January 20, 2003, by and among
Shanghai Allyes Advertisement Co., Ltd. and New Allyes Information
Technology (Shanghai) Co., Ltd.10.105*
    
    Loan Agreement, dated as of January 10, 2003, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Jiangang Wang.10.106*
    
    Loan Agreement, dated as of January 10, 2003, by and among New Allyes
Information Technology
 121




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits(Shanghai) Co., Ltd. and Xiangdong Xiong.10.107*
    
    Shareholders Voting Rights Proxy Agreement, dated as of January 30, 2003,
among Xiangdong Xiong, New Allyes Information Technology (Shanghai) Co.,
Ltd. and Shanghai Allyes Advertisement Co., Ltd.10.108*
    
    Call Option Agreement, dated November 1, 2004, 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, 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 as of November 1, 2004, by and among
Shenzhen Baifen Creation Advertisemnet Co., Ltd. and New Allyes
Information Technology (Shanghai) Co., Ltd.10.113*
    
    Loan Agreement, dated as of November 1, 2004, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Jiangang Wang.10.114*
    
    Loan Agreement, dated as of November 1, 2004, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Xiangdong Xiong.10.115*
    
    Shareholders Voting Rights Proxy Agreement, dated as of November 1, 2004,
among Jiangang Wang, New Allyes Information Technology (Shanghai) Co.,
Ltd. and Shenzhen Baifen Creation Advertisement Co., Ltd.10.116*
    
    Shareholders Voting Rights Proxy Agreement, dated as of November 1, 2004,
among Xiangdong Xiong, New Allyes Information Technology (Shanghai) Co.,
Ltd. and Shenzhen Baifen Creation Advertisement Co., Ltd.10.117*
    
    Asset Transfer Agreement, dated November 30, 2004, 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, among Suyang Zhang, New
Allyes Information Technology (Shanghai) Co., Ltd. and Shanghai Huxin
Advertisement Co., Ltd.10.119*
    
    Call Option Agreement, dated November 30, 2004, among Hailong Zhu, New
Allyes 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 Service Agreement, dated as of November 11, 2004, by and among
Shanghai Huxin Advertisement Co., Ltd. and New Allyes Information
Technology (Shanghai) Co., Ltd.10.123*
    
    Loan Agreement, dated as of November 1, 2004, by and among New Allyes
Information Technology
 122




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits(Shanghai) Co., Ltd. and Suyang Zhang.10.124*
    
    Loan Agreement, dated as of November 1, 2004, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Hailong Zhu.10.125*
    
    Shareholders Voting Rights Proxy Agreement, dated as of November 30,
2004, among Suyang Zhang, New Allyes Information Technology (Shanghai)
Co., Ltd. and Shanghai Huxin Advertisement Co., Ltd.10.126*
    
    Shareholders Voting Rights Proxy Agreement, dated as of November 30,
2004, among Hailong Zhu, New Allyes Information Technology (Shanghai) Co.,
Ltd. and Shanghai Huxin Advertisement Co., Ltd.10.127*
    
    Asset Transfer Agreement, dated as of November 30, 2004, 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, 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, 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 as of November 3, 2004, by and among
Shanghai MSN Advertisement Co., Ltd. and New Allyes Information Technology
(Shanghai) Co., Ltd.10.133*
    
    Loan Agreement, dated as of November 1, 2004, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Hailong Zhu.10.134*
    
    Loan Agreement, dated as of November 1, 2004, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Suyang Zhang.10.135*
    
    Shareholders Voting Rights Proxy Agreement, dated as of November 30,
2004, among Suyang Zhang, New Allyes Information Technology (Shanghai)
Co., Ltd. and Shanghai MSN Advertisement Co., Ltd.10.136*
    
    Shareholders Voting Rights Proxy Agreement, dated as of November 30,
2004, among Hailong Zhu, New Allyes Information Technology (Shanghai) Co.,
Ltd. and Shanghai MSN Advertisement Co., Ltd.10.137*
    
    Asset Transfer Agreement, dated as of May 17, 2005, 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, among Hailong Zhu, New Allyes
Information Technology (Shanghai) Co., Ltd. and Shanghai Quanshi
Advertisement Co., Ltd.10.139*
    
    Call Option Agreement, dated May 17, 2005, among Hailong Zhu, New Allyes
Information Technology (Shanghai) Co., Ltd. and Shanghai Quanshi
Advertisement Co., Ltd.
 123




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.140*
    
    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 as of April 20, 2005, by and among
Shanghai Quanshi Advertisement Co., Ltd. and New Allyes Information
Technology (Shanghai) Co., Ltd.10.143*
    
    Loan Agreement, dated as of April 20, 2005, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Suyang Zhang.10.144*
    
    Loan Agreement, dated as of April 20, 2005, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Hailong Zhu.10.145*
    
    Shareholders Voting Rights Proxy Agreement, dated as of May 17, 2005,
among Suyang Zhang, New Allyes Information Technology (Shanghai) Co., Ltd.
and Shanghai Quanshi Advertisement Co., Ltd.10.146*
    
    Shareholders Voting Rights Proxy Agreement, dated as of May 17, 2005,
among Hailong Zhu, New Allyes Information Technology (Shanghai) Co., Ltd.
and Shanghai Quanshi Advertisement Co., Ltd.10.147*
    
    Supplemental Agreement for Loan Agreement, dated as of March 20, 2006, by
and among New Allyes Information Technology (Shanghai) Co., Ltd. and
Suyang Zhang.10.148*
    
    Supplemental Agreement for Loan Agreement, dated as of March 20, 2006, by
and among New Allyes Information Technology (Shanghai) Co., Ltd. and
Hailong Zhu.10.149*
    
    Call Option Agreement, dated July 1, 2006, among Hailong Zhu, New Allyes
Information Technology (Shanghai) Co., Ltd. and Shanghai Kuantong
Advertisement Co., Ltd.10.150*
    
    Call Option Agreement, dated July 1, 2006, among Hailong Zhu, 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 as of July 1, 2006, by and among
Shanghai Kuantong Advertisement Co., Ltd. and New Allyes Information
Technology (Shanghai) Co., Ltd.10.154*
    
    Loan Agreement, dated as of June 20, 2006, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Jiangang Wang.10.155*
    
    Loan Agreement, dated as of June 20, 2006, by and among New Allyes
Information Technology (Shanghai) Co., Ltd. and Suyang Zhang.10.156*
    
    Shareholders Voting Rights Proxy Agreement, dated as of July 1, 2006,
among Jiangang Wang, New Allyes Information Technology (Shanghai) Co.,
Ltd. and Shanghai Kuantong Advertisement Co., Ltd.10.157*
    
    Shareholders Voting Rights Proxy Agreement, dated as of July 1, 2006,
among Suyang Zhang, New Allyes Information Technology (Shanghai) Co., Ltd.
and Shanghai Kuantong Advertisement Co., Ltd.
 124




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibits10.158*
    
    Share Purchase Agreement, dated as of July 21, 2006, among EFT Partners
Limited, Focus Media Holdings Limited, Appreciate Capital Ltd., Zhang
Qingyong and Wang Yongmei.10.159*
    
    Registration Rights Agreement, dated as of March 28, 2007, by and among
Focus Media Holding Limited and Persons who represent certain former
shareholders, warrant holders and options holders of Allyes Information
Technology Compnay Limited.10.160*
    
    Shareholders Voting Rights Proxy Agreement, dated as of January 30, 2003,
among Jiangang Wang, New Allyes Information Technology (Shanghai) Co.,
Ltd. and Shanghai Allyes Advertisement Co., Ltd.10.161
    
    2007 Share Option Plan10.162
    
    Share Purchase Agreement, dated as of December 8, 2007, among Focus Media
Holding Limited, CGEN Digital Media Company Limited and the selling
shareholders and other parties named therein.10.163
    
    Registration Rights Agreement, dated as of January 2, 2008, among Focus
Media Holding Limited and the former shareholders of CGEN Digital Media
Company Limited named therein.10.164
    
    Equity Pledge Agreement, dated as of January 5, 2008, among Shanghai Focus
Media Advertisement Co., Ltd, Shanghai Focus Media Advertising Agency Co.,
Ltd., CGEN Digital Technology (Shanghai) Company Ltd. And Shanghai CGEN
Culture Communication Company Ltd.10.165
    
    Call Option Agreement, dated as of January 5, 2008, among Shanghai Focus
Media Advertisement Co., Ltd, Shanghai Focus Media Advertising Agency Co.,
Ltd., CGEN Digital Technology (Shanghai) Company Ltd. And Shanghai CGEN
Culture Communication Company Ltd10.166
    
    Shareholders Voting Rights Proxy Agreement, dated as of January 5, 2008,
among Shanghai Focus Media Advertisement Co., Ltd, Shanghai Focus Media
Advertising Agency Co., Ltd., CGEN Digital Technology (Shanghai) Company
Ltd. And Shanghai CGEN Culture Communication Company Ltd10.167
    
    Exclusive Technology and Consulting Agreement, dated as of January 16,
2006, among CGEN Digital Technology (Shanghai) Company Ltd. And Shanghai
CGEN Culture Communication Company Ltd12.1
    
    Certificate of Chief Executive Officer.12.2
    
    Certificate of Chief Financial Officer.13.1
    
    Certification of Periodic Financial Report.13.2
    
    Certification of Periodic Financial Report.15.1
    
    Consent of Conyers, Dill & Pearman.15.2
    
    Consent of Global Law Office.21.1
    
    List of Subsidiaries.
 
 *
    
    Previously filed. 125




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##### Table of Contents



SIGNATURES
  Focus Media Holding LimitedBy:
    /s/ Jason Nanchun JiangName:
    Jason Nanchun JiangTitle:
    Executive Chairman  By:
    /s/ Zhi TanName:
    Zhi TanTitle:
    Chief Executive Officer  126




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
 PagesReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated
Balance Sheets as of December 31, 2005, 2006 and 2007
    
    
    F-3Consolidated
Statements of Operations for the Years Ended December 31, 2005, 2006 and 2007
    
    
    F-4Consolidated
Statements of Shareholders Equity and Comprehensive Income
for the Years Ended December 31,2005, 2006 and 2007
    
    
    F-5Consolidated
Statements of Cash Flows for the Years Ended December 31, 2005, 2006 and 2007
    
    
    F-6Notes
to the Consolidated Financial Statements
    
    
    F-7
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
          F-2




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2006
    
    
    2007(In U.S. Dollars, except share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    36,653,180
    
    
    $
    164,610,942
    
    
    $
    450,416,381Investment in debt and equity securities
    
    
    34,835,850
    
    
    
    
    
    
    
    90,145,360Accounts receivable, net of allowance for
doubtful accounts of $396,657, $1,308,554 and
$5,310,835 in 2005, 2006 and 2007,
respectively
    
    
    21,188,531
    
    
    
    61,614,343
    
    
    
    206,102,130Inventories
    
    
    479,529
    
    
    
    519,095
    
    
    
    1,654,451Prepaid expenses and other current assets
    
    
    4,444,303
    
    
    
    5,199,355
    
    
    
    58,884,992Deposits paid for acquisition of subsidiaries
    
    
    40,919,530
    
    
    
    3,526,370
    
    
    
    40,401,852Amounts due from related parties
    
    
    3,120,206
    
    
    
    7,852,789
    
    
    
    5,091,529Rental deposits
    
    
    
    
    
    
    
    
    
    
    28,762,699Total current assets
    
    
    141,641,129
    
    
    
    243,322,894
    
    
    
    881,459,394Rental deposits
    
    
    11,819,095
    
    
    
    11,833,290
    
    
    
    5,301,990Equipment, net
    
    
    43,694,888
    
    
    
    70,249,324
    
    
    
    95,478,326Acquired intangible assets, net
    
    
    1,157,920
    
    
    
    34,717,019
    
    
    
    155,717,055Goodwill
    
    
    13,298,072
    
    
    
    739,743,871
    
    
    
    943,398,282Other long-term assets
    
    
    742,914
    
    
    
    6,375,682
    
    
    
    58,182,855Total assets
    
    $
    212,354,018
    
    
    $
    1,106,242,080
    
    
    $
    2,139,537,902Liabilities and shareholders equityCurrent liabilities:Short-term loans
    
    $
    991,301
    
    
    $
    2,769,459
    
    
    $
    Accounts payable
    
    
    5,847,530
    
    
    
    5,987,593
    
    
    
    50,378,576Accrued expenses and other current liabilities
    
    
    11,746,902
    
    
    
    38,674,175
    
    
    
    190,312,946Income taxes payable
    
    
    2,108,071
    
    
    
    4,060,170
    
    
    
    21,391,295Amount due to related parties
    
    
    
    
    
    
    345,768
    
    
    
    12,977,136Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    1,226,999Total current liabilities
    
    
    20,693,804
    
    
    
    51,837,165
    
    
    
    276,286,952Deferred tax liabilities
    
    
    
    
    
    
    3,303,110
    
    
    
    6,393,505Total liabilities
    
    $
    20,693,804
    
    
    $
    55,140,275
    
    
    $
    282,680,457Commitments and contingencies (Note 17)Minority interest
    
    
    245,563
    
    
    
    357,814
    
    
    
    1,913,248Shareholders equityOrdinary shares ($0.00005 par value; 19,800,000, 19,800,000,000 and
19,800,000,000 shares authorized in 2005, 2006 and 2007; 378,306,000,
534,896,873 and 640,230,852 shares issued and outstanding in 2005, 2006
and 2007, respectively)
    
    
    18,916
    
    
    
    26,745
    
    
    
    32,020Additional paid-in capital
    
    
    177,419,761
    
    
    
    709,196,246
    
    
    
    1,581,579,792Acquisition consideration to be issued
    
    
    
    
    
    
    237,879,480
    
    
    
    Deferred share-based compensation
    
    
    (246,569
    )
    
    
    
    
    
    
    Retained earnings
    
    
    12,997,237
    
    
    
    96,194,969
    
    
    
    236,718,179Accumulated other comprehensive income
    
    
    1,225,306
    
    
    
    7,446,551
    
    
    
    36,614,206Total shareholders equity
    
    $
    191,414,651
    
    
    $
    1,050,743,991
    
    
    $
    1,854,944,197Total liabilities and shareholders equity
    
    $
    212,354,018
    
    
    $
    1,106,242,080
    
    
    $
    2,139,537,902
  F-3




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the years ended December 31,2005
    
    
    2006
    
    
    2007(In U.S. Dollars, except share data)Net revenues:Advertising Service Revenue
    
    $
    66,903,679
    
    
    $
    209,973,935
    
    
    $
    505,445,386Other Revenue
    
    
    1,325,234
    
    
    
    1,931,530
    
    
    
    1,114,384Total net revenues
    
    
    68,228,913
    
    
    
    211,905,465
    
    
    
    506,559,770Cost of revenues:Advertising Service Cost
    
    
    25,748,318
    
    
    
    80,615,408
    
    
    
    247,644,672Other Cost
    
    
    975,747
    
    
    
    764,959
    
    
    
    797,717Total cost of revenues
    
    
    26,724,065
    
    
    
    81,380,367
    
    
    
    248,442,389Gross profit
    
    
    41,504,848
    
    
    
    130,525,098
    
    
    
    258,117,381Operating expenses:General and administrative
    
    
    9,119,846
    
    
    
    25,723,413
    
    
    
    49,455,529Selling and marketing
    
    
    9,599,226
    
    
    
    25,761,948
    
    
    
    69,932,201Other operating income
    
    
    
    
    
    
    (1,338,334
    )
    
    
    (5,125,052
    )Total operating expenses
    
    
    18,719,072
    
    
    
    50,147,027
    
    
    
    114,262,678Income from operations
    
    
    22,785,776
    
    
    
    80,378,071
    
    
    
    143,854,703Interest income
    
    
    1,811,782
    
    
    
    4,560,798
    
    
    
    9,777,655Interest expense
    
    
    (49,873
    )
    
    
    (305,287
    )
    
    
    (25,269
    )Other income
    
    
    70,471
    
    
    
    271,451
    
    
    
    3,948,028Other expense
    
    
    (231,619
    )
    
    
    (558,990
    )
    
    
    (1,379,633
    )Income before income taxes and minority interest
    
    
    24,386,537
    
    
    
    84,346,043
    
    
    
    156,175,484Income taxes:
    
    
    694,453
    
    
    
    1,043,538
    
    
    
    11,045,565Net income after income taxes before minority interest
    
    
    23,692,084
    
    
    
    83,302,505
    
    
    
    145,129,919Minority interest
    
    
    (144,433
    )
    
    
    (104,773
    )
    
    
    (694,370
    )Net income attributable to holders of ordinary shares
    
    $
    23,547,651
    
    
    $
    83,197,732
    
    
    $
    144,435,549Income per share  basic
    
    $
    0.09
    
    
    $
    0.16
    
    
    $
    0.24Income per share  diluted
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.24Shares used in calculating basic income per share
    
    
    252,128,545
    
    
    
    505,411,079
    
    
    
    590,387,396Shares used in calculating diluted income per share
    
    
    365,938,094
    
    
    
    521,536,381
    
    
    
    608,326,450
  F-4




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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, 2005
    
    
    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
    
    
    $
    24,814,063Issuance of ordinary shares upon
follow-on offering on January 27,
2006, 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
    
    
    
    Realized
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
    
    
    $
    89,418,977Issuance of ordinary shares upon
follow-on offering on January 25,
2007, net of issuance cost
of $672,289
    
    
    15,000,000
    
    
    
    750
    
    
    
    114,869,653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,870,403
    
    
    
    Issuance of ordinary shares upon
follow-on offering on November 7,
2007, net of issuance cost
of $1,463,191
    
    
    25,000,000
    
    
    
    1,250
    
    
    
    312,573,058
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312,574,308
    
    
    
    Issuance of ordinary shares in
connection with acquisitions
    
    
    57,299,699
    
    
    
    2,865
    
    
    
    166,047,247
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,050,112
    
    
    
    Issuance of ordinary shares in
connection with share option plans
    
    
    8,034,280
    
    
    
    410
    
    
    
    19,559,810
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,560,220
    
    
    
    Adjustment upon adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,912,339
    )
    
    
    
    
    
    
    (3,912,339
    )
    
    
    Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    21,454,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,454,298
    
    
    
    Unrealized gain on equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,967,393
    
    
    
    1,967,393
    
    
    
    1,967,393Cumulative translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,200,262
    
    
    
    27,200,262
    
    
    
    27,200,262Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144,435,549
    
    
    
    
    
    
    
    144,435,549
    
    
    
    144,435,549Balance at December 31, 2007
    
    
    640,230,852
    
    
    $
    32,020
    
    
    $
    1,581,579,792
    
    
    $
    
    
    
    $
    236,718,179
    
    
    $
    36,614,206
    
    
    $
    1,854,944,197
    
    
    $
    173,603,204
  F-5




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year ended December 31,2005
    
    
    2006
    
    
    2007(In U.S. dollars)Operating activities:Net income attributable to holders of ordinary shares
    
    
    23,547,651
    
    
    
    83,197,732
    
    
    
    144,435,549Adjustments to reconcile net income to net cash provided by operating
activities:Minority interest
    
    
    144,433
    
    
    
    104,773
    
    
    
    694,370Bad debt provision
    
    
    235,604
    
    
    
    1,844,605
    
    
    
    3,655,448Share-based compensation
    
    
    726,503
    
    
    
    8,367,406
    
    
    
    21,454,298Loss on disposal of equipment
    
    
    
    
    
    
    
    
    
    
    3,674,886Depreciation and amortization
    
    
    4,927,016
    
    
    
    19,511,552
    
    
    
    44,197,504Changes in assets and liabilities, net of effects of acquisitions:Accounts receivable, net
    
    
    (14,710,176
    )
    
    
    (22,289,344
    )
    
    
    (92,171,199
    )Inventories
    
    
    (408,223
    )
    
    
    23,334
    
    
    
    (1,113,692
    )Prepaid expenses and other current assets
    
    
    (2,347,426
    )
    
    
    7,857,172
    
    
    
    (904,345
    )Amounts due from related parties
    
    
    (380,174
    )
    
    
    (4,732,583
    )
    
    
    (5,762,593
    )Rental deposits
    
    
    (10,076,230
    )
    
    
    3,104,667
    
    
    
    (22,231,398
    )Accounts payable
    
    
    5,007,564
    
    
    
    (3,174,405
    )
    
    
    11,670,114Accrued expenses and other current liabilities
    
    
    3,950,903
    
    
    
    (1,673,496
    )
    
    
    37,678,359Amounts due to related parties
    
    
    
    
    
    
    
    
    
    
    12,631,368Income tax payable
    
    
    672,585
    
    
    
    1,276,252
    
    
    
    10,033,244Deferred taxes
    
    
    (20,664
    )
    
    
    (63,383
    )
    
    
    (982,272
    )Net cash provided by operating activities
    
    $
    11,269,366
    
    
    $
    93,354,282
    
    
    $
    166,959,641Investing activities:Purchase of equipment and other long-term assets
    
    $
    (36,765,294
    )
    
    $
    (22,878,254
    )
    
    $
    (59,450,942
    )Acquisition of intangible assets
    
    
    
    
    
    
    (6,403,114
    )
    
    
    (105,049
    )Purchase of subsidiaries, net of cash acquired
    
    
    (4,982,523
    )
    
    
    (124,062,515
    )
    
    
    (81,779,531
    )Deposit paid to acquire subsidiaries
    
    
    (40,919,530
    )
    
    
    (3,710,369
    )
    
    
    (83,367,278
    )Disposal of an equity investment
    
    
    
    
    
    
    60,005
    
    
    
    Cash paid for purchases of debt and equity securities
    
    
    (35,000,000
    )
    
    
    
    
    
    
    (88,177,967
    )Cash received from sale of debt and equity securities
    
    
    
    
    
    
    35,000,000
    
    
    
    Issuance of loan receivables
    
    
    
    
    
    
    
    
    
    
    (30,000,000
    )Net cash used in investing activities
    
    $
    (117,667,347
    )
    
    $
    (121,994,247
    )
    
    $
    (342,880,767
    )Financing activities:Proceeds from issuance of ordinary shares, net of issuance costs of
$13,703,370, $6,207,107 and $2,135,480 in 2005, 2006 and 2007, respectively
    
    $
    118,174,130
    
    
    $
    142,750,893
    
    
    $
    427,444,711Proceeds from issuance of ordinary shares pursuant to share option plans
    
    
    
    
    
    
    15,247,561
    
    
    
    19,560,220Proceeds from short-term loans
    
    
    991,301
    
    
    
    24,598,037
    
    
    
    Repayment of short-term loans
    
    
    
    
    
    
    (29,402,066
    )
    
    
    (4,165,716
    )Capital injection from minority shareholders
    
    
    3,089
    
    
    
    326,307
    
    
    
    136,914Net cash provided by financing activities
    
    $
    119,168,520
    
    
    $
    153,520,732
    
    
    $
    442,976,129Effect of exchange rate changes
    
    
    1,213,535
    
    
    
    3,076,995
    
    
    
    18,750,436Net increase in cash and cash equivalents
    
    $
    13,984,074
    
    
    $
    127,957,762
    
    
    $
    285,805,439Cash and cash equivalents, beginning of year
    
    
    22,669,106
    
    
    
    36,653,180
    
    
    
    164,610,942Cash and cash equivalents, end of year
    
    $
    36,653,180
    
    
    $
    164,610,942
    
    
    $
    450,416,381Supplemental disclosure of cash flow informationIncome taxes paid
    
    $
    94,391
    
    
    $
    153,526
    
    
    $
    1,247,277Interest paid
    
    $
    11,581
    
    
    $
    244,702
    
    
    $
    13,897SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIESNon-cash investing activities:Acquisition of subsidiaries:Value of ordinary shares issued
    
    $
    
    
    
    $
    365,665,023
    
    
    $
    166,047,247Ordinary share consideration to be issued
    
    $
    
    
    
    $
    237,879,480
    
    
    $
    Accounts payable
    
    $
    99,130
    
    
    $
    4,530,745
    
    
    $
    17,873,584Liabilities recorded as a result of contingent consideration
    
    $
    
    
    
    $
    379,436
    
    
    $
    72,902,515
  F-6




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 1. Organization and Principal Activities
      F-7




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(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) Investment in Available-for-sale Debt and Equity Securities
  (f) Inventory
  (g) 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
  F-8




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 (h) Acquired
Intangible Assets, net
  (i) Impairment of Long-Lived Assets
  (j) Goodwill
   Out-of-Home
    
    
    In -elevator
    
    
    MobileTelevision
    
    
    Poster-frame
    
    
    Handset
    
    
    InternetAdvertising
    
    
    Advertising
    
    
    Advertising
    
    
    AdvertisingServices
    
    
    Services
    
    
    Services
    
    
    Services
    
    
    TotalBalance as of January 1, 2005
    
    $
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,998Balance as of December 31, 2005
    
    $
    13,298,072
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,298,072Goodwill acquired during the year
    
    
    380,109,233
    
    
    
    99,683,161
    
    
    
    8,444,464
    
    
    
    
    
    
    
    488,236,858Goodwill 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
    
    
    $
    
    
    
    $
    739,743,871Goodwill acquired during the year
    
    
    144,189
    
    
    
    129,395
    
    
    
    22,745,267
    
    
    
    166,646,082
    
    
    
    189,664,933Modification of preliminary purchase price allocation
    
    
    1,067,825
    
    
    
    (371,912
    )
    
    
    44,835
    
    
    
    
    
    
    
    740,748Goodwill recorded as a result of contingent
consideration resolved
    
    
    783,653
    
    
    
    
    
    
    
    11,769,000
    
    
    
    
    
    
    
    12,552,653Translation adjustments
    
    
    696,077
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    696,077Balance as of December 31, 2007
    
    $
    396,428,510
    
    
    $
    337,320,124
    
    
    $
    43,003,566
    
    
    $
    166,646,082
    
    
    $
    943,398,282
 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, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 (k) Revenue Recognition
         F-10




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##### Table of Contents



For the years ended December 31,2005
    
    
    2006
    
    
    2007(In U.S. dollars, except per share data)Advertising Service Revenue, Net of Agency rebatesCommercial Locations Unrelated parties
    
    $
    59,434,823
    
    
    $
    130,474,324
    
    
    $
    238,117,687 Related parties
    
    
    7,991,434
    
    
    
    15,227,937
    
    
    
    2,468,526Total Commercial Locations
    
    
    67,426,257
    
    
    
    145,702,261
    
    
    
    240,586,213In-store Network Unrelated parties
    
    
    5,475,192
    
    
    
    25,330,654
    
    
    
    28,986,724 Related parties
    
    
    517,998
    
    
    
    4,380,287
    
    
    
    1,300,982Total in-store network
    
    
    5,993,190
    
    
    
    29,710,941
    
    
    
    30,287,706In-elevator poster frame Unrelated parties
    
    
    
    
    
    
    44,893,004
    
    
    
    93,157,536 Related parties
    
    
    
    
    
    
    
    
    
    
    243,628Total In-elevator poster frame
    
    
    
    
    
    
    44,893,004
    
    
    
    93,401,164Mobile handset advertising Unrelated parties
    
    
    
    
    
    
    10,880,075
    
    
    
    48,407,413 Related parties
    
    
    
    
    
    
    
    
    
    
    114,427Total mobile handset advertising
    
    
    
    
    
    
    10,880,075
    
    
    
    48,521,840Internet advertising Unrelated parties
    
    
    
    
    
    
    
    
    
    
    128,831,164 Related parties
    
    
    
    
    
    
    
    
    
    
    1,139,536Total internet advertising
    
    
    
    
    
    
    
    
    
    
    129,970,700Advertising Services Revenue:
    
    $
    73,419,447
    
    
    $
    231,186,281
    
    
    $
    542,767,623Less: Sales taxes:Commercial Locations
    
    $
    5,991,497
    
    
    $
    13,641,118
    
    
    $
    19,905,100In-store Network
    
    
    524,271
    
    
    
    2,803,349
    
    
    
    2,843,367In-elevator poster frame
    
    
    
    
    
    
    3,988,769
    
    
    
    7,929,207Mobile handset advertising
    
    
    
    
    
    
    779,110
    
    
    
    1,612,832Internet advertising
    
    
    
    
    
    
    
    
    
    
    5,031,731Total sales taxes
    
    $
    6,515,768
    
    
    $
    21,212,346
    
    
    $
    37,322,237Net Advertising Service Revenue
    
    
    66,903,679
    
    
    
    209,973,935
    
    
    
    505,445,386Add: Other Revenue:
    
    
    1,325,234
    
    
    
    1,931,530
    
    
    
    1,114,384Net revenues:
    
    $
    68,228,913
    
    
    $
    211,905,465
    
    
    $
    506,559,770
 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, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 (l) Operating Leases
  (m) Advertising Costs
  (n) Foreign Currency Translation
    (o) Income Taxes
   (p) Comprehensive Income
  (q) Fair Value of Financial Instruments
  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, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 (r) Share-based Compensation
  Periods prior to the adoption of SFAS 123-R
   Year endedDecember 31, 2005Net income, as reported
    
    $
    23,547,651Add: Share-based compensation as reported
    
    
    726,503Less: Share-based compensation determined using the fair value method
    
    
    (3,225,668
    )Pro forma net income attributable to holders of ordinary shareholders
    
    $
    21,048,486Basic income per share:As reported
    
    $
    0.09Pro forma
    
    $
    0.08Diluted income per share:As reported
    
    $
    0.06Pro forma
    
    $
    0.06
   2005
    
    
    2006
    
    
    2007Cost of sales
    
    $
    
    
    
    $
    146,942
    
    
    $
    980,488General and administrative
    
    
    683,186
    
    
    
    6,130,076
    
    
    
    11,307,664Selling and marketing
    
    
    43,317
    
    
    
    2,090,388
    
    
    
    9,166,146
 (s) Income per Share
  F-13




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 (t) Recently Issued Accounting Standards
     F-14




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 3. Acquisitions
 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:
   Cash consideration
    
    $
    39,600,000Other acquisition costs
    
    
    311,110Value of the ordinary shares issued
    
    
    54,690,130Value of the ordinary shares issued as a result of contingent consideration resolved
    
    
    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 yearContract backlog
    
    
    70,120
    
    
    1 yearGoodwill
    
    
    328,504,941
    
    
    
    N/ATotal
    
    $
    332,480,720
  F-15




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(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 yearGoodwill
    
    
    376,861,122
    
    
    
    N/ATotal
    
    $
    407,321,524
        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, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
   2007 Acquisitions:
   Cash consideration
    
    $
    70,000,000Other acquisition costs
    
    
    417,362Value of the ordinary shares issued
    
    
    154,281,112Total consideration
    
    $
    224,698,474
  AmortizationperiodNet tangible liabilities assumed
    
    $
    21,912,649Intangible assetsCustomer base
    
    
    10,261,307
    
    
    7 yearsTrademark
    
    
    8,147,061
    
    
    
    N/ANon-compete agreement
    
    
    1,665,072
    
    
    4 yearsCompleted technologies
    
    
    11,847,121
    
    
    6 yearsSmart-trade platform
    
    
    3,721,393
    
    
    7 yearsContract backlog
    
    
    497,789
    
    
    1 yearGoodwill
    
    
    166,646,082
    
    
    
    N/ATotal
    
    $
    224,698,474
    F-17




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
     Pro forma (unaudited)
  Pro formaYear ended December 31,2005
    
    
    2006
    
    
    2007(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    113,750,432
    
    
    $
    264,014,401
    
    
    $
    517,148,361Net income (loss) attributable to holders of ordinary shares
    
    
    3,127,583
    
    
    
    69,471,318
    
    
    
    140,098,285Income (loss) per share  basic
    
    $
    0.01
    
    
    $
    0.13
    
    
    $
    0.24Income (loss) per share  diluted
    
    $
    0.01
    
    
    $
    0.13
    
    
    $
    0.23
 4. Investment in Debt and Equity Securities
  December 31,2005
    
    
    2006
    
    
    2007Debt and Equity Securities
    
    $
    35,000,000
    
    
    $
    
    
    
    $
    88,177,967Gross unrealized gain (loss)
    
    
    (164,150
    )
    
    
    
    
    
    
    1,967,393Fair Value
    
    $
    34,835,850
    
    
    $
    
    
    
    $
    90,145,360
 F-18




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 5.
Accounts Receivable, Net
  December 31,2005
    
    
    2006
    
    
    2007Billed receivables
    
    $
    13,684,419
    
    
    $
    37,922,093
    
    
    $
    167,443,428Unbilled receivables
    
    
    7,504,112
    
    
    
    23,692,250
    
    
    
    38,658,702Total
    
    $
    21,188,531
    
    
    $
    61,614,343
    
    
    $
    206,102,130
  6. Acquired Intangible Assets, Net
  December 31,2005
    
    
    2006
    
    
    2007Cost:Operation and broadcasting rights
    
    $
    
    
    
    $
    6,403,114
    
    
    $
    9,251,020Lease agreements
    
    
    1,249,843
    
    
    
    16,336,586
    
    
    
    69,366,199Customer bases
    
    
    430,879
    
    
    
    7,827,587
    
    
    
    52,943,013Trademark
    
    
    
    
    
    
    6,861,065
    
    
    
    18,555,020Acquired technology
    
    
    
    
    
    
    2,546,519
    
    
    
    21,229,362Others
    
    
    
    
    
    
    1,177,276
    
    
    
    16,701,599Total
    
    $
    1,680,722
    
    
    $
    41,152,147
    
    
    $
    188,046,213Accumulated amortization:Operation and broadcasting rights
    
    $
    
    
    
    $
    80,039
    
    
    $
    850,263Lease agreements
    
    
    447,578
    
    
    
    3,015,639
    
    
    
    12,866,124Customer bases
    
    
    75,224
    
    
    
    1,051,403
    
    
    
    8,280,127Trademark
    
    
    
    
    
    
    1,462,163
    
    
    
    2,192,685Acquired technology
    
    
    
    
    
    
    381,978
    
    
    
    3,710,502Others
    
    
    
    
    
    
    443,906
    
    
    
    4,429,457Total
    
    $
    522,802
    
    
    $
    6,435,128
    
    
    $
    32,329,158Intangible assets, net:
    
    $
    1,157,920
    
    
    $
    34,717,019
    
    
    $
    155,717,055
  December 31,2005
    
    
    2006
    
    
    2007Cost of revenues
    
    $
    382,359
    
    
    $
    3,207,079
    
    
    $
    16,113,970Selling and marketing
    
    
    55,478
    
    
    
    2,567,002
    
    
    
    8,639,094Total
    
    $
    437,837
    
    
    $
    5,774,081
    
    
    $
    24,753,064
  F-19




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 7. Equipment, Net
  December 31,2005
    
    
    2006
    
    
    2007Media display equipment
    
    $
    40,191,968
    
    
    $
    77,088,464
    
    
    $
    103,036,365Computers and office equipment
    
    
    1,267,696
    
    
    
    3,360,590
    
    
    
    8,674,466Leasehold improvements
    
    
    537,130
    
    
    
    713,524
    
    
    
    948,828Vehicles
    
    
    349,575
    
    
    
    658,825
    
    
    
    1,259,605Total
    
    $
    42,346,369
    
    
    $
    81,821,403
    
    
    $
    113,919,264Less: accumulated depreciation and amortization
    
    
    (5,975,119
    )
    
    
    (22,767,910
    )
    
    
    (43,339,838
    )Net book value
    
    
    36,371,250
    
    
    
    59,053,493
    
    
    
    70,579,426Assembly in progress
    
    
    7,323,638
    
    
    
    11,195,831
    
    
    
    24,898,900Total
    
    $
    43,694,888
    
    
    $
    70,249,324
    
    
    $
    95,478,326
   8. Short-term Loans
 December 31,2005
    
    
    2006
    
    
    2007Short-term bank loan (a)
    
    $
    991,301
    
    
    $
    
    
    
    $
    Other loan due to ex-shareholders of Framedia (b)
    
    
    
    
    
    
    2,769,459
    
    
    
    Total
    
    $
    991,301
    
    
    $
    2,769,459
    
    
    $
    
 
 (a)
    
    The Group had $991,301, $nil and $nil outstanding under line of credit
arrangement as of December 31, 2005, 2006 and 2007, respectively. The amount
available for additional borrowings under this line of credit at December 31,
2005, 2006 and 2007 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 2005, 2006 and 2007 of
$49,873, $305,287 and $25,269 respectively.(b)
    
    At December 31, 2006, the short-term loans from ex-shareholders of
Framedia are non-interest bearing, all of which are repayable within one year. 9. Accrued Expenses and Other Current Liabilities
  December 31,2005
    
    
    2006
    
    
    2007Accrued sales commissions
    
    $
    2,583,270
    
    
    $
    5,813,761
    
    
    $
    15,631,196Other accrued expenses
    
    
    577,863
    
    
    
    1,844,781
    
    
    
    4,859,205Other taxes payables
    
    
    3,037,443
    
    
    
    7,451,787
    
    
    
    15,870,893Advance from customers
    
    
    3,387,224
    
    
    
    6,381,032
    
    
    
    31,049,894Accrued employee payroll and welfare
    
    
    1,059,717
    
    
    
    1,465,142
    
    
    
    6,145,823Payables and other liabilities related to acquisitions
    
    
    99,130
    
    
    
    4,530,745
    
    
    
    90,214,133Amount due to ex- shareholders of subsidiary
    
    
    200,848
    
    
    
    
    
    
    
    4,207,387Withholding individual PRC income tax
    
    
    
    
    
    
    9,046,576
    
    
    
    15,092,588Others
    
    
    801,407
    
    
    
    2,140,351
    
    
    
    7,241,827Total
    
    $
    11,746,902
    
    
    $
    38,674,175
    
    
    $
    190,312,946
 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, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 10. Share-based Compensation
    2005
    
    
    2006
    
    
    2007Option granted to employees:Average risk-free rate of return
    
    
    3.10  4.43
    %
    
    
    4.74%  4.80
    %
    
    
    4.02%  4.68
    %Weighted average expected option life
    
    2-3 years
    
    
    2 years
    
    
    2 yearsVolatility rate
    
    
    30.49%  36.2
    %
    
    
    40.0  53.7
    %
    
    
    50.61%  53.05
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    Weighted
    
    
    Weighted
    
    
    remaining
    
    
    AggregateNumber
    
    
    average
    
    
    contract term
    
    
    intrinsicof shares
    
    
    exercise price
    
    
    (in years)
    
    
    valueOptions outstanding at January 1, 2007
    
    
    37,515,150
    
    
    $
    2.97Granted
    
    
    10,892,685
    
    
    $
    10.92Forfeited
    
    
    (483,500
    )
    
    $
    5.72Exercised
    
    
    (8,034,280
    )
    
    $
    2.46Options outstanding at December 31, 2007
    
    
    39,890,055
    
    
    $
    5.21
    
    
    8.35 years
    
    
    $
    245,913,534Options
vested or expected to vest at
December 31, 2007
    
    
    37,857,177
    
    
    $
    5.03
    
    
    8.30 years
    
    
    $
    240,274,250Options exercisable at December 31, 2007
    
    
    16,261,178
    
    
    $
    1.94
    
    
    7.40 years
    
    
    $
    153,291,942
 F-21




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
   11. Income Taxes
 Cayman Islands
  British Virgin Islands
  Hong Kong
  PRC
      Balance at
January 1, 2007
    
    
    3,912,340Additions based on tax position related to the current year
    
    
    4,234,066Translation adjustment
    
    
    86,307Balance at December 31, 2007
    
    
    8,232,713
  Composition of income tax expense
  2005
    
    
    2006
    
    
    2007Current income tax expense
    
    $
    715,117
    
    
    $
    1,106,921
    
    
    $
    11,764,813Deferred income tax expense (benefit)
    
    
    (20,664
    )
    
    
    (63,383
    )
    
    
    (719,248
    )Income tax expense
    
    $
    694,453
    
    
    $
    1,043,538
    
    
    $
    11,045,565
 F-22




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Reconciliation of the differences between statutory tax rate and the effective tax
rate
  Years ended December 31,2005
    
    2006
    
    2007Statutory rate
    
    
    33.0
    %
    
    
    33.0
    %
    
    
    33.0
    %Effect of different tax rate of group entities
operating in other jurisdiction
    
    
    0.0
    %
    
    
    2.4
    %
    
    
    5.2
    %Effect of different tax rates applicable to
the subsidiaries and VIEs
    
    
    0.1
    %
    
    
    3.5
    %
    
    
    -0.7
    %Effect of FIN48 unrecognized tax benefits
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    2.6
    %Effect of tax holiday
    
    
    -31.6
    %
    
    
    -39.1
    %
    
    
    -37.4
    %Effect of non-deductible expenses
    
    
    1.1
    %
    
    
    2.2
    %
    
    
    2.9
    %Change in valuation allowance
    
    
    0.2
    %
    
    
    -0.7
    %
    
    
    1.4
    %Effective tax rate
    
    
    2.8
    %
    
    
    1.3
    %
    
    
    7.0
    %
  Years ended December 31,2005
    
    
    2006
    
    
    2007Tax holiday effect
    
    $
    23,212,976
    
    
    $
    99,641,998
    
    
    $
    178,521,625Net income per share effect  basic
    
    $
    0.09
    
    
    $
    0.20
    
    
    $
    0.30Net income per share effect  diluted
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.29
  December 31,2005
    
    
    2006
    
    
    2007Deferred tax assets:Net operating loss carry forwards
    
    $
    545,208
    
    
    $
    2,317,316
    
    
    $
    5,076,326Accrued expenses temporarily non-deductible
    
    
    46,695
    
    
    
    242,106
    
    
    
    206,670Pre-operating expenses
    
    
    80,102
    
    
    
    
    
    
    
    Bad debt provision
    
    
    130,897
    
    
    
    704,429
    
    
    
    1,472,981Total deferred tax assets
    
    $
    802,902
    
    
    $
    3,263,851
    
    
    $
    6,755,977Valuation allowance on deferred tax assets
    
    
    (59,988
    )
    
    
    (2,438,008
    )
    
    
    (5,615,737
    )Net deferred tax assets
    
    $
    742,914
    
    
    $
    825,843
    
    
    $
    1,140,240Deferred tax liabilities:Intangible asset basis difference
    
    $
    
    
    
    $
    3,303,110
    
    
    $
    7,620,504Total deferred tax liabilities
    
    $
    
    
    
    $
    3,303,110
    
    
    $
    7,620,504
    F-23




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 12. Net income per Share
  Years ended December 31,2005
    
    2006
    
    2007Income attributable to holders of ordinary shares (numerator):
    
    $
    23,547,651
    
    
    $
    83,197,732
    
    
    $
    144,435,549Shares (denominator):Weighted average ordinary shares outstanding used
in computing basic income per share
    
    
    252,128,545
    
    
    
    505,411,079
    
    
    
    590,387,396Plus 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
    
    
    
    16,125,302
    
    
    
    17,939,054Weighted average ordinary shares outstanding used
in computing diluted income per share
    
    
    365,938,094
    
    
    
    521,536,381
    
    
    
    608,326,450Net income per share  basic
    
    $
    0.09
    
    
    $
    0.16
    
    
    $
    0.24Net income per share  diluted
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.24
  Years ended December 31,2005
    
    2006
    
    2007Outstanding options to purchase ordinary shares
    
    
    49,051,830
    
    
    
    37,515,150
    
    
    
    39,890,055
 13. Ordinary Shares
            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, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
    14. Mainland China Contribution Plan and Profit Appropriation
   15.
Commitments and Contingencies
 {a}Leases commitments
   For the year endedDecember 31,2008
    
    $
    102,055,9842009
    
    
    59,026,1762010
    
    
    25,497,4102011
    
    
    11,560,5112012 and thereafter
    
    
    9,212,178Total
    
    $
    207,352,259
 {b} Legal proceedings
  
    
    On November 27, 2007, Eastriver Partners, Inc. filed a purported class
action lawsuit in the United States District Court for the Southern District
of New York against the Group and the underwriters of the Groups
offering filed in November 2007.
    
    On December 21, 2007, Scott Bauer filed a purported class action lawsuit
in the United States District Court for the Southern District of New York
against the Group, certain of the Groups officers and directors, and the
underwriters of the Groups offering filed in November 2007.
  16. Segment Information
   F-25




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
   In-elevator
    
    
    MobileOut-of-home
    
    
    poster frame
    
    
    handset
    
    
    Internetadvertising
    
    
    advertising
    
    
    advertising
    
    
    advertisingservices
    
    
    services
    
    
    services
    
    
    services
    
    
    Eliminations
    
    
    TotalNet revenue  external
    
    $
    249,239,836
    
    
    $
    85,471,957
    
    
    $
    46,909,008
    
    
    $
    124,938,969
    
    
    
    
    
    
    $
    506,559,770Net revenue  intersegment
    
    
    741,764
    
    
    
    770,168
    
    
    
    
    
    
    
    
    
    
    
    (1,511,932
    )
    
    
    Total net revenues
    
    
    249,981,600
    
    
    
    86,242,125
    
    
    
    46,909,008
    
    
    
    124,938,969
    
    
    
    (1,511,932
    )
    
    
    506,559,770Cost of revenue  external
    
    
    103,925,053
    
    
    
    28,086,215
    
    
    
    23,193,873
    
    
    
    93,237,248
    
    
    
    
    
    
    
    248,442,389Cost of revenue  intersegment
    
    
    770,168
    
    
    
    
    
    
    
    
    
    
    
    741,764
    
    
    
    (1,511,932
    )
    
    
    Total cost of revenues
    
    
    104,695,221
    
    
    
    28,086,215
    
    
    
    23,193,873
    
    
    
    93,979,012
    
    
    
    (1,511,932
    )
    
    
    248,442,389Gross profit
    
    
    145,286,379
    
    
    
    58,155,910
    
    
    
    23,715,135
    
    
    
    30,959,957
    
    
    
    
    
    
    
    258,117,381Interest income
    
    
    9,095,303
    
    
    
    125,421
    
    
    
    134,309
    
    
    
    422,622
    
    
    
    
    
    
    
    9,777,655Interest expense
    
    
    16,024
    
    
    
    921
    
    
    
    
    
    
    
    8,324
    
    
    
    
    
    
    
    25,269Depreciation and amortization
    
    
    24,170,981
    
    
    
    8,880,046
    
    
    
    4,212,953
    
    
    
    6,933,524
    
    
    
    
    
    
    
    44,197,504Income tax expense
    
    
    5,551,130
    
    
    
    1,088,231
    
    
    
    1,938,393
    
    
    
    2,467,811
    
    
    
    
    
    
    
    11,045,565Net income
    
    $
    83,792,458
    
    
    $
    34,105,815
    
    
    $
    14,148,625
    
    
    $
    12,388,651
    
    
    
    
    
    
    $
    144,435,549
  In-elevator
    
    
    MobileOut-of-home
    
    
    poster frame
    
    
    handsetadvertising
    
    
    advertising
    
    
    advertisingservices
    
    
    services
    
    
    services
    
    
    Eliminations
    
    
    TotalNet revenue  external
    
    $
    160,900,265
    
    
    $
    40,904,235
    
    
    $
    10,100,965
    
    
    $
    
    
    
    $
    211,905,465Net revenue  intersegment
    
    
    
    
    
    
    245,274
    
    
    
    
    
    
    
    (245,274
    )
    
    
    Total net revenues
    
    
    160,900,265
    
    
    
    41,149,509
    
    
    
    10,100,965
    
    
    
    (245,274
    )
    
    
    211,905,465Cost of revenue  external
    
    
    61,706,462
    
    
    
    13,622,059
    
    
    
    6,051,846
    
    
    
    
    
    
    
    81,380,367Cost of revenue  intersegment
    
    
    245,274
    
    
    
    
    
    
    
    
    
    
    
    (245,274
    )
    
    
    Total cost of revenues
    
    
    61,951,736
    
    
    
    13,622,059
    
    
    
    6,051,846
    
    
    
    (245,274
    )
    
    
    81,380,367Gross profit
    
    
    98,948,529
    
    
    
    27,527,450
    
    
    
    4,049,119
    
    
    
    
    
    
    
    130,525,098Interest income
    
    
    4,419,864
    
    
    
    123,740
    
    
    
    17,194
    
    
    
    
    
    
    
    4,560,798Interest expense
    
    
    304,294
    
    
    
    52
    
    
    
    941
    
    
    
    
    
    
    
    305,287Depreciation and amortization
    
    
    15,067,829
    
    
    
    3,599,827
    
    
    
    843,896
    
    
    
    
    
    
    
    19,511,552Income tax expense
    
    
    1,060,314
    
    
    
    103,434
    
    
    
    (120,210
    )
    
    
    
    
    
    
    1,043,538Net income
    
    $
    60,968,695
    
    
    $
    20,006,067
    
    
    $
    2,222,970
    
    
    $
    
    
    
    $
    83,197,732
 Geographic Information
  Major Customers
  Major Service lines
  For the year ended December 31,2005
    
    
    2006
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % oftotal revenues
    
    
    
    
    
    
    total revenues
    
    
    
    
    
    
    total revenuesNet revenuesCommercial location network
    
    $
    61,434,760
    
    
    
    90.0
    %
    
    $
    132,061,143
    
    
    
    62.3
    %
    
    $
    220,681,113
    
    
    
    43.6
    %In-store network
    
    
    5,468,919
    
    
    
    8.0
    %
    
    
    26,907,592
    
    
    
    12.7
    %
    
    
    27,444,339
    
    
    
    5.4
    %Poster frame network
    
    
    
    
    
    
    
    
    
    
    40,904,235
    
    
    
    19.3
    %
    
    
    85,471,957
    
    
    
    16.9
    %Mobile handset network
    
    
    
    
    
    
    
    
    
    
    10,100,965
    
    
    
    4.7
    %
    
    
    46,909,008
    
    
    
    9.3
    %Internet advertising
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,938,969
    
    
    
    24.7
    %Advertising service revenue
    
    
    66,903,679
    
    
    
    98.0
    %
    
    
    209,973,935
    
    
    
    99.0
    %
    
    
    505,445,386
    
    
    
    99.9
    %Equipment revenue
    
    
    1,325,234
    
    
    
    2.0
    %
    
    
    945,606
    
    
    
    0.5
    %
    
    
    774,404
    
    
    
    0.1
    %Franchise revenue
    
    
    
    
    
    
    
    
    
    
    985,924
    
    
    
    0.5
    %
    
    
    339,980
    
    
    
    0.0
    %Total revenues
    
    $
    68,228,913
    
    
    
    100.0
    %
    
    $
    211,905,465
    
    
    
    100.0
    %
    
    $
    506,559,770
    
    
    
    100.0
    %
 F-26




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 17. Related Party Transactions
  Year ended December 31,Name of related parties
    
    Director interested
    
    2005
    
    
    2006
    
    
    2007Shanghai Everease Advertising &
Communication Ltd. (Everease)
    
    Jason Nanchun Jiang
    
    $
    1,552,039
    
    
    $
    7,764,977
    
    
    $
    3,132,954Multimedia Park Venture Capital
    
    Jimmy Wei Yu
    
    
    2,330,945
    
    
    
    3,885,546
    
    
    
    104Shanghai Jobwell Business
Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    1,050,258
    
    
    
    1,382,695
    
    
    
    Shanghai Wealove Wedding Service
Co., Ltd.
    
    Jimmy Wei Yu
    
    
    757,850
    
    
    
    1,122,945
    
    
    
    Shanghai Wealove Business
Consulting Co., Ltd.
    
    Jimmy Wei Yu
    
    
    
    
    
    
    671,488
    
    
    
    Shanghai Hetong Network
Technology Co., Ltd.
    
    Jimmy Wei Yu
    
    
    908,100
    
    
    
    982,527
    
    
    
    Shanghai Shengchu Advertising
Agency Co., Ltd.
    
    Jimmy Wei Yu
    
    
    1,646,120
    
    
    
    3,230,040
    
    
    
    44,542Beijing Sina Internet Information
Services Co., Ltd.
    
    Charles Cao
    
    
    
    
    
    
    190,563
    
    
    
    1,095,814Beijing Sohu New-age Information
Technology Co., Ltd.
    
    Daqing Qi
    
    
    
    
    
    
    119,768
    
    
    
    608,150Home-Inn Hotel Management
(Beijing) Co., Ltd
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    78,742
    
    
    
    82,356Ctrip Travel Information
Technology (Shanghai) Co., Ltd.
    
    Neil Nanpeng Shen
    
    
    264,120
    
    
    
    178,933
    
    
    
    51.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    19,611Qihoo.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    12,151UUSEE
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    27,789Yadu Huang Ke Technology Co., Ltd.
    
    Fuming Zhuo
    
    
    
    
    
    
    
    
    
    
    243,628Total
    
    
    
    $
    8,509,432
    
    
    $
    19,608,224
    
    
    $
    5,267,099
  Year ended December 31,Name of related parties
    
    Director interested
    
    2005
    
    
    2006
    
    
    2007Beijing Sina Internet
Information Services Co., Ltd.
    
    Charles Cao
    
    $
    
    
    
    $
    
    
    
    $
    24,755,004Beijing Sohu New-age
Information Technology Co.,
Ltd.
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    14,596,893Ctrip Travel Information
Technology (Shanghai) Co., Ltd.
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    130,23051.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    204,612Qihoo.com
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    305,413UUSEE
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    15,929E-House (China) Holdings Limited
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    2,008Total
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,010,089
 F-27




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
  December 31,Name of related parties
    
    Note
    
    Director interested
    
    2005
    
    
    2006
    
    
    2007Shanghai Everease Advertising &
Communication Ltd. (Everease)
    
    (a)
    
    Jason Nanchun Jiang
    
    $
    572,525
    
    
    $
    6,331,549
    
    
    $
    133,543Multimedia Park Venture Capital
    
    (a)
    
    Jimmy Wei Yu
    
    
    330,700
    
    
    
    12,705
    
    
    
    Shanghai Jobwell Business
Consulting Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    546,207
    
    
    
    
    
    
    
    Shanghai Wealove Wedding Service
Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    662,954
    
    
    
    
    
    
    
    Shanghai Hetong Network
Technology Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    533,469
    
    
    
    
    
    
    
    Shanghai Shengchu Advertising
Agency Co., Ltd.
    
    (a)
    
    Jimmy Wei Yu
    
    
    474,351
    
    
    
    403,889
    
    
    
    Beijing Sina Internet Information
Services Co., Ltd.
    
    (a)
    
    Charles Cao
    
    
    
    
    
    
    
    
    
    
    3,385,671Beijing Sohu New-age Information
Technology Co., Ltd.
    
    (a)
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    1,198,429Ctrip Travel Information
Technology (Shanghai) Co., Ltd.
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    89,94651.com
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    105,147UUSEE
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    10,952Home-Inn Hotel Management
(Beijing) Co., Ltd.
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    39,699
    
    
    
    Yadu Huang Ke Technology Co., Ltd.
    
    (a)
    
    Fuming Zhuo
    
    
    
    
    
    
    
    
    
    
    150,158Qihoo.com
    
    (a)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    17,683David Yu
    
    (b)
    
    David Yu
    
    
    
    
    
    
    1,064,947
    
    
    
    Total
    
    
    
    
    
    $
    3,120,206
    
    
    $
    7,852,789
    
    
    $
    5,091,529
 
 Note (a) 
    
    These amounts represent trade receivables for advertising services
provided.Note (b) 
    
    The amount represents a payment due from the ex-shareholder of
Target Media for an indemnification of a contingent liability which arose after the
acquisition. This amount was paid out in cash in 2007.  December 31,Name of related parties
    
    Note
    
    Director interested
    
    2005
    
    
    2006
    
    
    2007Beijing Sina Internet
Information Services
Co., Ltd.
    
    (d)
    
    Charles Cao
    
    $
    
    
    
    $
    
    
    
    $
    12,491,999Beijing Sohu New-age
Information Technology
Co., Ltd.
    
    (d)
    
    Daqing Qi
    
    
    
    
    
    
    
    
    
    
    301,52051.com
    
    (d)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    179,750UUSEE
    
    (d)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    3,696Home-Inn Hotel
Management (Beijing)
Co., Ltd
    
    (d)
    
    Neil Nanpeng Shen
    
    
    
    
    
    
    
    
    
    
    171Tan Zhi
    
    (c)
    
    Tan Zhi
    
    
    
    
    
    
    345,768
    
    
    
    Total
    
    
    
    
    
    $
    
    
    
    $
    345,768
    
    
    $
    12,977,136
 
 Note (c) 
    
    The amount represents the amount due to the president of Focus Media
for operating funds of Framedia. The loan was non-interest bearing and was fully
repaid in 2007.Note (d) 
    
    the amounts represent trade payables for advertising
services purchased. F-28




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Other related party transactions
    18. Restricted Net Assets
  19. Subsequent Event
     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, 2005, 2006 AND 2007
(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
    %E-Rainbow Mobile Information Co., Limited
    
    BVI
    
    
    100
    %Directvantage Limited
    
    BVI
    
    
    100
    %Cmsc Holdings Limited
    
    BVI
    
    
    100
    %Active Max Limited
    
    BVI
    
    
    100
    %Sky Max Global Limited
    
    BVI
    
    
    100
    %Fully Ascend Limited
    
    BVI
    
    
    100
    %Luck Trillion Limited
    
    BVI
    
    
    100
    %Angli Education Development Limited
    
    BVI
    
    
    100
    %Angli Education Investment Limited
    
    BVI
    
    
    100
    %Evercom Pacific Limited
    
    BVI
    
    
    70
    %Century Bonus Limited
    
    BVI
    
    
    70
    %Smart Cheer Limited
    
    BVI
    
    
    70
    %
 F-30




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Holding Limited (continued)
  Place of
    
    PercentageSubsidiary
    
    Incorporation
    
    of ownershipBrightchina Enterprises Limited
    
    BVI
    
    
    70
    %Spacenet International Limited
    
    BVI
    
    
    80
    %Multibillion International Limited
    
    BVI
    
    
    100
    %Pear Commercial Inc.
    
    BVI
    
    
    100
    %One Capital Investment Limited
    
    BVI
    
    
    100
    %First Star Investment Limited
    
    BVI
    
    
    100
    %Xin Jin Hong Limited
    
    Macau
    
    
    100
    %Advantage Way Limited
    
    BVI
    
    
    100
    %Hua Kuang Advertising Company Limited
    
    HK
    
    
    100
    %Allyes Information Technology Co., Ltd
    
    Cayman Island
    
    
    100
    %
 F-31




---



##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement
  Focus MediaAdvertisements
    
    Region ofSubsidiaries
    
    Ownership Percentage
    
    Operations
    
    Primary BusinessShanghai Focus Media Advertising Co., Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Advertising agencyShanghai Perfect Media Advertising Agency
Co., Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Advertising company that operates
advertising services network on
shoe-shining machinesQingdao Fukesi Advertisement Co., Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network (former
regional distributor)Changsha Focus Media Shiji Advertisement
Co., Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network (former
regional distributor)Dalian Focus Media Advertising Co., Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network (former
regional distributor)Shanghai Qianjian Advertising Co., Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network in banking
locationsGuangzhou Framedia Advertising Company Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising networkZhuhai Focus Media Culture and
Communication Company Ltd.
    
    
    90.0%
    (1)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network (former
regional distributor)Shanghai Focus Media Digital Information
Technology Co., Ltd.
    
    
    10%
    (2)
    
    PRC
    
    Technical and business consultancyShenzhen Bianjie Building Advertisement
Co., Ltd.
    
    
    90.0%
    (2)
    
    PRC
    
    Operation and maintenance of
frame advertising networkHebei Tianma Weiye Advertising Company Ltd.
    
    
    90.0%
    (2)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network (former
regional distributor)Xiamen Focus Media Advertising Company Ltd.
    
    
    90.0%
    (2)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network (former
regional distributor)Sichuan Focus Media Advertising
Communications Co., Ltd.
    
    
    90.0%
    (3)
    
    PRC
    
    Operation and maintenance of
out-of-home television
advertising network
 F-32




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued)
 Focus MediaAdvertisements
    
    Region ofSubsidiaries
    
    Ownership Percentage
    
    Operations
    
    Primary BusinessShanghai New Structure Advertisement Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Technical and
business
consultancy for
poster frame
networkShanghai Framedia Advertising Development
Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkGuangzhou Shiji Shenghuo Advertisement Co.,
Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkHefei Fukesi Advertising Co. Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Jinan Focus Media Advertising Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shenzhen E-Times Consulting Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkShanghai Target Media Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Dormant (Former
operation and
maintenance of
Target Medias
out-of-home
television
advertising
network)Shenyang Target Media Ltd.
    
    90.0% (2)
    
    PRC
    
    Dormant (Former
operation and
maintenance of
Target Medias
out-of-home
television
advertising
network)Fuzhou Hengding United Media Ltd.
    
    90.0% (2)
    
    PRC
    
    Dormant (Former
operation and
maintenance of
Target Medias
out-of-home
television
advertising
network)Beijing Focus Media Wireless Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation of mobile
handset advertising
service networkGuangzhou Feisha Advertisement Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)DongGuan Focus Media Advertisement &
Communications Co., Ltd.
    
    90.0% (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shanghai FengJing Advertisement &
Communications Co., Ltd.
    
    95.0% (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)
 F-33




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued)
 Focus MediaAdvertisements
    
    Region ofSubsidiaries
    
    Ownership Percentage
    
    Operations
    
    Primary BusinessZhengZhou Focus Media Advertisement &
Communications Co., Ltd.
    
    
    85.0%
    (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)ShiJiaZhuang Focus Media HuiHuang Business
Advertisement Co., Ltd.
    
    
    90.0%
    (2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkNanjing Focus Media Advertising Co., Ltd.
    
    
    90.0%
    (3)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Yunnan Focus Media Co., Ltd.
    
    
    89.5%
    (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Tianjin Focus Tongsheng Advertising Company Ltd.
    
    
    80.0%
    (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Zhejiang Ruihong Focus Media Advertising
Communications Co., Ltd.
    
    
    80.0%
    (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Wuhan Geshi Focus Media Advertising Co., Ltd.
    
    
    75.0%
    (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Xian Focus Media Advertising & Information
Company Ltd.
    
    
    70.0%
    (3)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shenyang Focus Media Advertising Co., Ltd.
    
    
    70.0%
    (3)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Fuzhou Focus Media Advertising Co., Ltd.
    
    
    70.0%
    (3)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Chongqing Geyang Focus Media Culture &
Broadcasting Co., Ltd.
    
    
    60.0%
    (2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shanghai On-Target Advertisement Co., Ltd.
    
    
    60.0%
    (3)
    
    PRC
    
    Advertising agencyShanghai Jiefang Focus Media Advertisement &
Communications Co., Ltd.
    
    
    70.0%
    (3)
    
    PRC
    
    Operation and
maintenance of
direct mailing
advertising
businessCity Billboard (BeiJing) Advertisement Co., Ltd.
    
    
    75.0%
    (3)
    
    PRC
    
    Operation and
maintenance of
outdoor LED
billboards
advertising networkBeiJing YangShiSanWei Advertisement Co., Ltd.
    
    
    70.0%
    (3)
    
    PRC
    
    Operation and
maintenance of
movie theatre
advertising network
 F-34




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued):
 Focus MediaAdvertisements
    
    Region ofSubsidiaries
    
    Ownership Percentage
    
    Operations
    
    Primary BusinessBeijing Tuojiachengyuan Advertisement
Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
outdoor billboards
advertising networkShanghai Zonghengpinyu Advertisement Co.,
Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
outdoor LED
billboards
advertising networkQuanzhou Xindalu Culture Communication
Co., Ltd.
    
    
    100
    %
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Guizhou Focus Media Advertisement Co., Ltd.
    
    
    100
    %
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Lanzhou Focus Media Advertisement Co., Ltd.
    
    
    100
    %
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Haerbin Focus Media Advertisement Co., Ltd.
    
    
    100
    %
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Jilin Focus Media Advertisement Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Hefei Tiandi Advertisement Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Suzhou Focus Media Communication and
Advertisement Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
out-of-home
television
advertising network
(former regional
distributor)Shanghai Shenghuotongdao Advertisement
Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
direct mailing
advertising
businessZhengzhou Focus Media Frame Advertisement
Co., Ltd.
    
    
    100
    %
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkShanghai Yuanchi Advertisement Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkTianjin Saige Advertisement Planning Co.,
Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkShijiazhuang Framedia Zhonglian
Advertisement Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkTaiyuan Framedia Juzhong Advertisement
Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame networkJinan Framedia Advertisement Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation and
maintenance of
advertising poster
frame network
 F-35




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##### Table of Contents



FOCUS MEDIA HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007
(In U.S. dollars except share data and unless otherwise stated)
 Appendix 1
 Subsidiaries of Focus Media Advertisement (continued):
 Focus MediaAdvertisements
    
    Region ofSubsidiaries
    
    Ownership Percentage
    
    Operations
    
    Primary BusinessGuangzhou Hengxun Advertisement Co., Ltd.
    
    
    63
    %(5)
    
    PRC
    
    Internet advertising agencyBeijing Chuangshiqiji Advertisement Co., Ltd
    
    
    70
    %(3)
    
    PRC
    
    Internet advertising agencyBeijing Kudong Media Advertisement Co., Ltd.
    
    
    70
    %(3)
    
    PRC
    
    Internet advertising agencyShanghai Yuewei Computer Information
Technology Co., Ltd.
    
    
    70
    %(3)
    
    PRC
    
    Internet advertising agencyShanghai Jiangpan Advertisement Co., Ltd.
    
    
    70
    %(3)
    
    PRC
    
    Internet advertising agencyShanghai Wangmai Advertisement Co., Ltd.
    
    
    70
    %(3)
    
    PRC
    
    Internet advertising agencyBeijing Jiahuahengshun Advertisement Co.,
Ltd.
    
    
    80
    %(3)
    
    PRC
    
    Internet advertising agencyBeijing Jiahuahengshun Media Advertisement
Co., Ltd.
    
    
    80
    %(3)
    
    PRC
    
    Internet advertising agencyBeijing Jiahuazhongwang Advertisement Co.,
Ltd.
    
    
    80
    %(3)
    
    PRC
    
    Internet advertising agencyKesishitong Advertisement (Beijing) Co., Ltd
    
    
    90
    %(2)
    
    PRC
    
    Internet advertising agencyBeijing Yibolande Advertisement Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Internet advertising agencyBeijing Yitong Wireless Information
Technology Co., Ltd.
    
    
    90
    %(2)
    
    PRC
    
    Operation of mobile
handset advertising
service network
 
 (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.(2)
    
    The remaining equity interest is held by Focus Media Technology.(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.(5)
    
    Focus Media Advertising Agency holding 7%, the remaining equity interests held by
unrelated third parties. F-36