Filed Pursuant to Rule 424B4

Registration No. 333-131065

Registration No. 333-131312

Focus Media Holding Limited

6,787,829 American Depositary Shares

Representing

67,878,290 Ordinary Shares

       Focus Media Holding Limited, or Focus Media, is offering 1,500,000 American depositary shares, or ADSs, and the selling shareholders identified in this prospectus are offering an additional 5,287,829 ADSs. Each ADS represents ten ordinary shares, par value $0.00005 per share of Focus Media. The ADSs are evidenced by American depositary receipts, or ADRs. We will not receive any proceeds from the ADSs sold by the selling shareholders.

       Our ADSs are quoted on the Nasdaq National Market under the symbol “FMCN.” On January 26, 2006, the last sale price for our ADSs as reported on the Nasdaq National Market was US$44.10 per ADS.

       See “Risk Factors” beginning on page 17 to read about risks you should consider before buying the ADSs.

       Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

	Per ADS		Total
Public offering price	$	43.50	$	295,270,561.50
Underwriting discount	$	1.89	$	12,810,822.46
Proceeds, before expenses, to Focus Media	$	41.61	$	62,419,016.24
Proceeds, before expenses, to the selling shareholders	$	41.61	$	220,040,722.80

       To the extent the underwriters sell more than 6,787,829 ADSs, the underwriters have an option to purchase up to an additional 627,560 ADSs from the selling shareholders at the public offering price less the underwriting discount.

       The underwriters expect to deliver the ADSs evidenced by the ADRs against payment in U.S. dollars in New York, New York on January 31, 2006.

Global Coordinator

Goldman Sachs (Asia) L.L.C.

Joint Bookrunners

Goldman Sachs (Asia) L.L.C. Credit Suisse

Co-Lead Managers

Citigroup Morgan Stanley

Co-Manager

Piper Jaffray

Prospectus dated January 27, 2006.

PROSPECTUS SUMMARY

       The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors”, before deciding whether to buy our ADSs.

Our Business

       We believe we operate the largest out-of-home advertising network in China using audiovisual television displays, based on the number of locations and number of flat-panel television displays in our network. It is our goal to create the largest multi-platform out-of-home advertising network in China, reaching urban consumers at strategic locations over a number of media formats, including audiovisual television displays in buildings and stores, advertising poster frames and, in the future, other new and innovative media. To date, our out-of-home advertising network consists of the following:

•  our commercial location network, which refers to our network of flat-panel television displays placed in high-traffic areas of commercial office buildings, such as in lobbies and near elevators, as well as in beauty parlors, karaoke parlors, golf country clubs, auto shops, banks, pharmacies, hotels, airports, airport shuttle buses and in-air flights;

•  our in-store network, which refers to our network of flat-panel television displays placed in specific product areas such as the personal care and food and beverage sections and other store locations with high-traffic concentration such as the main aisles and check-out lines in large-scale chain retail stores, which are referred to in China as hypermarkets, as well as inside selected supermarkets and convenience stores; and

•  our poster frame network, which refers to our network of advertising poster frames placed mainly in the elevators and public areas of residential complexes which we acquired through our acquisition of Framedia. According to an independent survey conducted by Sinomonitor International Media Research, or Sinomonitor, Framedia’s frames were installed in 99.0%, 90.7%, 92.7% and 85.3% of a total of 2,789 residential buildings with advertising poster frames surveyed in Beijing, Shanghai, Guangzhou and Shenzhen.

       We derive revenue principally by selling advertising time slots on our commercial location and in-store networks, and from January 2006, by selling frame space on our poster frame network. Substantially all of the content displayed on our commercial location and in-store networks consists of advertisements which are broadcast repeatedly approximately 60 or 80 times per day in twelve or nine-minute cycles, depending on the city in which the cycle is operated. Our poster frame network consists of advertising poster frames placed in elevators and public areas in residential complexes and commercial locations. For advertising poster frames placed in elevators, generally two, three or four advertising poster frames can be placed in each elevator.

       Our flat-panel displays 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. Accordingly, our network provides a targeted and cost-effective way for advertising clients to reach segmented consumer groups with attractive demographic characteristics. Due to the captive and low distraction nature of the locations where we place our displays, we believe our commercial location network produces higher consumer recall rates of advertisements than traditional television advertisements.

       As of September 30, 2005, more than 1,200 advertisers purchased advertising time slots on our out-of-home television advertising networks, including over 70 advertisers who purchased time slots on our in-store network, and for the nine months ended September 30, 2005, we acquired over 700 new advertising clients. Some of our largest advertising clients in terms of revenue include

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leading international brand name advertisers such as NEC, Nokia, Samsung, Toyota and Volkswagen, and leading domestic brand name advertisers such as China Merchants Bank, China Mobile, China Unicom and Dongfeng Motor Corporation, which together accounted for approximately 20% of our revenue in 2004. In addition, over 600 advertisers have bought frame space from Framedia since 1999, including leading international and domestic companies, such as Audi, Lenovo, Microsoft, Motorola, Omega, Samsung and Sony.

       Since we commenced our current business operations in May 2003, we have experienced significant growth in our network and in our financial results. As of September 30, 2005, we operated our commercial location network directly in a total of 23 cities throughout China, including Beijing, Shanghai, Guangzhou and Shenzhen, which we refer to as our Tier I cities, and 19 other directly operated cities. As of September 30, 2005, we covered an additional 31 cities through contractual arrangements with regional distributors that, together with the other 19 directly operated cities, we refer to as our Tier II cities. Between January 1, 2004 and September 30, 2005, the number of commercial locations in which we operate directly increased from 754 to 18,538, and the number of displays in those locations increased from 827 to 34,079. As of September 30, 2005, our commercial location network operated by our regional distributors consisted of approximately 3,273 flat-panel displays in approximately 2,656 locations in the 31 cities. We commenced commercial operations of our in-store network in April 2005. As of September 30, 2005, our in-store network consisted of 20,061 flat-panel displays placed in 2,702 store locations in our directly operated cities, including 553 hypermarkets and 1,272 supermarkets and 877 convenience stores. As of September 30, 2005, Framedia owned and operated over 77,000 advertising poster frames in its network in six cities throughout China, including Beijing, Shanghai, Guangzhou and Shenzhen.

       For the nine months ended September 30, 2005, we recorded total revenues of $43.6 million, income from operations of $13.9 million and net income of $14.1 million as compared to total revenues, income from operations and net income of $17.4 million, $7.7 million and $1.7 million for the nine months ended September 30, 2004. In 2004, we recorded total revenues of $29.2 million, income from operations of $13.0 million and net income of $372,752 as compared to total revenues of $3.8 million, income from operations of $525,110 and net income of $25,483 in 2003. Our net income of $372,752 in 2004 reflects a one-time non-cash charge of $11.7 million for a change in fair value of derivative liability associated with our Series B convertible redeemable preference shares. We have not incurred, and we will not incur, any such charges from January 1, 2005 as the redemption feature of our Series B convertible redeemable preference shares was removed prior to December 31, 2004.

Our Strategies, Risks and Uncertainties

       In order to enhance our position in the out-of-home advertising industry in China, we intend to expand our networks, promote our brand name, create increasingly segmented network channels, pursue complimentary advertising media platforms and explore new digital media opportunities. Our ability to realize our business objectives and execute our strategies is subject to risks and uncertainties, including the following:

•  potential liabilities connected with our proposed acquisition of Target Media, including liabilities and risks that could result from commercially sensitive documents that were not disclosed to us and will not be disclosed to us prior to the completion of the acquisition;

•  our ability to successfully integrate Framedia and its poster frame network and Target Media and its flat-panel television display network into our existing business;

•  our limited operating history for our current operations and the short history of the out-of-home television advertising sector that make it difficult for you to evaluate the viability and prospects of our business;

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•  competition from present and future competitors in China’s growing advertising market, particularly large multi-national advertisers that may now more readily compete in China;

•  our limited ability to control and oversee the everyday business activities or regulatory compliance of our regional distributors; and

•  the possibility that the PRC government could determine that our operating structure does not comply with PRC government restrictions on foreign investment in the advertising industry, which could potentially subject us to severe penalties.

       See “Risk Factors” and other information included in this prospectus for a discussion of these and other risks.

Our Corporate History and Structure

       We were incorporated on April 11, 2003 as an international business company formed under the laws of the British Virgin Islands, and changed our corporate domicile to the Cayman Islands on April 1, 2005. Our ADSs representing our ordinary shares have been quoted on the Nasdaq National Market Inc. since our initial public offering on July 13, 2005. Due to PRC government restrictions that apply to foreign investment in China’s advertising industry, our advertising business is currently conducted through contractual arrangements among us, our subsidiaries and our consolidated affiliated entities in China, principally Shanghai Focus Media Advertisement Co., Ltd, or Focus Media Advertisement, and its subsidiaries. Focus Media Advertisement, several of its subsidiaries and Shanghai New Focus Media Advertisement Co., Ltd., or New Focus Media Advertisement, our new indirect subsidiary, hold the requisite licenses to provide advertising services in China. These contractual arrangements enable us to:

•  exercise effective control over Focus Media Advertisement and its subsidiaries;

•  receive a substantial portion of the economic benefits from Focus Media Advertisement and its subsidiaries; and

•  have an exclusive option to purchase all or part of the equity interests in Focus Media Advertisement 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 part of the assets of Focus Media Advertisement, in each case when and to the extent permitted by PRC law.

       See “Our Corporate Structure” and “Related Party Transactions” for further information on our contractual arrangements with these parties.

Recent Developments

       Initial Public Offering. On July 18, 2005, we completed our initial public offering, which involved the sale by us and some of our shareholders of 10,100,000 of our ADSs, representing 101,000,000 of our ordinary shares at an initial public offering price of $17.00 per ADS. On August 9, 2005, we and some of our shareholders sold an additional 1,515,000 ADSs representing 15,150,000 ordinary shares at the initial public offering price pursuant to the underwriters’ exercise of their over-allotment option.

       Recent Acquisitions. On August 15, 2005, we acquired Shenzhen Bianjie Commercial Location Advertising Company, or Bianjie, a local audiovisual advertising network operator in Shenzhen. Under the terms of the transaction, we acquired a 100% equity stake in the company and Bianjie also transferred all of its display placement agreements to us for a purchase price of RMB 3,800,000 ($456,485).

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       On November 20, 2005, we acquired our former regional distributor, Shenyang Focus Media Advertising Company, or Shenyang FM. At the time of the acquisition, Shenyang FM had a network of flat-panel displays deployed in approximately 150 office buildings, hotels and other commercial locations. Under the terms of the transaction, we acquired a 70% equity stake in Shenyang FM for a purchase price of RMB 4,000,000 ($494,515). Key management of Shenyang FM retained the remaining 30% share in the company and continue to run the day-to-day operations.

       On January 1, 2006, we acquired Infoachieve Limited, or Infoachieve, its subsidiary Shanghai Framedia Investment Consulting Co., Ltd., and its affiliated PRC entities including Shanghai Framedia Advertising Development Co., Ltd., Guangdong Shiji Shenghuo Advertisements Co., Ltd. and Shanghai New Structure Advertisement Co., Ltd. Under the terms of the transaction we acquired a 100% equity stake in Infoachieve from Total Team Investments Limited, the BVI entity through which Infoachieve’s shareholders held their respective interests in Infoachieve, for $39.6 million in cash and 22,157,003 of our ordinary shares, subject to an earnout payment and other adjustments. We refer to Infoachieve and its combined consolidated entities collectively as Framedia in this prospectus. Framedia owns and operates an out-of-home poster frame advertising network placed in residential complexes in China. Framedia installs and deploys advertising poster frames mainly inside elevators and public areas of residential complexes in major cities in China and sells advertising frame space to advertising clients. Details of Framedia’s corporate structure, business operations and our acquisition of Framedia are set forth in “Our Corporate Structure”, “Business — Our Advertising Network”, “Recent Developments — Our Recent Acquisition of Framedia” and “Related Party Transactions”.

       Focus Media entered into a share purchase agreement, which took effect on January 1, 2006, with Shenzhen E-Times Advertising Co., Ltd., or E-Times, and Skyvantage Group Limited, or Skyvantage, and the shareholders of E-Times and Skyvantage which operate a local out-of-home poster frame advertising network placed in commercial and residential buildings. Under the terms of the transaction, Focus Media will acquire 100% of the equity of Skyvantage and E-Times will transfer all of its poster frame assets and frame placement contracts to Focus Media for a purchase price of $5,000,000. We expect to complete our acquisition of E-Times and Skyvantage in the first quarter of 2006.

       On January 7, 2006, we entered into a definitive share purchase agreement to acquire the business of Target Media Holdings Limited, or Target Media Holdings, its subsidiary Target Media Multi-Media Technology (Shanghai) Co., Ltd., or Target Multi-Media, and its affiliated PRC entity Shanghai Target Media Co., Ltd., or Shanghai Target Media, by purchasing 100% of the equity interests of Target Media Holdings from its shareholders for $94 million in cash and 77 million of our ordinary shares, subject to a working capital adjustment. We refer to Target Media Holdings and its consolidated entities collectively as Target Media in this prospectus. We expect to complete our acquisition of Target Media in the first quarter of 2006. Target Media owns and operates a network of flat-panel displays placed in commercial buildings, hotels, banks, residential buildings, convenience stores and other locations similar to our commercial location network. Based on data provided to us by Target Media, we believe that, as of September 30, 2005, Target Media’s flat-panel display network consisted of approximately 25,100 flat-panel displays placed in approximately 16,650 locations in 43 cities in China, and that for the nine months ended September 30, 2005, Target Media recorded revenues of RMB 174.8 million ($21.6 million) and net income of RMB 32.6 million ($4.0 million). Information, including business, operations, financial condition and results of operations, relating to Target Media included in this prospectus has been provided to us by Target Media’s management and has not been prepared by us. Additionally, due to the commercially sensitive nature of our transaction with Target Media, we and our advisors have not had an opportunity to independently verify all of the information relating to Target Media included in this prospectus. See “Risk Factors — Risks Relating to our Recent Acquisitions”. Additional details of Target Media’s business, operations and our acquisition of Target Media are set forth in “Recent Developments — Our Proposed Acquisition of Target Media”.

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Selected Estimated Fourth Quarter 2005 Results

       The following is an estimate of our preliminary unaudited financial results for the three months ended December 31, 2005. Neither the review of our financial statements for the three months ended December 31, 2005 nor the audit as of and for the year ended December 31, 2005 has been completed, and therefore these results may be subject to adjustment. We expect:

•  total revenues for the three months ended December 31, 2005 to be in the range from $22.0 million to $23.0 million, compared to total revenues of $11.8 million for the same period in 2004; and

•  net income for the three months ended December 31, 2005 to be in the range from $8.7 million to $9.1 million, compared to a loss of $1.3 million for the same period in 2004.

       During the fourth quarter, we expect to experience seasonally greater demand for our commercial location network. These estimates also do not include results from our poster frame network, which was acquired in January 2006, nor do they reflect the effect of our future results if we complete our proposed acquisition of Target Media.

       Given the preliminary nature of our estimates, our actual total revenues and net income may be materially different from our current expectations. For additional information regarding the various risks and uncertainties inherent in such estimates, see “Forward-Looking Statements”.

Our Offices

       Our principal executive offices are located at 28-30/F, Zhao Feng World Trade Building, 369 Jiangsu Road, Shanghai 200050, China, and our telephone number is (86-21) 3212-4661. Our website address is http://www.focusmedia.cn. The information on our website does not form part of this prospectus.

Conventions That Apply To This Prospectus

       This prospectus contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in New York, New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rate, as of September 30, 2005, which was RMB 8.0920 to $1.00. We make no representation that the Renminbi amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all. On January 26, 2006, the noon buying rate was RMB 8.0620 to $1.00.

       Unless we indicate otherwise, all information in this prospectus reflects the following:

•  no exercise by the underwriters of their option to purchase up to 627,560 additional ADSs representing 6,275,600 ordinary shares;

•  all share splits, so that share number, per share price and par value data is presented as if the share splits had occurred from our inception; and

•  none of our outstanding options as of December 31, 2005 have been exercised.

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The Offering

       The following assumes that the underwriters do not exercise their option to purchase additional ADSs in the offering, unless otherwise indicated.

Offering price	$43.50 per ADS
ADSs offered by Focus Media	1,500,000 ADSs
ADSs offered by the selling shareholders	5,287,829 ADSs
ADSs outstanding after this offering	18,402,829 ADSs
Ordinary shares outstanding after this offering	415,463,003 ordinary shares
ADS to ordinary share ratio	1:10
Nasdaq National Market symbol	“FMCN”
The ADSs	Each ADS represents ten ordinary shares, par value $0.00005 per share. The ADSs will be evidenced by American depositary receipts, or ADRs. The depositary will be the holder of the ordinary shares underlying your ADSs and you will have rights as provided in the deposit agreement. Although we do not expect to pay dividends in the foreseeable future, in the event we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after converting the funds received into U.S. dollars and deducting its fees and expenses. You may surrender your ADSs to the depositary to withdraw the ordinary shares underlying your ADSs. The depositary will charge you fees for exchanges. We may amend or terminate the deposit agreement without your consent, and if you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended. You should carefully read the section in this prospectus entitled “Description of American Depositary Shares” to better understand the terms of our ADSs. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.
Lock-up Agreements	We, the selling shareholders and our directors and executive officers have agreed with the underwriters that we will not, without the prior consent of Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC, for a period of 90 days following the date of this prospectus: (1) offer, sell, contract to sell, pledge, grant any option to purchase, make any share sale or otherwise dispose of any of the ADSs or our ordinary shares or any securities that are convertible into or exercisable or exchangeable for the ADSs or our ordinary shares; or (2) enter into any swap or other agreement that transfers to any other entity, in whole or in part, any of the economic consequences of ownership of our ADSs or ordinary shares. The restrictions above do not apply to the

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	ADSs to be sold in this offering and the ordinary shares underlying such ADSs. See “Shares Eligible for Future Sale”.
Depositary	Citibank, N.A.
Option to purchase additional ADSs	The selling shareholders have granted the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an additional 627,560 ADSs.
Timing and settlement for ADSs	The ADSs are expected to be delivered against payment on January 31, 2006. The ADRs evidencing the ADSs will be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or DTC, in New York, New York. In general, beneficial interests in the ADSs will be shown on, and transfers of these beneficial interests will be effected only through, records maintained by DTC and its direct and indirect participants.
Use of proceeds	Our net proceeds from this offering are expected to be approximately $60.6 million. We anticipate using approximately $40.0 million of the net proceeds of this offering to fund a portion of the cash consideration in connection with the acquisitions we made prior to the date of this offering. We may use any remaining amounts for our future strategic acquisitions, expansion of our advertising network and general corporate purposes. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.
Risk factors	See “Risk Factors” and other information included in this prospectus for a discussion of risks you should carefully consider before deciding to invest in our ADSs.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

       The following summary consolidated financial information has been derived from our consolidated financial statements. Our consolidated financial statements are prepared by including the financial statements of Focus Media Advertisement, formerly Aiqi Advertising, through May 2003 and our consolidated financial statements, which include the consolidation of Focus Media Advertisement and Shanghai Perfect Media as variable interest entities, thereafter, and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our statements of operations for 2002, 2003 and 2004 and our balance sheets as of December 31, 2002, 2003 and 2004 have been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting firm. The report of Deloitte Touche Tohmatsu CPA Ltd. on those financial statements is included elsewhere in this prospectus. Our statement of operations for each of the nine months ended September 30, 2004 and 2005 and balance sheet data as of September 30, 2004 and 2005 has been derived from our unaudited consolidated financial data which has been included elsewhere in this prospectus.

       Our historical results for any prior or interim period are not necessarily indicative of results to be expected for a full fiscal year or for any future period. The summary consolidated financial information for the periods and as of the dates indicated should be read in conjunction with those statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

       Prior to May 2003, we were an advertising agency, the operations and services of which differ markedly from our current business. As an advertising agency, we assisted media companies in selling their advertising time or space to companies seeking to advertise in exchange for a commission. In May 2003, we ceased acting as an advertising agency and commenced our current business as an operator of an out-of-home advertising network, consisting first of our commercial location network. In April 2005, we commenced commercial operations of our in-store network and through our acquisition of Framedia, we commenced operation of our poster frame network on January 1, 2006.

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											For the nine months
			For the year ended December 31,								ended September 30,
			2002		2003			2004			2004			2005
			(in thousands of U.S. dollars, except share data)
Consolidated Statements of Operations Data:
Revenues:
	Advertising services revenue(1)		$	24	$	3,369		$	26,321		$	15,238		$	42,852
	Advertising equipment revenue			—		389			2,889			2,206			772
		Total revenues		24		3,758			29,210			17,444			43,624
Cost of revenues:
	Net advertising service cost			—		1,566			6,823			4,080			16,479
	Net advertising equipment cost			—		275			1,934			1,694			544
		Total cost of revenues		—		1,841			8,757			5,774			17,023
Gross profit				24		1,917			20,453			11,670			26,601
Total operating expenses				24		1,392			7,500			3,937			12,713
Income from operations				—		525			12,953			7,733			13,888
Interest income				—		1			10			5			822
Other income (expense) — net				—		(9	)		(4	)		(3	)		10
Change in fair value of derivative liability associated with Series B convertible redeemable preference shares				—		—			(11,692	)		(3,166	)		—
Income before income taxes and minority interest				—		517			1,267			4,569			14,720
Total income taxes				—		482			908			2,830			491
Minority interest				—		8			13			(41	)		(107	)
Equity loss of affiliates				—		(18	)		—			—			—
Net income				—		25			372			1,698			14,122
Earnings per share data:
Deemed dividend on Series A convertible redeemable preference shares(2)				—		—			(8,308	)		(8,308	)		—
Deemed dividend on Series B convertible redeemable preference shares(2)				—		—			(2,191	)		(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	)	$	(8,801	)	$	14,122
Income (loss) per share — basic			$	—	$	0.00		$	(0.07	)	$	(0.06	)	$	0.07
Income (loss) per share — diluted			$	—	$	0.00		$	(0.07	)	$	(0.06	)	$	0.06
Shares used in calculating basic income per ADR				—		144,657,600			160,998,600			138,027,670			210,377,820
Shares used in calculating diluted income per ADR				—		144,657,600			160,998,600			138,027,670			238,206,610

								As of
	As of December 31,							September 30,
	2002		2003		2004			2005
	(in thousands of U.S. dollars)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	15	$	716	$	22,669			83,974
Other current assets(4)		106		1,902		12,713			60,589
Non-current assets(5)		8		2,688		21,033			57,174
Total assets		129		5,306		56,415			201,737
Total current liabilities		7		4,119		8,634			19,666
Minority interest		—		4		81			193
Mezzanine equity		—		—		53,273			—
Total shareholders’ equity (deficiency)	$	122	$	1,183	$	(5,573	)	$	181,878

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			As of				As of
			December 31,				September 30,
			2003		2004		2005
Selected Operating Data:
Number of displays in our commercial location network:
	Our direct cities			827		12,786		34,079
	Our regional distributors(6)			201		2,629		3,273
		Total		1,028		15,415		37,352
Number of displays in our in-store network(7)				—		—		20,061
Number of stores in our in-store network				—		—		2,702

	For the three months ended
	December 31,						September 30,
	2003			2004			2004			2005
Commercial Location Network:
Number of time slots available for sale(8)		1,299			5,170			3,542			8,348
Number of time slots sold(9)		292			2,209			1,280			4,240
Utilization rate for commercial location network(10)		22.5	%		42.7	%		36.1	%		50.8	%
Average quarterly advertising service revenue per time slot sold (US$)	$	8,177		$	5,018		$	5,506		$	4,077

(1)	Advertising service revenue is presented net of business tax, which amounted to $1,405, $311,770, $2,788,233, $1,559,989 and $4,346,367 in 2002, 2003 and 2004 and for the nine months ended September 30, 2004 and 2005, respectively. Business tax includes business tax of 5.55% and cultural industries tax of 4.0% of our gross advertising service revenue.
(2)	We are no longer required to record deemed dividends prospectively following conversion at the closing of our initial public offering of our Series A, Series B, Series C-1 and Series C-2 convertible redeemable preference shares into ordinary shares.
(3)	Each ADS represents ten of our ordinary shares.
(4)	Other current assets is equal to total current assets less cash and cash equivalents.
(5)	Non-current assets is equal to total assets less total current assets.
(6)	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.
(7)	We commenced operation of our in-store network in April 2005.
(8)	Includes the time slots for our directly operated cities and the time slots we are entitled to sell on the portion of our network operated by our regional distributors. Number of time slots available refers to the number of 30-second equivalent time slots available on our network during the period presented and is calculated by taking the total advertising time available on our network during the period presented, calculated in aggregate seconds, which we then divide by 30 to determine the number of 30-second equivalent time slots available. The number of advertising time slots available for sale is determined by the number of cities in which we directly operate, the two-ninths portion of time slots on our regional distributors’ networks which we have the right to sell and the length of the advertising cycle, which is currently twelve minutes in all of our directly operated cities.
(9)	Number of time slots sold refers to the number of 30-second equivalent time slots sold during the period presented and is calculated by taking the total advertising time we sold during the period presented, calculated in aggregate seconds, which we then divide by 30 to determine the number of 30-second equivalent time slots sold.

(10)  Utilization rate refers to total time slots sold as a percentage of total time slots available during the relevant period.

10

Consolidated Pro Forma Financial Data of

Focus Media, Framedia, Target Media Holdings and Other Acquired Entities

       The following unaudited pro forma condensed consolidated financial information is derived from the historical financial statements of Focus Media Holding Limited, appearing elsewhere in this prospectus, after giving effects to the pro forma adjustments described in the notes to such pro forma financial statements. Financial information with respect to the acquisitions are derived from the historical financial statements of Perfect Media Holding Limited, or Perfect Media, Focus Media Changsha Holding Limited or Focus Media Changsha, Focus Media Qingdao Holding Limited, or Focus Media Qingdao, Focus Media Dalian Holding Limited, or Focus Media Dalian, Capital Beyond Limited, or Capital Beyond, Infoachieve Limited, or Framedia, and Target Media Holdings Limited or Target Media, appearing elsewhere in this prospectus.

       The preparation of the unaudited pro forma condensed consolidated balance sheet and statements of operations appearing below is based on financial statements prepared in accordance with U.S. GAAP. These principles require the use of estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. The objective of the unaudited pro forma condensed consolidated balance sheet and statements of operations is to provide information on the impact of the acquisitions of Perfect Media, Focus Media Changsha, Focus Media Qingdao, Focus Media Dalian, Capital Beyond, Framedia and Target Media. We refer to these businesses collectively as the acquired businesses.

       The unaudited pro forma condensed consolidated balance sheet as of September 30, 2005 assumes that the acquisition of Framedia and Target Media occurred on September 30, 2005 and reflects the historical consolidated balance sheet of Focus Media Holding Limited giving pro forma effect to the acquisitions of the acquired businesses using the purchase method of accounting.

       The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2004 presents adjustments as if the acquisitions of the acquired businesses had been consummated on January 1, 2004. The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2005 presents adjustments as if the acquisitions of Capital Beyond, Framedia and Target Media had been consummated on January 1, 2005.

       The following unaudited pro forma condensed consolidated balance sheet and statements of operations should be read in conjunction with the historical consolidated financial statements, unaudited pro forma condensed consolidated balance sheet and statements of operations and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

       While the unaudited pro forma condensed consolidated financial information is helpful in showing the financial characteristics of the consolidated companies, it is not intended to show how the consolidated companies would have actually performed if the events described above had in fact occurred on the dates assumed or to project the results of operations or financial position for any future date or period. We have included in the unaudited pro forma condensed consolidated statement of operations all the adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the operating results in the historical periods. However, because such adjustments are based on estimates such as the preliminary purchase price allocation and the estimated amortization period for the acquired intangible assets for Framedia and Target Media, the actual consolidated balance sheet and results of operations may differ significantly from the pro forma amounts reflected below.

       Information, including business, operations, financial condition and results of operations relating to Target Media included in this prospectus has been provided to us by Target Media’s management and has not been prepared by us. Additionally, due to the commercially sensitive nature of our transaction with Target Media, we and our advisors have not had an opportunity to independently verify all the information relating to Target Media included in this prospectus. See “Risk Factors — Risks Relating to our Recent Acquisitions”.

11

			Focus Media
			Holding			Framedia			Target Media
			September 30,			September 30,			September 30,			Pro forma
			2005(1)			2005			2005(2)			Adjustments			Notes		Pro forma
			(in thousands of U.S. dollars)
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Current assets:
	Cash and cash equivalents		$	83,974		$	1,460		$	11,171		$	(24,600	)		(4)(5)(9)	$	72,005
	Time deposits			—			—			1,517			—					1,517
	Investment in available-for-sale securities			34,951			—			—			—					34,951
	Accounts receivable, net			20,307			3,161			12,814			—					36,282
	Inventory			371			9			—			—					380
	Prepaid expenses and other current assets			3,716			1,185			5,863			—					10,764
	Deferred tax assets-current			—			—			14			(14	)		(12)		—
	Amounts due from related parties			1,244			—			2,682			—					3,926
	Total current assets			144,563			5,815			34,061			(24,614	)				159,825
Rental deposits				9,294			—			249			—					9,543
Property and equipment, net				32,910			878			18,830			—					52,618
Acquired intangible assets, net				1,232			780			146			59,812			(4)(5)		61,970
Goodwill				12,823			12,704			—			290,153			(4)(5)		315,680
Deferred tax assets				915			—			—			—					915
		Total assets	$	201,737		$	20,177		$	53,286			325,352				$	600,551
Liabilities and shareholders’ equity
Current liabilities:
	Short-term bank loan		$	3,089		$	—		$	—			—				$	3,089
	Accounts and bills payable			4,787			703			8,182			—					13,672
	Accrued expenses and other current liabilities			9,598			5,958			4,361			49,000			(5)		68,917
	Amounts due to related parties			—			1,738			4			—					1,742
	Short-term loans from shareholders			—			3,049			—			—					3,049
	Income taxes payable			2,192			—			55			—					2,247
	Total current liabilities			19,666			11,448			12,602			49,000					92,716
Minority interest				193			—			—			—					193
Mezzanine equity
Series A-1 convertible redeemable preference shares				—			1,484			—			(1,484	)		(8)		—
Series A-2 convertible redeemable preference shares				—			814			—			(814	)		(8)		—
Series A convertible redeemable preferred shares				—			—			18,537			(18,537	)		(8)		—
Series B convertible redeemable preferred shares				—			—			15,365			(15,365	)		(8)		—
Shareholders equity
Ordinary shares				19			12			11			(18	)		(4)(5)(8)(9)		24
Additional paid-in capital				178,027			25,079			7,244			292,817			(4)(5)(8)(9)		503,167
Deferred share based compensation				(814	)		—			—			—					(814	)
Statutory reserves				—			—			619			—					619
Retained earnings (accumulated deficit)				3,572			(18,567	)		(1,092	)		19,659			(4)(5)		3,572
Accumulated other comprehensive income (loss)				1,074			(93	)		—			93			(4)		1,074
Total shareholders’ equity				181,878			6,431			6,782			312,551					507,642
Total liabilities and shareholders’ equity			$	201,737		$	20,177		$	53,286			325,351				$	600,551

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			Focus Media
			Holding for						Framedia for			Target Media
			the year						the year			for the year
			ended			Certain			ended			ended
			December 31,			Former			December 31,			December 31,			Pro forma
			2004(1)			Subsidiaries(3)			2004			2004(2)			Adjustments			Notes(12)		Pro forma
			(in thousands of U.S. dollars, except share numbers and per share data)
Unaudited Pro Forma Condensed Consolidated Statement of Operation
Revenues:
	Advertising service revenue:
		— Unrelated parties	$	22,896		$	425		$	4,324		$	9,723			—				$	37,368
		— Related parties		3,425			—			—						—					3,425
	Advertising equipment revenue			2,889			—			—						—					2,889
	Total revenues			29,210			425			4,324			9,723			—					43,682
Cost of revenues:
	Net advertising service cost			6,823			719			3,337			3,915			8,836			(6)(10)		23,630
	Net advertising equipment cost			1,934			—			—			—			—					1,934
	Total cost of revenues			8,757			719			3,337			3,915			8,836					25,564
Gross profit				20,453			(294	)		987			5,808			(8,836	)				18,118
Operating expenses:
	General and administrative (including share-based compensation of $488,711)			4,015			366			543			646			(202	)		(10)		5,368
	Selling and marketing			3,426			111			822			1,971			—					6,330
	Goodwill impairment loss			59			—			—			—			—					59
	Total operating expenses			7,500			477			1,365			2,617			(202	)				11,757
Income from operations				12,953			(771	)		(378	)		3,191			(8,634	)				6,361
	Net interest income (expense)			10			—			(253	)		(34	)		—					(277	)
	Other income (expense), net			(4	)		—			37			(3	)		—					30
	Change in fair value of derivative liability associated with Series B convertible redeemable preference shares			(11,692	)		—			—			—			—					(11,692	)
Income (loss) before income taxes and minority interest				1,267			(771	)		(594	)		3,154			(8,634	)				(5,578	)
Income taxes:
	Current			829			4			4			53			—					890
	Deferred			79			—			—			(13	)		—					66
	Total income taxes			908			4			4			40			—					956
Net income (loss) after income taxes before minority interest and equity income				359			(775	)		(598	)		3,114			(8,634	)				(6,534	)
Minority interest				13			—			—			—			—					13
Net income (loss)				372			(775	)		(598	)		3,114			(8,634	)				(6,521	)
Accretion to Series A redeemable convertible preferred shares redemption value				—			—			—			(1,047	)		1,047			(8)		—
Deemed dividend on Series A convertible redeemable preference shares				(8,308	)		—			—			—			—					(8,308	)
Deemed dividend on Series B convertible redeemable preference shares				(2,191	)		—			—			—			—					(2,191	)
Deemed dividend on Series C-1 convertible redeemable preference shares				(13,356	)		—			—			—			—					(13,356	)
Premium of Series B convertible redeemable preference shares				12,906			—			—			—			—					12,906
Loss attributable to holders of ordinary shares			$	(10,577	)	$	(775	)	$	(598	)	$	2,067		$	(7,587	)			$	(17,470	)
Loss per share - basic and diluted			$	(0.07	)		—													$	(0.07	)
Shares used in calculating basic and diluted loss per share				160,998,600			—														270,751,317

13

		Focus Media
		Holding for			Capital Beyond			Framedia for			Target Media
		the nine			for the three			the nine			for the nine
		months ended			months ended			months ended			months ended
		September 30,			March 31,			September 30,			September 30,			Pro forma
		2005(1)			2005			2005			2005(2)			Adjustment			Notes(12)		Pro forma
		(in thousands of U.S. dollars, except share numbers and per share data)
Unaudited Pro Forma Condensed Consolidated Statement Of Operation
Revenues:
Advertising service revenue:
	— Unrelated parties	$	39,337		$	—		$	7,021		$	21,599			—				$	67,957
	— Related parties		3,515			—			—			—			—					3,515
Advertising equipment revenue			772			—			—			—			—					772
Total revenues			43,624			—			7,021			21,599			—					72,244
Cost of revenues
	Net advertising service cost		16,479			122			3,619			10,234			6,428			(7)(10)		36,882
	Net advertising equipment cost		544			—			—			—			—					544
Total cost of revenues			17,023			122			3,619			10,234			6,428					37,426
Gross profit			26,601			(122	)		3,402			11,365			(6,428	)				34,818
Operating expenses:
	General and administrative (including share-based compensation of $646,400)		6,578			1			2,437			1,377			(125	)		(10)		10,268
	Selling and marketing		6,135			—			1,872			5,919			—					13,926
	Total operating expenses		12,713			1			4,309			7,296			(125	)				24,194
Income loss from operations			13,888			(123	)		(907	)		4,069			(6,303	)				10,624
	Net interest income (expense)		822			—			(116	)		32			—					738
	Other income (expense), net		10			—			79			(76	)		—					13
Income (loss) before income taxes and minority interest			14,720			(123	)		(944	)		4,025			(6,303	)				11,375
Income tax expense
	Current		759			—			1			—			—					760
	Deferred		(268	)		—			—			—			—					(268	)
Total income taxes			491			—			1			—			—					492
Net income (loss) after income taxes before minority interest			14,229			(123	)		(945	)		4,025			(6,303	)				10,883
Minority interest			(107	)		—			—			—			—					(107	)
Net income (loss)			14,122			(123	)		(945	)		4,025			(6,303	)				10,776
Deemed dividend — ordinary share			—			—			(15,187	)		—			—					(15,187	)
Deemed dividend — Series A-1 convertible redeemable preference shares — Redesignation			—			—			(1,137	)		—			1,137			(8)		—
Deemed dividend — Series A-1 convertible redeemable preference shares — Accretion of redemption premium			—			—			(345	)		—			345			(8)		—
Deemed dividend — Series A-2 convertible redeemable preference share — Redesignation			—			—			(624	)		—			624			(8)		—
Deemed dividend — Series A-2 convertible redeemable preference shares — Accretion of redemption premium			—			—			(189	)		—			189			(8)		—
Accretion to Series A redeemable convertible preferred shares redemption value			—			—			—			(2,351	)		2,351			(8)		—
Accretion to Series B redeemable convertible preferred shares redemption value			—			—			—			(389	)		389			(8)		—
Beneficial conversion of Series A redeemable convertible preferred shares			—			—			—			(3,013	)		—					(3,013	)
Beneficial conversion of Series B redeemable convertible preferred shares			—			—			—			(804	)		—					(804	)
Income (Loss) attributable to holders of ordinary shares		$	14,122		$	(123	)	$	(18,427	)	$	(2,532	)	$	(1,268	)			$	(8,228	)
Income per share — basic		$	0.07																$	(0.03	)
Shares used in calculating basic income per share			210,377,820															(11)	$	309,534,822
Income per share — diluted		$	0.06																$	(0.03	)
Shares used in calculating diluted income per share			238,206,610															(11)		309,534,822

(1)	Excludes the Framedia and Target Media acquisitions as they occurred after September 30, 2005.
(2)	Translations of amounts from Renminbi into United States dollars are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB8.0920, on September 30, 2005, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2004, or at any other rate.
(3)	Presents the condensed consolidated statements of operation of: Perfect Media for the nine months ended September 30, 2005, Focus Media Changsha for the period from March 11, 2004, which was its date of inception, to October 31, 2004, Focus Media Qingdao for the period from March 22, 2004, which was its date of inception to October 31, 2004, Focus Media Dalian for the period from March 24, 2004, which was its date of inception, to October 31, 2004, and Capital Beyond for the year ended December 31, 2004.

14

(4) Reflects the estimated purchase price allocation of the net assets acquired from Framedia. The allocation of the purchase price was based on a preliminary internal study and discussions with our independent third party valuation firm and is subject to refinement regarding the intangible assets acquired.

The aggregate purchase price of $99.8 million is comprised of the following:

	(in thousands
	of U.S. dollars)
Cash consideration	$	39,600
Fair Value of ordinary shares issued		59,248
	$	98,848

The fair value of ordinary shares, issued for pro forma purchase price allocation purposes was determined using the quoted market price as of September 30, 2005, which assumes the transaction was consummated on this date. Upon recording of this transaction for accounting purposes the market price for a reasonable period before and after the acquisition date, which was October 15, 2005, will be used. Because of the change in the trading price of the ordinary shares since September 30, 2005, the actual value of the ordinary shares to be issued may differ substantially, with the effect that purchase price allocation may differ substantially from these amounts and the effect that acquired intangible assets and goodwill will be higher or lower than the fair value calculated according to September 30, 2005 share price.

Estimated purchase price allocation:

	(in thousands		Amortization
	of U.S. dollars)		period
Net tangible assets acquired	$	8,729		—
Acquired intangible assets		14,827		7 years
Goodwill		75,292		—
Total	$	98,848

The intangible assets include licenses, customer base and employee contracts.

Upon obtaining the final valuation report from our independent third party valuation firm the preliminary purchase price allocation and the amortization period for the acquired intangible assets may materially be modified. For example if the purchase price allocation relating to intangible assets were to increase by approximately 15% the amortization expense for the nine months ended September 30, 2005 would increase by approximately $214,000 and for the year ended December 31, 2005 would increase by $285,000.

The total consideration to be paid is determined to be a maximum of $183.0 million which is comprised of $39.6 million cash payment, 22,157,003 ordinary shares. The remaining shares to be issued up to a maximum of 35,830,619 will be issued based on an earnout provision of Infoachieve achieves net earnings in 2006 of more than $8.0 million. The number of shares that have been issued and those pursuant to the earnout provision were calculated on a per share price of $2.456 which was the average trading price of our ADSs for the ten days prior to the signing of the share purchase agreement divided by ten to derive a price per share.

(5) Reflects the estimated purchase price allocation of the net assets acquired from Target Media. The allocation of the purchase price was based on a preliminary internal study and discussions with our independent third party valuation firm and is subject to refinement regarding the intangible assets acquired.

The aggregate purchase price of $300.0 million is comprised of the following:

	(in thousands
	of U.S. dollars)
Cash consideration	$	45,000
Other payables		49,000
Fair Value of ordinary shares issued		205,898
	$	299,898

The cash portion of the purchase price will be paid in three installments. The first installment of $45 million is to be paid at closing. The second installment of $25 million is to be paid on April 28, 2006. The final installment of $24 million is to be paid on July 31, 2006.

The fair value of the ordinary shares issued for purchase price allocation purposes was determined using the quoted market price as of September 30, 2005 assuming the transaction was consummated on this date. Upon recording of this transaction for accounting purposes the market price for a reasonable period before and after the acquisition date, which is January 7, 2006, will be used. Because of the increase in trading price of the ordinary shares since September 30, 2005, the actual value of the ordinary shares to be issued may be substantially higher, with the effect that purchase price allocation may differ substantially from these amounts and the effect that acquired intangible assets and goodwill will be higher than the fair value calculated according to September 30, 2005 share price.

Estimated purchase price allocation:

	(in thousands		Amortization
	of U.S. dollars)		period
Net tangible assets acquired	$	40,051		—
Acquired intangible assets		44,985		7 years
Goodwill		214,862
Total	$	299,898

The intangible assets include licenses, customer base and employee contracts.

Upon obtaining the final valuation report from our independent third party valuation firm the preliminary purchase price allocation and the amortization period for the acquired intangible assets may be materially modified. For example of the purchase price allocation relating to intangible assets were to increase by approximately 15% the amortization expense for the nine months ended September 30, 2005 would be approximately $722,000 and for the year ending December 31, 2005 would increase by $963,000.

(6) Reflects amortization for the acquired intangible assets recorded as a result of our acquisitions of Perfect Media in September 2004, Focus Media Changsha, Focus Media Qingdao, Focus Media Dalian in October 2004, Capital Beyond in March 2005, Framedia in January 2006 and Target Media in the first quarter of 2006 to reflect amortization for the year ended December 31, 2004. The amortization expense has been classified as part of cost of revenues.

15

The amortization expense for Framedia and Target Media of $2.1 million and $6.4 million, respectively, for the year ended December 31, 2004 have been calculated based on a preliminary purchase price allocation and may change materially once the independent third party valuation report is obtained.

(7) Reflects amortization for the intangible assets recorded as a result of our acquisition of Capital Beyond in March 2005, Framedia in January 2006 and Target Media in February 2006 to reflect amortization for the period ended September 30, 2005. The amortization expense has been classified as part of cost of revenues.

The amortization expense for Framedia and Target Media of $1.6 million and $4.8 million, respectively, for the period ended September 30, 2005 have been calculated based on a preliminary purchase price allocation and may change materially once the independent third party valuation report is obtained.

(8)	Assumes the conversion upon completion of the acquisitions of all convertible redeemable convertible preference shares of Framedia and Target Media. Accordingly, the deemed dividends and redemption value accretion relating to these shares have been reversed.
(9)	Gives effect to the issuance and sale of 15,000,000 ordinary shares for total expected proceeds of $60.0 million.
(10)	Reflects the adjustment relating to the conformity in accounting policy of Target Media for employee stock options from FAS 123(R) to APB 25 which is the accounting policy we have adopted.
(11)	The following table sets forth the shares used in computing pro forma per share amounts for the periods indicated:

	December 31,			September 30,
	2004			2005
Shares used in calculating basic and diluted income (loss) per share on a pro forma basis:
Weighted average ordinary shares outstanding used in computing basic income (loss) per share for Focus Media Holding		160,998,600			210,377,820
Issuance of ordinary shares for the acquisition of Framedia		22,157,003			22,157,003
Issuance of ordinary shares for the acquisition of Target Media		77,000,000			77,000,000
Issuance of ordinary shares for the acquisition of Perfect Media		14,594,200			—
Weighted average ordinary shares for the acquisition of Perfect Media used in computing basic income (loss) per Focus Media Holding Limited		(3,998,486	)		—
		270,751,317			309,534,823

(12) There have been no pro forma tax adjustments recorded because our effective tax rate is approximately 0%.

16

RISK FACTORS

       You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Relating to Our Recent Acquisitions

During our due diligence investigation of Target Media, we were given and continue to have only limited access to commercially sensitive information, and there may be liabilities associated with Target Media of which we are not aware, the effects of which could materially and adversely affect our business, reputation, results of operations and financial condition.

       We and Target Media operate in a similar line of business and, until the completion of our acquisition of Target Media, we and Target Media will remain competitors in the out-of-home advertising sector. Accordingly, because of the sensitive nature of the transaction, particularly if the transaction is not completed, we agreed not to have access to contracts and other documents containing commercially sensitive information of Target Media, including their display placement agreements, advertising agreements, customer contracts, supply contracts, acquisition agreements and other contracts, prior to the completion of the acquisition. Moreover, under the terms of the definitive share purchase agreement, other than a customary covenant by Target Media not to engage in specified business activities, we have agreed not to interfere with Target Media’s operation of its business until the completion of the acquisition. As such, our ability to collect additional information about Target Media remains limited until we gain actual control over its operations after the completion of the acquisition. Accordingly, there may be undisclosed liabilities related to these documents for which we may not be indemnified. Moreover, because of the foregoing concerns, we have not had an opportunity to independently verify all of the information relating to Target Media included in this prospectus, including information relating to Target Media’s business, operations, financial condition and results of operations. For example, once we obtain access to Target Media’s books and records, we may discover internal or disclosure control deficiencies, accounting or financial irregularities or weaknesses, or other material problems that may result in material liability or loss to us. Any such liability or loss could materially and adversely affect our business reputation, results of operations and financial condition.

       Target Media shareholders that hold an approximately 49.7% equity interest in Target Media have agreed to indemnify us for losses resulting from undisclosed contracts, other than losses resulting from the ordinary course of business. Those obligations are subject to minimum thresholds and maximum caps. See “Recent Developments — Our Proposed Acquisition of Target Media”. In addition, our ability to successfully assert and enforce indemnification claims against Target Media’s selling shareholders could be costly and time-consuming or may not be successful at all, and we may be required to seek enforcement of those rights in the PRC. See “— Risks Relating to the People’s Republic of China — The PRC legal system embodies uncertainties which could limit legal protections available to you and us”.

If our pending acquisition of Target Media is challenged by the PRC government on antitrust grounds, we may be required to stop or unwind the transaction or undergo a restructuring, which would have a material adverse effect on our business, reputation and results of operations.

       Both we and Target Media operate primarily within one sector of China’s overall advertising industry, out-of-home advertising in urban areas of China. In addition, we and Target Media operate similar networks consisting largely of flat-panel television displays placed in lobbies and near elevators of commercial buildings. Although our networks and Target Media’s network account for a

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small portion of the out-of-home advertising sector in China and an even smaller portion of the overall advertising industry in China, we believe that by acquiring Target Media we will have a substantial share of the out-of-home flat-panel display advertising market in commercial buildings in cities in China. Under current PRC laws and regulations, there are circumstances and events that trigger antitrust review by the Ministry of Commerce of the PRC, or Mofcom, or the State Administration for Industry and Commerce of the PRC, or SAIC, but there is no regulatory guidance on how parties are to properly define markets and no implementing regulations have been promulgated to determine what measures are to be taken by the government in the event that an antitrust review is conducted. Among the circumstances and events that may trigger antitrust review are transactions involving participants with significant market share in a common industry. For example, if any party in an acquisition transaction has a 20% or higher market share in a particular industry, or the surviving entity will have a 25% or higher market share in that industry following a merger or acquisition, antitrust related filings and registration are required. There are no specific rules or official guidance on how parties are to define or determine “market share” under PRC laws and regulations. Based on our understanding of PRC law and the legal advice of PRC counsel in connection with our acquisition of Target Media, we do not believe that an antitrust filing with and review by the relevant PRC authorities is required in connection with our acquisition of Target Media and we have not sought to make any such filing. We cannot assure you that our understanding will not be challenged by the PRC authorities and that the acquisition of Target Media will not be determined to trigger PRC antitrust review. In the event that the acquisition is found to violate PRC antitrust laws and regulations, we may be prohibited from completing the acquisition, required to undo the acquisition or to undergo a restructuring to comply with PRC antitrust laws and regulations, which would have a material adverse effect on our business, reputation and results of operations.

We may be liable for significant damages and a break-up fee if we breach any of the representations or warranties set forth in our definitive share purchase agreement with Target Media, payment of which could have a materially adverse effect on our financial condition and results of operation.

       Under the terms of the definitive share purchase agreement we have entered into with Target Media, if we violate any of the representations or warranties we made in the agreement, we are liable to indemnify the shareholders of Target Media for any resulting damages they suffer in excess of $500,000 up to a maximum of $39,000,000 or, in the case of representations and warranties we made with regard to our organization, authorization of the acquisition and the validity of the shares issued to them, to a maximum of the value of the shares issued to them. In addition, if the agreement is terminated as a result of our breach of the representations and warranties and the breach would prevent the acquisition from being completed, we will be required to pay a break-up fee to Target Media of $20,000,000 or, if we pursue an acquisition of Tulip Media (International) Limited or its subsidiaries and affiliates, which operates an out-of-home LED advertising business in Shanghai, a penalty of $50,000,000, in each case, in addition to our agreement to reimburse Target Media for expenses up to $2 million. Any indemnity payments, break-up fee or other penalties we may be required to pay to Target Media or its shareholders pursuant to the agreement would have a material adverse effect on our financial condition and results of operation. See “Recent Developments — Our Proposed Acquisition of Target Media — Share Purchase Agreement — Fees, Deposit and Break-up Fee”.

Our acquisition of Framedia and pending acquisition of Target Media and any future acquisitions may expose us to potential risks and have an adverse effect on our ability to manage our business.

       Selective acquisitions, such as our recent acquisition of Framedia and Target Media, form part of our strategy to further expand our business. If we are presented with appropriate opportunities, we may acquire additional businesses, services or products that are complementary to our core business. Our integration of the acquired entities into our business may not be successful and may

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not enable us to expand into new advertising platforms as well as we expect. This would significantly affect the expected benefits of these acquisitions. Moreover, the integration of Framedia into our operations and the negotiations for our acquisition of Target Media have required significant attention from our management. Future acquisitions, including that of Target Media, will also likely present similar challenges.

       The diversion of our management’s attention and any difficulties encountered in any integration process could have an adverse effect on our ability to manage our business. In addition, we may face challenges trying to integrate new operations, services and personnel with our existing operations. Recent or pending acquisitions, including those of Framedia and Target Media, and possible future acquisitions may also expose us to other potential risks, including risks associated with unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, our inability to generate sufficient revenue to offset the costs, expenses of acquisitions and potential loss of, or harm to, relationships with employees and advertising clients as a result of our integration of new businesses and new regulations governing cross-border investment by PRC residents. In addition, we cannot be sure that we will be able to realize the benefits we anticipate from acquiring Framedia, Target Media and other companies, or that we will not incur costs, including those relating to intangibles or goodwill, in excess of our projected costs for these transactions. The occurrence of any of these events could have a material and adverse effect on our ability to manage our business, our financial condition and our results of operations.

There may be unknown risks inherent in our acquisition of Framedia.

       Although we have conducted due diligence with respect to Framedia, we may not be aware of all of the risks associated with Framedia. For example, we may not be aware of all of the existing disputes or potential disputes against Framedia. Any discovery of adverse information concerning Framedia since we acquired it could have a material adverse effect on our business, financial condition and results of operations. While we are entitled to seek indemnification from former shareholders of Framedia, successfully asserting indemnification against them or enforcing such indemnification could be costly and time-consuming or may not be successful at all.

Historical deficiencies in Framedia’s compliance with relevant corporate law requirements could result in fines, revocation of its business license or the invalidation of agreements to which it is a party.

       Our acquisition of Framedia may expose us to other risks. For example, Framedia Investment was not able to satisfy its capitalization requirement within the statutorily prescribed time-frame, which could trigger the invalidation of the approval and revocation of the registration of Framedia Investment and the potential dissolution or invalidation of the agreements to which Framedia Investment is a party. Framedia Investment has now completed its capital contribution and is now re-applying for issuance of a new approval certificate and business license. In addition, several affiliated entities of Framedia may not have fully discharged their obligations to pay or withhold taxes, which could result in potential administrative or criminal liabilities. We are in the process of taking actions to pay or withhold the defaulted taxes. However, we cannot assure that past deficiencies in Framedia’s capitalization will not result in fines, revocation of its business license or the invalidation of agreements to which it is a party.

Risks Relating to Our Business and Industry

We have a limited operating history, which may make it difficult for you to evaluate our business and prospects.

       We began operations of our commercial location network in May 2003. In addition, we have operated our in-store network since April 2005 and began to operate Framedia’s poster frame network on January 1, 2006. Accordingly, we have a very limited operating history for our current

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operations upon which you can evaluate the viability and sustainability of our business and its acceptance by advertisers and consumers. It is also difficult to evaluate the viability of our use of audiovisual advertising displays in commercial buildings, hypermarkets, supermarkets and convenience stores and other out-of-home commercial locations and our use of advertising poster frames in residential complexes as a business model because we do not have sufficient experience to address the risks frequently encountered by early stage companies using new forms of advertising media and entering new and rapidly evolving markets. These circumstances may make it difficult for you to evaluate our business and prospects.

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.

       The market for out-of-home advertising networks in China is relatively new and its potential is uncertain. We compete for advertising spending with many forms of more established advertising media. Our success depends on the acceptance of our out-of-home advertising network by advertisers and their continuing interest in these mediums as components of their advertising strategies. Our success also depends on the viewing public continuing to be receptive towards our advertising network. Advertisers may elect not to use our services if they believe that consumers are not receptive to our networks or that our networks do not provide sufficient value as effective advertising mediums. Likewise, if consumers find some element of our networks, such as the audio feature of our commercial location and in-store networks, to be disruptive or intrusive, commercial locations and stores may decide not to place our flat-panel displays in their properties and advertisers may view our advertising network as a less attractive advertising medium compared to other alternatives. In that event, advertisers may determine to reduce their spending on our advertising network. If a substantial number of advertisers lose interest in advertising on our advertising network for these or other reasons, we will be unable to generate sufficient revenues and cash flow to operate our business, and our advertising service revenue, liquidity and results of operations could be negatively affected.

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.

       Demand for advertising time slots and advertising frame space on our networks, and the resulting advertising spending by our clients, is particularly sensitive to changes in general economic conditions and advertising spending typically decreases during periods of economic downturn. Advertisers may reduce the money they spend to advertise on our networks for a number of reasons, including:

•  a general decline in economic conditions;

•  a decline in economic conditions in the particular cities where we conduct business;

•  a decision to shift advertising expenditures to other available advertising media; or

•  a decline in advertising spending in general.

       A decrease in demand for advertising media in general and for our advertising services in particular would materially and adversely affect our ability to generate revenue from our advertising services, and our financial condition and results of operations.

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A substantial majority of our revenues are currently concentrated in four of China’s major cities. If any of these major cities experiences an event negatively affecting its advertising industry, our advertising network, and our ability to generate adequate cash flow would be materially and adversely affected.

       A substantial majority of our revenues are currently concentrated in Beijing, Shanghai, Guangzhou and Shenzhen, four of China’s major cities. We derived more than 75% and 78% of our total revenues in 2004 and for the nine months ended September 30, 2005, respectively, from these four cities. We expect these four cities to continue to constitute important sources of our revenues, and as a result of our acquisition of Framedia, this percentage may increase, as the substantial majority of Framedia’s revenues are derived from these four cities. After we complete our acquisition of Target Media, this percentage may further increase, as we believe Target Media derives a significant percentage of its revenues from these four cities. If any of these major cities experiences an event negatively affecting its advertising industry, such as a serious economic downturn, a construction moratorium that would have the effect of materially limiting the supply of new buildings in which we can place our flat-panel displays or advertising poster frames or similar changes in government policy, or a natural disaster, our advertising network and our ability to generate adequate cash flow would be materially and adversely affected.

Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period in the future.

       Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period based on the seasonality of consumer spending and corresponding advertising trends in China. In addition, advertising spending generally tends to decrease during January and February each year due to the Chinese Lunar New Year holiday. We also experience a slight decrease in revenues during the hot summer months of July and August each year, when there is a relative slowdown in overall commercial activity in urban areas in China. As a result, you may not be able to rely on period to period comparisons of our operating results as an indication of our future performance. Factors that are likely to cause our operating results to fluctuate, such as the seasonality of advertising spending in China, a deterioration of economic conditions in China and potential changes to the regulation of the advertising industry in China, are discussed elsewhere in this prospectus. If our revenues for a particular quarter are lower than we expect, we may be unable to reduce our operating expenses for that quarter by a corresponding amount, which would harm our operating results for that quarter relative to our operating results from other quarters.

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 would harm our business and prospects.

       Our ability to generate revenues from advertising sales depends largely upon our ability to provide large networks of flat-panel displays placed in desirable building, commercial and store locations and of advertising poster frames placed in residential complexes throughout major urban areas in China. This, in turn, requires that we develop and maintain business relationships with real estate developers, landlords, property managers, hypermarkets, retailers and other businesses and locations in which we rent space for our displays. As of September 30, 2005, with regard to our commercial location network, we had entered into separate display placement agreements with landlords and property managers to operate 34,079 flat-panel displays in 18,538 locations in 23 cities in China, and our regional distributors had entered into their own separate display placement agreements with landlords and property managers to operate approximately 3,273 flat-panel displays in approximately 2,656 locations in 31 other cities in China. In addition, as of September 30, 2005, with regard to our in-store network, we had entered into separate display placement agreements with hypermarkets, supermarkets and convenience stores to operate 20,061 flat-panel displays in 2,702 stores throughout China. Although a majority of our display

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placement agreements and advertising frame placement agreements have terms ranging from three to five years and two to three years, respectively, and upon expiration give us the right to renew the agreement on terms no less favorable than those offered by competing bidders, we may not be able to maintain our relationships with them on satisfactory terms, or at all. If we fail to maintain our relationships with landlords and property managers, or if a significant number of our existing display or advertising frame placement agreements are terminated or not renewed, advertisers may find advertising on our networks unattractive and may not wish to purchase advertising time slots or advertising frame space on our networks, which would cause our revenues to decline and our business and prospects to deteriorate.

       Under some of our display placement agreements in Guangzhou, Shenzhen, Dalian and Chongqing, the property manager has the right to terminate the agreement if landlords or tenants in the building lodge complaints about our flat-panel displays. In addition, some of our display placement agreements in other cities allow the property manager to terminate the agreement if we fail to keep each flat-panel display operational for a minimum amount of time each year. If these tenants complain about our displays, or if the property manager claims we have failed to keep the flat-panel displays operational for the stipulated number of days each year, we may be required to remove our panels from these commercial locations.

       In accordance with PRC real estate laws and regulations, prior consent of landlords and property managers is required for any commercial use of the public areas or facilities of residential properties. With regard to our network of advertising poster frames and some of our flat-panel displays placed in the elevators and public areas of residential complexes, we have entered into frame or display placement agreements with property managers and landlords. For those frame or display placement agreements entered into with property managers, we intend to obtain or urge property managers to obtain consents from landlords. However, if the landlords of a residential complex object to our placing advertising poster frames or flat-panel displays in the elevators and public areas of the complex, we may be required to remove our advertising poster frames or flat-panel displays from the complex and may be subject to fines.

We may not be able to successfully expand our out-of-home advertising network into new regions or diversify our network into new advertising networks or media platforms, which could harm or reverse our growth potential and our ability to increase our revenues, or even result in a decrease in revenues.

       We are pursuing a strategy to expand our network into new regions, new advertising channels, such as hypermarkets, supermarkets and convenience stores, beauty parlors, golf country clubs and other commercial locations as well as residential complexes. We are also expanding our network into new advertising media, such as advertising poster frames. For example:

•  in April 2005, we commenced operation of our in-store network of flat-panel television displays placed in hypermarkets, supermarkets and convenience stores;

•  in January 2006, we acquired Framedia, which operates an advertising poster frame network located primarily in residential complexes; and

•  we recently began marketing separate channels of our commercial location network, such as golf country club locations and airport shuttle bus locations on our network, to enable advertisers to focus on additional targeted consumer audiences.

       Because portions of our existing network are rapidly reaching saturation, in order to successfully expand our networks, we must expand our networks to include new regions and new advertising channels. In order to expand our networks into new regions, we must enter into new display or frame placement agreements in new cities. In the case of our commercial location network, we generally expand our networks into new cities by means of establishing new operations through entering into contractual relationships with regional distributors. If these regional distributors

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are not successful in expanding our commercial location network in other cities, our ability to grow our commercial location network in other regions may be hampered. The process of diversifying our networks into new advertising channels is also time consuming and requires us to expend time and resources in educating landlords and property managers about the benefits of separate advertising channels that are dedicated to specific demographics characteristics. If we are unable to grow our new in-store network or our poster frame network or to successfully diversify into other new advertising channels, our advertising network may not be as attractive as those of our competitors, which could harm or reverse our growth potential and our ability to increase our revenues, or even result in a decrease in revenues.

If we are unable to obtain or retain desirable placement locations for our flat-panel displays and advertising poster frames on commercially advantageous terms, 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.

       Our location costs, which include lease payments to landlords and property managers under our display placement agreements, maintenance and monitoring fees and other associated costs, comprise a significant portion of our cost of revenues. For the nine months ended September 30, 2005, our location costs for our out-of-home television networks accounted for 53% of our cost of revenues and 24% of our total revenues, respectively. In the future, we may need to increase our expenditures on our display and frame placement agreements to obtain new and desirable locations, to renew existing locations, and to secure favorable exclusivity and renewal terms. In addition, lessors of space for our flat-panel displays and advertising poster frames may charge increasingly higher display location lease fees, or demand other compensation arrangements, such as profit sharing. If we are unable to pass increased location costs on to our advertising clients through rate increases, our operating margins and earnings could decrease and our results of operations could be materially and adversely affected.

When our out-of-home television advertising networks reach saturation in the cities where we operate, we may be unable to grow our revenue base or to satisfy all of our advertisers’ needs, which could hamper our ability to generate higher levels of revenues over time.

       Our commercial location and in-store networks currently operate with a repeating nine- or twelve-minute cycle of advertisements per week broadcast repeatedly approximately 60 or 80 times per day consisting of 18 or 24 30-second time slots per week. Where demand for time slots by advertisers is high, such as in our Tier I cities, our out-of-home television networks may reach saturation, meaning we cannot sell additional advertising time slots for that week’s cycle without further increasing the length of the cycle and correspondingly reducing the number of broadcasts per day of each advertisement. When our commercial location and in-store networks reach saturation in any particular city, we will be forced to lengthen our advertising cycle to accommodate additional advertisers, as we have done in all of our directly operated cities, or increase our advertising rates to increase our revenues in our existing cities of operation. However, advertisers may be unwilling to accept rate increases or the placement of their advertisement on a longer time cycle that gives their advertisement less exposure each day. If we are unable to increase the duration of our advertising cycle in cities that reach saturation, or if we are unable to pass through rate increases to our advertising clients in those cities, we may be unable to grow our revenue base or to satisfy all of our advertisers’ needs, which could hamper our ability to generate higher levels of revenues over time.

If the market supply of desirable commercial, store and residential locations diminishes or ceases to expand, we may be unable to expand our network into locations advertising clients find desirable, which could decrease the value of our network to advertisers.

       We believe advertisers place a premium on having their advertisements broadcast or placed in the most commercially desirable locations, which we believe includes commercial and residential

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locations frequented by more affluent consumer groups in China’s major urban areas. As some of China’s cities have undergone development and expansion for several decades while others are still at an early stage of development, the supply of desirable commercial and residential locations varies considerably from region to region. In more developed cities, it may be difficult to increase the number of desirable locations in our network because most such locations have already been occupied either by us or by our competitors. In recently developing cities, the supply of desirable locations may be small and the pace of economic development and construction levels may not provide a steadily increasing supply of desirable commercial and residential locations. If, as a result of these possibilities, we are unable to increase the placement of our out-of-home television and poster frame advertising networks into commercial and residential locations that advertisers find desirable, we may be unable to expand our client base, sell advertising time slots and poster frame space on our network or increase the rates we charge for time slots and poster frame space, which could decrease the value of our network to advertisers.

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.

       The amounts of fees we can charge advertisers for time slots on our out-of-home television networks depend on the size and quality of our out-of-home television networks and the demand by advertisers for advertising time on our out-of-home television networks. Advertisers choose to advertise on our out-of-home television networks in part based on the size of the networks and the desirability of the locations where we have placed our flat-panel displays as well as the quality of the services we offer. If we fail to maintain or increase the number of locations and displays in our networks, diversify advertising channels in our networks, or solidify our brand name and reputation as a quality provider of advertising services, advertisers may be unwilling to purchase time on our networks or to pay the levels of advertising fees we require to remain profitable.

       In addition, the fees we can charge advertisers for frame space on our poster frame network depends on the quality of the locations in which we place advertising poster frames, demand by advertisers for frame space and the quality of our service. If we are unable to continue to secure the most desirable residential locations for deployment of our advertising poster frames, we may be unable to attract advertisers to purchase frame space on our poster frame network.

       Our failure to attract advertisers to purchase time slots and frame space on our networks will reduce demand for time slots and frame space on our networks and the number of time slots and amount of frame space we are able to sell, which could necessitate lowering the fees we charge for advertising time on our network and could negatively affect our ability to increase revenues in the future.

We may be unable to maintain the growth of our network of flat-panel displays into hypermarkets, supermarkets, convenience stores and other types of businesses that have control over many stores, and our failure to maintain such growth could materially reduce the attractiveness of our network and harm our business, reputation and results of operations.

       Our strategy includes expanding our in-store network into hypermarkets and other types of businesses that have control over many store locations such as supermarkets and convenience stores. We commenced operation of our in-store network in April 2005. As of September 30, 2005, we had placed 20,061 flat-panel displays in 2,702 hypermarkets, supermarkets and convenience stores. As a relatively new and untested portion of our business, it is difficult to evaluate whether our in-store network will continue to attract advertisers, and there exists the risk that it may not succeed at all. For the three month periods ended June 30, 2005 and September 30, 2005 and for the nine months ended September 30, 2005, revenues from our in-store network accounted for 2.3%, 9.4% and 5.0% of our advertising service revenue, respectively. Many of our arrangements with such businesses are and will continue to be handled through a single or small number of display

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placement agreements designed to cover a chain’s entire network of stores, either nationwide or throughout an entire city. We may, therefore, increase our dependence on one or a small number of retail store chains in terms of our coverage. If our network becomes more concentrated in major chains, any dispute we have with any single chain, or any failure to renew our display placement agreements or maintain our exclusivity terms with any single chain, could materially reduce the attractiveness of our in-store network and harm our business, reputation and results of operations.

       For example, we have been expanding our network into the Hymart chain of hypermarkets in Shanghai. We subsequently received a notice from Shanghai Xichen Cultural Dissemination Co., Ltd., also referred to as CGEN, a competitor claiming to have established an exclusive business relationship with Hymart. Hymart subsequently notified us that it had requested in writing to terminate its relationship with CGEN. In order to maintain our presence in the Hymart stores, we have agreed with Hymart to compensate it for any reasonable costs it incurs in defending against any breach of contract suit that may be brought by CGEN against Hymart. In July 2005, CGEN brought a suit against Hymart in Changling District Court in Shanghai. The court dismissed the case against Hymart in October 2005 and CGEN subsequently appealed. If CGEN prevails in such appeal, we may be required to compensate Hymart for any damages it suffers or to remove our displays from some Hymart stores or both, which would reduce the size of our network and make us less attractive to potential advertising clients.

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

       As of September 30, 2005, we covered 31 out of the 54 cities where we provide our commercial location network through contractual arrangements with regional distributors. Under these arrangements, we provide our business model and operating expertise to local advertising companies in exchange for their acting as regional distributors of our advertising services. We also sell our flat-panel displays to our regional distributors, who are responsible for developing and maintaining an advertising network in office buildings and other commercial locations in the city where they operate. We also grant our regional distributors the right to use our “Focus Media” brand name and logo. However, our contractual arrangements with our regional distributors do not provide us with control or oversight over their everyday business activities, and one or more of our regional distributors may engage in activities that violate PRC laws and regulations governing the advertising industry and advertising content, or other PRC laws and regulations generally. Some of our regional distributors may not possess all the licenses required to operate an advertising business, or may fail to maintain the licenses they currently hold, which could result in local regulators suspending the operations of the network in those cities. In addition, we do not independently review the advertising content that our regional distributors display on the portion of our commercial location network that they operate independently, and our regional distributors may include advertising content on their part of the commercial location network and violate PRC advertising laws or regulations or expose them and us to lawsuits or result in the revocation of their business license. If any of these events occurs, it could harm our reputation in the industry.

Suodi Advertising, our network development and maintenance agent in Beijing, may have a claim against us under the non-competition clause of our contract with it, and if Suodi Advertising were successful in bringing a claim against us, our financial condition and results of operations may be materially and adversely affected.

       We entered into an agency agreement with Beijing Suodi Advertising Co., Ltd., or Suodi Advertising, that contains a non-competition clause which restricts us from developing new network locations in commercial buildings in Beijing without the assistance of Suodi Advertising through 2008. We have entered into display placements agreements with landlords and property managers of commercial buildings in Beijing without the assistance of Suodi Advertising. We believe that Suodi Advertising does not have the right to require us to terminate or otherwise void the display

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placement agreements we have entered into without its assistance, although it can pursue claims against us for monetary damages. Although Suodi Advertising has not pursued any claim against us in connection with our having entered into such display placement agreements, we cannot assure you that Suodi will not do so in the future. If Suodi Advertising successfully pursues a claim against us, we could be liable for monetary damages we may have caused to Suodi Advertising. If we are found to have violated our contract with Suodi Advertising, our payment obligations over the five year term of the contract can be accelerated, and we estimate our liability under the agreement could reach as much as $730,000, excluding possible consequential damages, which could materially and adversely affect our financial condition and results of operations.

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.

       We have been rapidly expanding, and plan to continue to rapidly expand, our operations in China. We must continue to expand our operations to meet the demands of advertisers for larger and more diverse network coverage and the demands of current and future landlords and property managers for installing and configuring flat-panel displays and advertising poster frames in our existing and future commercial, store and residential locations. This expansion has resulted, and will continue to result, in substantial demands on our management resources. It has also increased our need for a reliable supply of equipment, particularly flat-panel displays for our out-of-home television networks which are manufactured by a few third-party contract assemblers according to our specifications. To manage our growth, we must develop and improve our existing administrative and operational systems and, our financial and management controls and further expand, train and manage our work force. We commenced operation of our in-store network in April 2005 and as of September 30, 2005, had placed a total of 20,061 flat-panel displays in 2,702 stores. We intend to continue to expand our in-store network in cities throughout China. In addition, we have already begun expanding our out-of-home advertising network through contractual arrangements with local operators in several cities outside of China, including Hong Kong, Taipei and Singapore and may in the future expand to other countries or regions. As we continue this effort, we may incur substantial costs and expend substantial resources in connection with any such expansion due to, among other things, different technology standards, legal considerations and cultural differences. We may not be able to manage our current or future international operations effectively and efficiently or compete effectively in such markets. We cannot assure you that we will be able to efficiently or effectively manage the growth of our operations, recruit top talent and train our personnel. Any failure to efficiently manage our expansion may materially and adversely affect our business and future growth.

       In addition, we have recently expanded our business to new advertising networks and media, including in-store television advertising and in-elevator poster frame advertising, and we may continue to enter into additional types of advertising businesses, such as the creation of additional networks of out-of-home television advertising or the use of direct marketing techniques. As we continue to expand into new networks and new media platforms, we expect the percentage of revenues derived from our commercial location network to decline. However, the new advertising networks and media platforms we pursue may not present the same opportunities for growth that we have experienced with our commercial location network and, accordingly, we cannot assure you that the level of growth of our networks will not decline over time. Moreover, we expect the level of growth of our commercial location network to decrease as many of the more desirable locations have already been leased by us or our competitors.

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We depend on the leadership and services of Jason Nanchun Jiang, who is our founder, chairman, chief executive officer and our largest shareholder, and our business and growth prospects may be severely disrupted if we lose his services.

       Our future success is dependent upon the continued service of Jason Nanchun Jiang, our founder, chairman, chief executive officer and a major shareholder. We rely on his industry expertise and experience in our business operations, and in particular, his business vision, management skills, and working relationships with our employees, our other major shareholders, many of our clients and landlords and property managers of the locations in our network. We do not maintain key-man life insurance for Mr. Jiang. If he was unable or unwilling to continue in his present position, or if he joined a competitor or formed a competing company in violation of his employment agreement and noncompetition agreement, we may not be able to replace him easily or at all. As a result, our business and growth prospects may be severely disrupted if we lose his services.

If we do not continue to expand and maintain an effective sales and marketing team it will cause short-term disruptions of our operations, restrict our sales efforts and negatively affect our advertising service revenue.

       We market our advertising services directly to advertisers and to advertising agencies. As of September 30, 2005, we had 645 dedicated sales and marketing personnel. As we only commenced our current business operations in May 2003, many of our sales and marketing personnel have only worked for us for a short period of time. With the acquisition of Framedia, we have added an additional 178 sales and marketing personnel. We depend on our marketing staff to explain our service offerings to our existing and potential clients and to cover a large number of clients in a wide variety of industries. We will need to further increase the size of our sales and marketing staff if our business continues to grow. We may not be able to hire, retain, integrate or motivate our current or new marketing personnel which would cause short-term disruptions of our operations, restrict our sales efforts and negatively affect our advertising service revenue.

We may need additional capital and we may not be able to obtain it, which could adversely affect our liquidity and financial position.

       We believe that our current cash and cash equivalents, cash flow from operations and the proceeds from our recent initial public offering and this offering will be sufficient to meet our anticipated cash needs including for working capital and capital expenditures, for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of convertible debt securities or additional equity securities, including from this offering, could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.

       Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

•  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

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•  PRC governmental policies relating to foreign currency borrowings.

       We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us could have a material adverse effect on our liquidity and financial condition.

If we are unable to adapt to changing advertising trends and the technology needs of advertisers and consumers, we will not be able to compete effectively and we will be unable to increase or maintain our revenues which may materially and adversely affect our business prospects and revenues.

       The market for out-of-home advertising requires us to continuously identify new advertising trends and the technology needs of advertisers and consumers, which may requires us to develop new features and enhancements for our advertising network. The majority of our displays use 17-inch liquid crystal displays screens. We also have a growing number of displays that use 42-inch plasma screens. We currently broadcast advertisements on our commercial location network and in-store network primarily through compact flash, or CF, cards and through digital video disks, or DVDs, that are manually installed in our flat-panel displays each week. In the future, subject to relevant PRC laws and regulations, we may use other technology, such as cable or broadband networking, advanced audio technologies and high-definition panel technology. We may be required to incur development and acquisition costs in order to keep pace with new technology needs but we may not have the financial resources necessary to fund and implement future technological innovations or to replace obsolete technology. Furthermore, we may fail to respond to these changing technology needs. For example, if the use of wireless or broadband networking capabilities on our advertising network becomes a commercially viable alternative and meets all applicable PRC legal and regulatory requirements, and we fail to implement such changes on our commercial location network and in-store network or fail to do so in a timely manner, our competitors or future entrants into the market who do take advantage of such initiatives could gain a competitive advantage over us. In addition, Framedia is in the process of developing an advertising poster frame with a rolling display that would allow for changing up to three advertising posters on each display. If we cannot succeed in developing and introducing new features on a timely and cost-effective basis, advertiser demand for our advertising networks may decrease and we may not be able to compete effectively or attract advertising clients, which would have a material and adverse effect on 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 out-of-home advertising network.

       PRC advertising laws and regulations require advertisers, advertising operators and advertising distributors, including businesses such as ours, to ensure that the content of the advertisements they prepare or distribute are fair and accurate and are in full compliance with applicable law. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke a violator’s license for advertising business operations.

       As an out-of-home advertising service provider, we are obligated under PRC laws and regulations to monitor the advertising content that is shown on our out-of-home advertising networks for compliance with applicable law. In addition, each of our regional distributors is obligated under PRC laws and regulations to monitor the advertising content shown on the portion of our out-of-home television advertising network each of them operates. In general, the advertisements shown on our out-of-home television advertising network and the portion of our advertising network operated by our regional distributors have previously been broadcast over public television networks and have been subjected to internal review and verification of such networks. We and our regional distributors

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are still separately required to independently review and verify these advertisements for content compliance before displaying the advertisements. In addition, where a special government review is required for specific product advertisements before broadcasting, we and our regional distributors are separately obligated to confirm that such review has been performed and approval has been obtained. We employ, and our regional distributors are required under the terms of our agreements with them to employ, qualified advertising inspectors who are trained to review advertising content for compliance with relevant PRC laws and regulations. In addition, for advertising content related to specific types of products and services, such as alcohol, cosmetics, pharmaceuticals and medical procedures, we and our distributors are required to confirm that the advertisers have obtained requisite government approvals including the advertiser’s operating qualifications, proof of quality inspection of the advertised products, government pre-approval of the contents of the advertisement and filing with the local authorities. We endeavor to comply, and encourage our regional distributors to take measures to comply, with such requirements, including by requesting relevant documents from the advertisers. However, we cannot assure you that each advertisement an advertising client or agency provides to us and which we include in our weekly advertising cycle in our out-of-home television advertising networks is in compliance with relevant PRC advertising laws and regulations or that the supporting documentation and government approvals provided to us by our advertising clients in connection with specific advertising content are complete; nor can we assure you that the advertisements that our regional distributors have procured for broadcasting on our network have received required approval from the relevant local supervisory bodies or are content compliant.

       Following our acquisition of Framedia, in January 2006 we began to operate a network of advertising poster frames placed primarily in elevators and public areas of residential complexes. The advertisements shown on our poster frame network are defined as print advertisements under PRC laws and regulations and are also subject to the same legal requirements as advertisements shown on our out-of-home television advertising networks. We cannot assure you that each advertisement shown on our poster frame network is in compliance with relevant PRC advertising laws and regulations or that the supporting documentation and government approvals provided to us by our advertising clients in connection with such advertising content are complete.

       Moreover, civil claims may be filed against us for fraud, defamation, subversion, negligence, copyright or trademark infringement or other violations due to the nature and content of the information displayed on our advertising network. If consumers find the content displayed on our advertising network to be offensive, landlords or property managers may seek to hold us responsible for any consumer claims or may terminate their relationships with us.

       In addition, if the security of our content management system is breached through the placement of unauthorized CF cards in our flat-panel displays and unauthorized images, text or audio sounds are displayed on our advertising network, viewers or the PRC government may find these images, text or audio sounds to be offensive, which may subject us to civil liability or government censure despite our efforts to ensure the security of our content management system. Any such event may also damage our reputation. If our advertising viewers do not believe our content is reliable or accurate, our business model may become less appealing to viewers in China and our advertising clients may be less willing to place advertisements on our advertising network.

We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely against us, may materially disrupt our business.

       We cannot be certain that our advertising displays or other aspects of our business do not or will not infringe upon patents, copyrights or other intellectual property rights held by third parties. Although we are not aware of any such claims, we may become subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to

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develop alternatives. In addition, we may incur substantial expenses in defending against these third party infringement claims, regardless of their merit. Successful infringement or licensing claims against us may result in substantial monetary liabilities, which may materially and adversely disrupt our business.

We face significant competition, and if we do not compete successfully against new and existing competitors, we may lose our market share, and our profitability may be adversely affected.

       We compete with other advertising companies in China, such as Target Media and Shanghai Xichen Cultural Dissemination Co., Ltd, also referred to as CGEN. If we complete our acquisition of Target Media, we will no longer compete with Target Media. We compete for advertising clients primarily on the basis of network size and coverage, location, price, the range of services that we offer and our brand name. We also face competition from other out-of-home television advertising network operators for access to the most desirable locations in cities in China. Individual buildings, hotels, restaurants and other commercial locations and hypermarket, supermarket and convenience store chains may also decide to independently, or through third-party technology providers, install and operate their own flat-panel television advertising screens. For example, our competitor in the in-store out-of-home television advertising space, CGEN, currently provides flat-panel advertising display technology for many Carrefour stores in China, creating a barrier to our entry into many such store locations. We also compete for overall advertising spending with other alternative advertising media companies, such as Internet, street furniture, billboard, frame and public transport advertising companies, and with traditional advertising media, such as newspapers, television, magazines and radio.

       In the future, we may also face competition from new entrants into the out-of-home television advertising sector. Our sector is characterized by relatively low fixed costs and, as is customary in the advertising industry, we do not have exclusive arrangements with our advertising clients. These two factors present potential entrants to our sector of the advertising industry with relatively low entry barriers. In addition, since December 10, 2005, wholly foreign-owned advertising companies are allowed to operate in China, which may expose us to increased competition from international advertising media companies attracted to opportunities in China.

       Increased competition could reduce our operating margins and profitability and result in a loss of market share. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources, or exclusive arrangements with desirable locations, and others may successfully mimic and adopt our business model. Moreover, increased competition will provide advertisers with a wider range of media and advertising service alternatives, which could lead to lower prices and decreased revenues, gross margins and profits. We cannot assure you that we will be able to successfully compete against new or existing competitors.

Our senior management and employees have worked together for a short period of time, which may make it difficult for you to evaluate their effectiveness and ability to address challenges.

       Due to our limited operating history and recent additions to our management team, some of our senior management and employees have worked together at our company for only a relatively short period of time. For example, several key employees including the vice president in charge of our in-store network and our in-house general counsel joined us in March 2005. We also hired our internal auditor and chief accounting officer in April 2005, our chief marketing officer in June 2005, and our chief strategy officer in August 2005. Following our acquisition of Framedia in January 2006, Tan Zhi, the former chairman and chief executive officer of Framedia, continues to be involved in the operation of our poster frame network. In addition, if we complete our acquisition of Target Media, we expect that David Yu, the current chairman and chief executive officer of Target Media, will join

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as a co-chairman of our board of directors and president. As a result of these circumstances, it may be difficult for you to evaluate the effectiveness of our senior management and other key employees and their ability to address future challenges to our business.

Any business disruption or litigation we experience might result in our incurring substantial costs and the diversion of resources.

       The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products and do not, to our knowledge, offer business liability insurance. While business disruption insurance is available to a limited extent in China, we have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, except for fire insurance, we do not have any business liability, disruption or litigation insurance coverage for our operations in China. Any business disruption or litigation may 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 U.S. tax consequences to U.S. investors.

       Based upon the past and projected composition of our income and valuation of our assets, including goodwill, we believe we were not a passive foreign investment company for 2005, we do not expect to be a passive foreign investment company for 2006, and we do not expect to become one in the future, although there can be no assurance in this regard. If, however, we were a passive foreign investment company, such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, our U.S. investors will become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for U.S. tax purposes if either: (i) 75% or more of our gross income in a taxable year is passive income, or (ii) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%. The calculation of the value of our assets will be based, in part, on the then market value of our ADSs, which is subject to change. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. We cannot assure you that we will not be a PFIC for 2005 or any future taxable year. For more information on PFICs, see “Taxation — United States Federal Income Taxation”.

There have been historical material weaknesses with our internal controls and there remain areas of our internal and disclosure controls that require improvement. If we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may be adversely impacted.

       When our auditors audited our financial statements as of and for the period ended December 31, 2004, they identified one “reportable condition”, as that term is defined under standards established by the American Institute of Certified Public Accountants, in our internal accounting controls. Specifically the auditors noted that we did not have dedicated financial reporting and accounting resources sufficient to comply with accounting principles generally accepted in the U.S. This reportable condition constituted a material weakness in the design and operation of our internal controls that, in our independent auditors’ judgment, could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements.

       Following the identification of these material weaknesses, we consulted with our audit committee and undertook remedial steps to address these deficiencies, including hiring additional

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staff and training our new and existing staff. In particular, we hired our chief financial officer, an internal auditor, a financial controller and an in-house general counsel, and we continue to take additional steps to improve our internal controls and disclosure controls. If we are unable to implement solutions to any weaknesses in our existing internal and disclosure controls and procedures, or if we fail to maintain an effective system of internal and disclosure controls in the future for our company and for companies that we acquire, including Framedia and Target Media, we may be unable to accurately report our financial results or prevent fraud and investor confidence and the market price of our ADSs may be adversely impacted.

       We have also hired an outside consultant to assist us in establishing measures to enable us to comply with internal control requirements under the Sarbanes-Oxley Act, but we cannot assure you that these measures will enable us to achieve or maintain compliance with all such internal control requirements.

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.

       Substantially all of our operations are or will be conducted through Focus Media Technology and Framedia Investment, our indirectly wholly-owned operating subsidiaries in China, Focus Media Digital, a 90%-owned subsidiary of Focus Media Technology, and through our contractual arrangements with several of our consolidated affiliated entities in China. PRC regulations require any foreign entities that invest in the advertising services industry to have at least two years of direct operations in the advertising industry outside of China. Since December 10, 2005, foreign investors have been allowed to own directly 100% of PRC companies operating an advertising business if the foreign entity has at least three years of direct operations in the advertising business outside of China or less than 100% if the foreign investor has at least two years of direct operations in the advertising industry outside of China. We do not currently directly operate an advertising business outside of China and cannot qualify under PRC regulations any earlier than two or three years after we commence any such operations outside of China or until we acquire a company that has directly operated an advertising business outside of China for the required period of time. Accordingly, our subsidiaries, Focus Media Technology, Focus Media Digital and Framedia Investment, are currently ineligible to apply for the required licenses for providing advertising services in China. Substantially all of our advertising business is currently provided through our contractual arrangements with our and Framedia’s consolidated affiliated entities in China, including Focus Media Advertisement and its subsidiaries. Focus Media Advertisement is currently owned by two PRC citizens, Jason Nanchun Jiang, our chairman and chief executive officer, and Jimmy Wei Yu, one of our directors who is affiliated with UCI Group (China) Limited, one of our principal shareholders. Focus Media Advertisement, several of its subsidiaries, and New Focus Media Advertisement hold the requisite licenses to provide advertising services in China. Focus Media Advertisement and its subsidiaries directly operate our advertising network, enter into display placement agreements and New Focus Media Advertisement sells advertising time slots to our clients. We have been and are expected to continue to be dependent on Focus Media Advertisement and its subsidiaries to operate our advertising business for the foreseeable future. We have entered into contractual arrangements with Focus Media Advertisement and its subsidiaries, pursuant to which we, through Focus Media Technology and Focus Media Digital, provide technical support and consulting services to Focus Media Advertisement and its subsidiaries, including Focus Media Advertising Agency. In addition, we have entered into agreements with Focus Media Advertisement and each of the shareholders of Focus Media Advertisement and Guangdong Framedia which provide us with the substantial ability to control Focus Media Advertisement and its existing and future subsidiaries, including Focus Media Advertising Agency, Framedia Advertisement and Guangdong Framedia.

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       If we, Focus Media Technology, Framedia Investment, Focus Media Digital, New Focus Media Advertisement, Focus Media Advertisement or its existing and future subsidiaries, including Framedia Advertising, Guangdong Framedia and New Structure Advertisement are found to be in violation of any existing or future PRC laws or regulations or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the State Administration for Industry and Commerce, or SAIC, which regulates advertising companies, would have broad discretion in dealing with such violations, including:

•  revoking the business and operating licenses of our PRC subsidiaries and affiliates;

•  discontinuing or restricting our PRC subsidiaries’ and affiliates’ operations;

•  imposing conditions or requirements with which we or our PRC subsidiaries and affiliates may not be able to comply;

•  requiring us or our PRC subsidiaries and affiliates to restructure the relevant ownership structure or operations; or

•  restricting or prohibiting our use of the proceeds of this offering to finance our business and operations in China.

       The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business.

We rely on contractual arrangements with Focus Media Advertisement and other operating companies and their subsidiaries and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership.

       We have in the past relied, and to a lesser but significant extent will continue in the future to rely, on contractual arrangements with Focus Media Advertisement and its subsidiaries and shareholders, and with Framedia Advertisement, Guangdong Framedia and New Structure Advertisement to operate our advertising business. For a description of these contractual arrangements, see “Our Corporate Structure”, “Related Party Transactions” and “Recent Developments — Our Recent Acquisition of Framedia — Control Over Framedia”. These contractual arrangements may not be as effective in providing us with control over Focus Media Advertisement and its subsidiaries as direct ownership. If we had direct ownership of Focus Media Advertisement and its subsidiaries, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Focus Media Advertisement and its subsidiaries, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, as a legal matter, if Focus Media Advertisement or any of its subsidiaries and shareholders fails to perform its or his respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you to be effective. For example, if Jason Nanchun Jiang were to refuse to transfer his equity interest in Focus Media Advertisement to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if Mr. Jiang were otherwise to act in bad faith toward us, then we may have to take legal action to compel him to fulfill his contractual obligations. In addition, Focus Media Advertisement, which holds certain of the business licenses required to operate our advertising network in China, is jointly owned and effectively managed by Mr. Jiang and Mr. Yu. Accordingly, it may be difficult for us to change our corporate structure or to bring claims against Focus Media Advertisement if Focus Media Advertisement does not perform its obligations under its contracts with us or Mr. Jiang and Mr. Yu do not cooperate with any such actions.

       Many of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance

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with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating entities, and our ability to conduct our business may be negatively affected.

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.

       Under PRC law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions we have entered into among our subsidiaries and affiliated entities are found not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow our tax savings, adjust the profits and losses of our respective PRC entities and assess late payment interest and penalties. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Taxation” for a discussion of the transactions referred to above. A finding by the PRC tax authorities that we are ineligible for the tax savings we achieved in 2004, or that Focus Media Digital, Focus Media Advertising Agency or New Focus Media Advertising are ineligible for their tax exemptions, would substantially increase our taxes owed and reduce our net income and the value of your investment. As a result of this risk, you should evaluate our results of operations and financial condition without regard to these tax savings.

We rely principally on dividends and other distributions on equity paid by our wholly-owned operating subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our operating subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business.

       We are a holding company, and we rely principally on dividends and other distributions on equity paid by Focus Media Technology and Framedia Investment for our cash requirements, including the funds necessary to service any debt we may incur. If Focus Media Technology or Framedia Investment incurs debt on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements Focus Media Technology, Focus Media Digital, Framedia Investment and New Focus Media Advertisement currently have in place with Focus Media Advertisement and its subsidiaries in a manner that would materially and adversely affect Focus Media Technology’s and Framedia Investment’s ability to pay dividends and other distributions to us. Furthermore, relevant PRC laws and regulations permit payments of dividends by Focus Media Technology and Framedia Investment only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. Under PRC laws and regulations, each of Focus Media Technology and Framedia Investment is also required to set aside a portion of its net income each year to fund specific reserve funds. These reserves are not distributable as cash dividends. In addition, subject to certain cumulative limits, the statutory general reserve fund requires annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends. As a result of these PRC laws and regulations, our PRC subsidiaries and our affiliated PRC entities are restricted in their ability to transfer a portion of their net assets to us whether in the form of dividends, loans or advances. As of December 31, 2004, the amount of these restricted portions was approximately $14,792,000. Any limitation on the ability of Focus Media Technology or Framedia Investment to pay dividends to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business.

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Some of our PRC operating companies previously engaged in activities outside the authorized scope of their business licenses. This could subject those companies to fines and other penalties, which could have a material adverse effect on our business.

       Under PRC law, the business license of a company sets forth the authorized scope of business it may legally undertake, and in order to engage in activities outside its authorized scope of business, it must apply for and receive approval to expand its scope of business. Three of our PRC operating companies, Focus Media Advertisement, Focus Media Technology and Shanghai On-Target Advertisement Co., Ltd., and, prior to our acquisition of them, four of our additional operating companies, Zhejiang Ruihong Focus Media Advertising Co., Ltd., Xiamen Advertising Co., Ltd., Shanghai Qianjian Advertising Co., Ltd. and Shanghai Perfect Media Advertising Co., Ltd., historically engaged in business activities that were not within the authorized scope of their respective business licenses. Each of these companies subsequently ceased such conduct or expanded the business scope of their respective business licenses to include such activities; and in the case of the four entities who exceeded their authorized business scope prior to our acquisition of them, we required such companies to cease such conduct or expand their business scope during the process of our acquiring them. While these companies all currently operate within their authorized scope of business, the relevant PRC authorities have the authority to impose fines or other penalties. In rare instances, these authorities may require the disgorgement of profits or revocation of the business license, but as a matter of practice, the authorities will typically only impose such an extreme penalty after repeated warnings where a violation is blatant and continuing. While we do not believe these past violations will have a material effect on our business, operations or financial condition, due to the discretionary nature of regulatory enforcements in the PRC, we cannot assure you that those of our PRC operating companies that exceeded the scope of their business licenses in the past will not be subject to such fines or penalties, including the disgorgement of profits or revocation of the business license of one or more of these companies, or that such fines or penalties will not have a material adverse effect on our business.

Our business operations may be affected by legislative or regulatory changes.

       There are no existing PRC laws or regulations that specifically define or regulate out-of-home television advertising. It has been reported that the relevant PRC government authorities are currently considering adopting new regulations governing out-of-home television advertising. We cannot predict the timing and effects of such new regulations. Changes in laws and regulations governing the content of out-of-home television advertising, our business licenses or otherwise affecting our business in China may materially and adversely affect our business prospects and results of operations. For example, the PRC government has promulgated regulations allowing foreign companies to hold a 100%-interest in PRC advertising companies starting from December 10, 2005. We are not certain how the PRC government will implement this regulation or how it could affect our ability to compete in the advertising industry in China.

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.

       In utilizing the proceeds of this offering in the manner described in “Use of Proceeds”, as an offshore holding company of our PRC operating subsidiaries and affiliates, we may make loans to our PRC subsidiaries and consolidated PRC affiliated entities, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries or consolidated PRC affiliated entities are subject to PRC regulations and approvals. For example:

•  loans by us to Focus Media Technology or to Framedia Investment, each a foreign invested enterprise, to finance its activities cannot exceed statutory limits and must be registered with the PRC State Administration of Foreign Exchange or its local counterpart; and

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•  loans by us to Focus Media Advertisement or its subsidiaries, which are domestic PRC enterprises, must be approved by the relevant government authorities and must also be registered with the PRC State Administration of Foreign Exchange or its local counterpart.

       We may also determine to finance Focus Media Technology, Focus Media Digital and New Focus Media Advertisement through Focus Media Technology or Framedia Investment, by means of capital contributions. These capital contributions to Focus Media Technology and Framedia Investment must be approved by the PRC Ministry of Commerce or its local counterpart. Because Focus Media Advertisement and its subsidiaries are domestic PRC enterprises, we are not likely to finance their activities by means of capital contributions due to regulatory issues relating to foreign investment in domestic PRC enterprises, as well as the licensing and other regulatory issues discussed in the “Regulation of Our Industry” section of this prospectus. We cannot assure you that we can obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Framedia Investment, Focus Media Advertisement or any of their respective subsidiaries, including Framedia Advertisement, Guangdong Framedia and New Structure Advertisement. If we fail to receive such registrations or approvals, our ability to use the proceeds of this offering and to capitalize our PRC operations would be negatively affected which would adversely and materially affect our liquidity and our ability to expand our business.

Risks Relating to the People’s Republic of China

       Substantially all of our assets are located in China and substantially all of our revenues are derived from our operations in China. Accordingly, our business, financial condition, results of operations and prospects are subject, to a significant extent, to economic, political and legal developments in 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 economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth over the past, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, under current PRC regulations, starting December 10, 2005, foreign entities are allowed to directly own 100% of a PRC advertising business if the foreign entity has at least three years of direct operations of an advertising business outside of China, or to directly own less than 100% of a PRC advertising business if the foreign entity has at least two years of direct operations of an advertising business outside of China. This may encourage foreign advertising companies with more experience, greater technological know-how and larger financial resources than we have to compete against us and limit the potential for our growth. Moreover, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

       The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-

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denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government implemented a number of measures, such as raising bank reserves against deposit rates to place additional limitations on the ability of commercial banks to make loans and raise interest rates, in order to slow down specific segments of China’s economy which it believed to be overheating. These actions, as well as future actions and policies of the PRC government, could materially affect 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.

       The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past 26 years has significantly enhanced the protections afforded to various forms of foreign investment in China. Each of our PRC operating subsidiaries and affiliates is subject to PRC laws and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For example, these uncertainties may impede our ability to enforce the contracts we have entered into with Focus Media Advertisement and its subsidiaries. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. In addition, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to the advertising industry, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with Focus Media Advertisement and its subsidiaries, and other foreign investors, including you.

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 National Development and Reform Commission, or NDRC, and SAFE recently promulgated regulations that require PRC residents and PRC corporate entities to register with and obtain approvals from relevant PRC government authorities in connection with their direct or indirect offshore investment activities. These regulations apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

       Under the SAFE regulations, PRC residents who make, or have previously made, direct or indirect investments in offshore companies will be required to register those investments. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is required to file with the local branch of SAFE, with respect to that offshore company, any material change involving capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long term equity or debt investment or creation of any security interest over the assets located in China. If any PRC shareholder fails to make the required SAFE registration, the PRC subsidiaries of that offshore parent company may be prohibited from distributing their profits and the

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proceeds from any reduction in capital, share transfer or liquidation, to their offshore parent company. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

       We cannot assure you that all of our shareholders who are PRC residents will comply with our request to make or obtain any registrations or approvals required under these regulations or other related legislation. Furthermore, as the regulations are relatively new, the PRC government has yet to publish implementing rules, and much uncertainty remains concerning the reconciliation of the new regulations with other approval requirements. It is unclear how these regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. The failure or inability of our PRC resident shareholders to comply with these regulations may subject us to fines and legal sanctions, restrict our overseas or cross-border investment activities, limit the ability of Focus Media Technology, Focus Media Digital, New Focus Media Advertisement or Framedia Investment, our PRC subsidiaries, to make distributions or pay dividends, or materially and adversely affect our ownership structure. If any of the foregoing events occur, our acquisition strategy and business operations and our ability to distribute profits to you could be materially and adversely affected. See “Regulation of Our Industry — Regulation of Foreign Exchange in Onshore and Offshore Transactions.”

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.

       Our operations and transactions are subject to review by the PRC tax authorities pursuant to relevant PRC laws and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, in the case of some of our acquisitions of offshore entities that conducted their PRC operations through their affiliates in China, we cannot assure you that the PRC tax authorities will not require us to pay additional taxes in relation to such acquisitions. In the event that the sellers failed to pay any taxes required under PRC law in connection with these transactions, the PRC tax authorities might require us to pay the tax, together with late-payment interest and penalties. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Acquisitions”.

If any of our PRC affiliates becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy those assets, which could reduce the size of our advertising network and materially and adversely affect our business, ability to generate revenue and the market price of our ADSs.

       To comply with PRC laws and regulations relating to foreign ownership restrictions in the advertising business, we currently conduct our operations in China through contractual arrangements with Focus Media Advertisement, its shareholders and subsidiaries. As part of these arrangements, Focus Media Advertisement and its subsidiaries hold some of the assets that are important to the operation of our business. If any of these entities goes bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of Focus Media Advertisement and its subsidiaries undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, our ability to generate revenue and the market price of our ADSs.

Restrictions on currency exchange may limit our ability to utilize our revenues effectively.

       Substantially all of our revenues and operating expenses are denominated in Renminbi. The Renminbi is currently convertible under the “current account”, which includes dividends, trade and

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service-related foreign exchange transactions, but not under the “capital account”, which includes foreign direct investment and loans. Currently, each of Focus Media Technology and Framedia Investment may purchase foreign exchange for settlement of “current account transactions”, including payment of dividends to us, without the approval of SAFE. However, we cannot assure you that the relevant PRC governmental authorities will not limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenues will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to fund our business activities outside China, if any, or expenditures denominated in foreign currencies. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, the State Administration of Foreign Exchange and other relevant PRC governmental authorities. This could affect the ability of each of Focus Media Technology and Framedia Investment to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us.

Fluctuations in exchange rates could result in foreign currency exchange losses.

       Because our earnings and cash and cash equivalent assets are denominated in Renminbi and the net proceeds from this offering will be denominated in U.S. dollars, fluctuations in exchange rates between U.S. dollars and Renminbi will affect the relative purchasing power of these proceeds and our balance sheet and earnings per share in U.S. dollars following this offering. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Since July 2005 the Renminbi is no longer pegged solely to the U.S. dollar. Instead, it is reported to be pegged against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. For example, on July 21, 2005 the Renminbi was revalued against the U.S. dollar to approximately RMB8.11 to the U.S. dollar, representing an upward revaluation of 2.1% of the Renminbi against the U.S. dollar, as compared to the exchange rate the previous day. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the U.S. dollar. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue after this offering which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

       Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

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.

       From December 2002 to June 2003, China and other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. Since September 2003, however, a number of isolated new cases of SARS have been reported, most recently in central China in April 2004. During May and June of 2003, many businesses in China were closed by the PRC government to prevent transmission of SARS. In addition, some Asian countries, including China, have recently encountered incidents of the H5N1 strain of bird flu, or avian flu. This disease, which is spread through poultry populations, is

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capable in some circumstances of being transmitted to humans and is often fatal. A new outbreak of SARS or an outbreak of avian flu may result in health or other government authorities requiring the closure of our offices or other businesses, including office buildings, retail stores and other commercial venues, which comprise the primary locations where we provide our advertising services. Any recurrence of the SARS outbreak, an outbreak of avian flu or a development of a similar health hazard in China, may deter people from congregating in public places, including a range of commercial locations such as office buildings and retail stores. Such occurrences would severely impact the value of our out-of-home advertising network to advertisers, significantly reduce the advertising time purchased by advertisers and severely disrupt our business and operations.

Risks Relating to this Offering

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.

       The trading price of our ADSs has been and may continue to be subject to wide fluctuations. Since July 13, 2005, the closing prices of our ADSs on the Nasdaq National Market has ranged from $17.60 to $53.34 per ADS and the last reported sale price on January 26, 2006 was $44.10. Our ADS price may fluctuate in response to a number of events and factors. The financial markets in general, and the market prices for many PRC companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies.

       In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons. Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our advertising network could cause the market price for our ADSs to change substantially. Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. We cannot give any assurance that these factors will not occur in the future.

The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

       Sales of substantial amounts of our ADSs in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our future ability to raise capital through offerings of our ADSs. For example, we issued 22,157,003 new ordinary shares in connection with our acquisition of Framedia and in 2007 we may be required to issue additional new ordinary shares based on a fixed ordinary share price of $2.456 per ordinary share up to $88.0 million to the former shareholders of Framedia if Framedia meets agreed upon earnings and operating targets in 2006. In addition, upon completion of our acquisition of Target Media, we will be required to issue 77 million of our ordinary shares to the current shareholders of Target Media Holdings. See “Recent Developments — Our Recent Acquisition of Framedia — Share Purchase Agreement — Purchase Price” and “— Our Proposed Acquisition of Target Media — Share Purchase Agreement — Purchase Price”.

       There will be 415,463,003 ordinary shares (equivalent to 41,546,300 ADSs) outstanding immediately after this offering, whether or not the underwriters exercise their option to purchase additional ADSs in full. In addition, as of December 31, 2005, there were outstanding options to purchase 44,251,830 ordinary shares, 17,880,969 of which are exercisable as of that date. All of the ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless held by our “affiliates” as that term is defined in Rule 144 under the Securities Act. 400,463,003 of our ordinary shares outstanding prior to this offering are “restricted securities” as defined in Rule 144 and may not be sold in the absence of registration other than in accordance with Rule 144 under the Securities Act or another exemption from registration.

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       In connection with this offering, we, the selling shareholders and our directors and executive officers have agreed not to sell any ordinary shares or ADSs for 90 days after the date of this prospectus without the written consent of the underwriters. In addition, in connection with our initial public offering on July 13, 2005, we, our controlling shareholders, the selling shareholders in our initial public offering and our directors and executive officers agreed not to sell any ordinary shares or ADSs prior to January 11, 2006 and, until July 13, 2006 to sell no more than half of their ordinary shares or ADSs owned immediately prior to the initial public offering, which sales include sales from the initial public offering, the public offering of additional ADSs pursuant to the underwriters’ exercise of their over-allotment option in August 2005 and this offering. In connection with the announcement of our acquisition of Target Media, the initial lock-up period was automatically extended through January 26, 2006. However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the National Association of Securities Dealers, or NASD. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. See “Underwriting” and “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling our securities after this offering.

A significant percentage of our outstanding ordinary shares is beneficially owned by Jason Nanchun Jiang, our founder, chairman and chief executive officer, and as a result, he may have significantly greater influence on us and our corporate actions by nature of the size of his shareholdings relative to our public shareholders.

       Following this offering, Jason Nanchun Jiang beneficially will own, through his 100% ownership of JJ Media Investment Holding Ltd., approximately 24.9% of our outstanding ordinary shares or 24.1% if the underwriters exercise their option to purchase additional ADSs in full. Jason Nanchun Jiang is currently and is expected to remain an affiliate within the meaning of the Securities Act after the offering, due to the size of his respective shareholdings in us after the offering. Accordingly, Jason Nanchun Jiang will have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Further, Jason Nanchun Jiang is also an 85% shareholder of our affiliated PRC entity, Focus Media Advertisement, with which we have contractual arrangements that are essential to our business. The continuing cooperation of Focus Media Advertisement, and its shareholders, branches and subsidiaries, is important to our business. Without Jason Nanchun Jiang’s consent, we could be prevented from entering into transactions or conducting business that could be beneficial to us. Accordingly, Mr. Jiang’s control of Focus Media Advertisement could hinder any change in control of our business, particularly where such change of control would benefit shareholders other than Mr. Jiang. It would be difficult for us to change our corporate structure if any disputes arise between us and Mr. Jiang or if he fails to carry out his contractual and fiduciary obligations to us. Thus, Jason Nanchun Jiang’s interests as an officer and employee may differ from his interests as a shareholder or from the interests of our other shareholders, including you.

Anti-takeover provisions in our charter documents may discourage our acquisition by a third party, which could limit our shareholders’ opportunity to sell their shares at a premium.

       Our amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.

       For example, our board of directors will have the authority, without further action by our shareholders, to issue preference shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and

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liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preference shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if the Board of Directors issues preference shares, the market price of our ordinary shares may fall and the voting and other rights of the holders of our ordinary shares may be adversely affected. See “Description of Share Capital — Issuance of Additional Ordinary Shares or Preference Shares”.

       In addition, some actions require the approval of a supermajority of at least two thirds of our board of directors which, among other things, would allow our non-independent directors to block a variety of actions or transactions, such as a merger, asset sale or other change of control, even if all of our independent directors unanimously voted in favor of such action, further depriving our shareholders of an opportunity to sell their shares at a premium. In addition, our directors serve terms of three years each, which terms are not staggered. The length of these terms could present an additional obstacle against the taking of action, such as a merger or other change of control, that could be in the interest of our shareholders. See “Description of Share Capital — Board of Directors”.

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.

       Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

       As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

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

       We are a Cayman Islands company and substantially all of our assets are located outside of the United States. All of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not resident in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of United States courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, there is uncertainty as to whether such Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or

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the PRC against us or such persons predicated upon the securities laws of the United States or any state. See “Enforcement of Civil Liabilities”.

We have not determined a specific use for a portion of our net proceeds from this offering and we may use these proceeds in ways with which you may not agree.

       We have not determined a specific use for a portion of our net proceeds of this offering. Our management will have considerable discretion in the application of these proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our profitability or increase our ADS price. The net proceeds from this offering may also be placed in investments that do not produce income or lose value.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement.

       Holders of our ADSs may only exercise their voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying ordinary shares in accordance with these instructions. Under our amended and restated memorandum and articles of association and Cayman Islands law, the minimum notice period required for convening a general meeting is ten days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested.

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.

       Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless:

•  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.

       The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

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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.

       The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material and adverse effect on the value of your ADSs.

You may be subject to limitations on transfer of your ADSs.

       Your ADSs represented by American Depositary Receipts are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

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FORWARD-LOOKING STATEMENTS

       This prospectus contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this prospectus are forward-looking statements. These forward-looking statements can be identified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plan”, “believe”, “is/are likely to” or other similar expressions. The forward-looking statements included in this prospectus relate to, among others:

•  our goals and strategies;

•  our future business development, financial condition and results of operations;

•  projected revenues, profits, earnings and other estimated financial information, including statements concerning estimated revenues and net income for the three months ended December 31, 2005;

•  our ability to complete acquisitions we have entered into, including that of Target Media, and costs related to and potential liabilities resulting from completing such acquisitions and integrating the acquired companies into our business;

•  achieving anticipated or potential synergies with companies we acquire, including Framedia and Target Media;

•  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 and Framedia’s poster frame network;

•  our plan to develop our business into a multi-platform out-of-home advertising network;

•  our plan to identify and create additional advertising channels that target specific consumer demographics, which could allow us to increase our advertising revenue;

•  competition in the PRC advertising industry;

•  the expected growth in the urban population, consumer spending, average income levels and advertising spending levels; and

•  PRC governmental policies and regulations relating to the advertising industry and regulations and policies promulgated by the State Administration of Foreign Exchange.

       These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Our actual results could be materially different from or worse than our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Prospectus Summary — Selected Estimated Fourth Quarter 2005 Results”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and other sections of this prospectus.

       This prospectus also contains data relating to the advertising industry that includes projections based on a number of assumptions. The advertising market may not grow at the rates projected by market data, or at all. The failure of these markets to grow at the projected rates may have a material adverse effect on our business and the market price of our ADSs. In particular, the relatively new and rapidly changing nature of the out-of-home television advertising sector subjects any projections or estimates relating to the growth prospects or future condition of our sector to significant uncertainties. Furthermore, if any one or more of the assumptions underlying the market

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data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

       The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

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OUR CORPORATE STRUCTURE

Our History

       Our predecessor company, Shanghai Aiqi Advertisement Co., Ltd., or Aiqi Advertisement, was established by immediate family members of Jason Nanchun Jiang in September 1997 and operated as an advertising agency. In May 2003, Aiqi Advertisement discontinued its advertising agency business, was renamed Shanghai Focus Media Advertisement Co., Ltd., commenced operation of our out-of-home television advertising network in China and reorganized its shareholdings. At the same time, we entered into arrangements with Focus Media Advertisement that resulted in the consolidation of Focus Media Advertisement. Following this reorganization Jason Nanchun Jiang continued to hold a controlling interest in Focus Media Advertisement.

       In conjunction with the change in our business model in May 2003 and to facilitate foreign investment in our company, we established our offshore holding company, Focus Media Holding Limited as a company registered in the British Virgin Islands. On April 1, 2005, we completed the process of changing Focus Media Holding Limited’s corporate domicile to the Cayman Islands and we are now a Cayman Islands company. On July 13, 2005, our ADSs were listed for quotation on the Nasdaq National Market.

       In January 2006, we acquired Framedia, which operates a network of advertising poster frames placed primarily in elevators and public areas of residential complexes in China. For a description of Framedia, see “Recent Developments — Our Recent Acquisition of Framedia”.

       On January 7, 2006, we entered into a definitive share purchase agreement to acquire Target Media. Target Media operates an out-of-home advertising network using flat-panel displays placed in elevator lobbies and other public areas in commercial buildings, hospitals, hotels, banks, residential buildings, convenience stores and other locations in cities in China. We expect to complete our acquisition of Target Media in the first quarter of 2006.

Our Corporate Structure and Contractual Arrangements

       Substantially all of our operations are conducted in China through Focus Media Technology, our indirect wholly-owned subsidiaries in China, Focus Media Digital, a 90%-owned subsidiary of Focus Media Technology, and New Focus Media Advertisement, a 90%-owned subsidiary of Focus Media Digital, and through our contractual arrangements with several of our consolidated affiliated entities in China, including Focus Media Advertisement, and its subsidiaries. Focus Media Advertisement owns the remaining 10% equity interest in Focus Media Digital and New Focus Media Advertisement. In connection with our acquisition and current operation of Framedia, Focus Media Advertisement and Focus Media Advertising Agency became or are expected to become the 90% shareholder and 10% shareholder, respectively, of each of Framedia Advertisement, Guangdong Framedia and New Structure Advertisement. Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment, Framedia Advertisement, Guangdong Framedia, New Structure Advertisement, and Liu Lei and Shi Yong, who are the current shareholders of Guangdong Framedia, have entered into contractual arrangements substantially similar to those control agreements entered into and described below among Focus Media Technology, Focus Media Digital, New Focus Media Advertisements, Focus Media Advertisement and its shareholders and subsidiaries. See “Related Party Transactions — Agreements Among Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment, Framedia Advertisement, Guangdong Framedia and New Structure Advertisement”.

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       The following diagram illustrates our corporate structure as we expect it to be at the time of this offering:

(1)	Loans used to capitalize our PRC operating companies and to facilitate our control over them.
(2)	Agreements that give us effective control over Focus Media Advertisement and its subsidiaries, as described below.
(3)	Agreements that transfer a substantial portion of the economic benefits of Focus Media Advertisement and its subsidiaries to us, as described below.
(4)	Agreements that give Framedia Investment effective control over the PRC-based operations of Framedia, as described in “Related Party Transactions”.
(5)	The remaining equity interests in Focus Media Advertisement’s subsidiaries are held by Jimmy Wei Yu, Focus Media Advertising Agency or unrelated third parties.

       In connection with its entry into the World Trade Organization, China is required to relax restrictions on foreign investment in the advertising industry in China. Accordingly, PRC regulations stipulate that starting from December 10, 2005, foreign investors are allowed to directly own 100% of PRC companies operating an advertising business if the foreign entity has at least three years of direct operations in the advertising business outside of China or to directly own less than 100% if the foreign entity has at least two years of direct operations in the advertising business outside of China. We do not currently directly operate an advertising business outside of China and cannot qualify for direct ownership of a PRC advertising company under PRC regulations any earlier than two or three years, respectively, after we commence any such operations or until we acquire a company which has directly operated an advertising business for the required period of time. We do not currently know how or when we will be able to qualify under these regulations. Even if we do qualify in the future, it may be burdensome or not cost effective for us to meet the required criteria for direct ownership. If and when we qualify for direct ownership, we intend to explore the commercial feasibility of changing our current structure, including possibly direct ownership of Focus Media Advertisement and its subsidiaries, taking into consideration relevant cost, market, competitive and other factors. In the event we take such steps, we cannot assure you that we will be able to identity or acquire a qualified foreign company for a possible future restructuring or that any restructuring we may undertake to facilitate direct ownership will be successful.

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       Accordingly, since we have not been involved in the direct operation of an advertising business outside of China, our domestic PRC subsidiaries, Focus Media Technology and Focus Media Digital, which are considered foreign-invested, are currently ineligible to apply for the required advertising services licenses in China. Our advertising business is currently mainly provided through contractual arrangements with our consolidated affiliated entities in China, including Focus Media Advertisement and its subsidiaries. Focus Media Advertisement is owned by two PRC citizens, Jason Nanchun Jiang, our chairman and chief executive officer, and Jimmy Wei Yu, one of our directors, affiliated with UCI Group (China) Limited, one of our principal shareholders. Focus Media Advertisement, several of its subsidiaries and our newly established indirect subsidiary New Focus Media Advertisement which is 90%-owned by Focus Media Digital and 10%-owned by Focus Media Advertisement, hold the requisite licenses to provide advertising services in China. In 2006, we expect to begin operating a portion of our advertising business through our 90%-owned indirect subsidiary New Focus Media Advertisement after which time we will no longer entirely rely on contractual arrangements with Focus Media Advertisement and its subsidiaries for the operation of our advertising business.

       Focus Media Advertisement and its subsidiaries directly operate our advertising network and enter into display placement agreements and our indirect subsidiary New Focus Media Advertisement sells advertising time slots to our clients. We have been and are expected to continue to be dependent on Focus Media Advertisement, its subsidiaries and our indirect subsidiary New Focus Media Advertisement to operate our advertising business until we acquire Focus Media Advertisement and its subsidiaries as our wholly-owned subsidiaries, as described below. We, Focus Media Technology and Focus Media Digital have entered into, and New Focus Media Advertisement is in the process of entering into, contractual arrangements with Focus Media Advertisement and its subsidiaries and shareholders, pursuant to which:

•  we are able to exert effective control over Focus Media Advertisement and its subsidiaries;

•  a substantial portion of the economic benefits of Focus Media Advertisement and its subsidiaries will be transferred to us; and

•  Focus Media Technology or its designee has an exclusive option to purchase all or part of the equity interests in Focus Media Advertisement, all or part of the equity interests in Focus Media Advertisement’s subsidiaries that are owned by Focus Media Advertisement or its nominee holders, or all or part of the assets of Focus Media Advertisement, in each case when and to the extent permitted by PRC law.

Agreements that Transfer Economic Benefits to Us

       Pursuant to our contractual arrangements with Focus Media Advertisement and its subsidiaries, we, Focus Media Technology and Focus Media Digital provide licenses, technical support and consulting services to Focus Media Advertisement and its subsidiaries in exchange for fees. The principal license and service agreements that we, Focus Media Technology and Focus Media Digital have entered into with Focus Media Advertisement and its subsidiaries are:

•  a technical services agreement with Focus Media Advertisement and its subsidiaries, pursuant to which Focus Media Digital licenses technology to, and provides technical support and consulting services for the operations of, Focus Media Advertisement and its subsidiaries for a fixed monthly fee; and

•  a trademark license agreement with Focus Media Advertisement and its subsidiaries, pursuant to which Focus Media Technology provides a non-exclusive license for the use of our trademarks and brand name to Focus Media Advertisement and its subsidiaries in exchange for a monthly license fee.

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Agreements that Provide Effective Control over Focus Media Advertisement and Its Subsidiaries

       We made several loans to Jason Nanchun Jiang and Jimmy Wei Yu that allow us to capitalize our PRC operating affiliates and which facilitate the establishment of our current corporate structure, including setting up the agreements transferring the economic benefits and providing effective control over Focus Media Advertisement and its subsidiaries. These loans were made to Jason Nanchun Jiang and Jimmy Wei Yu as the shareholders of Focus Media Advertisement, for purposes of capitalizing Focus Media Advertisement and to implement the contractual arrangements in our corporate structure. By granting the loans to our directors, we are in a better position to structure the contractual relationships that give us control over Focus Media Advertisement. As of September 30, 2005, the full amounts of the loans to Messrs. Jiang and Yu remained outstanding. Focus Media Technology granted these loans without interest. The loans have a term of ten years starting from March 28, 2005 and are payable in full at the end of such ten-year term or, with thirty-days’ written notice from Focus Media Technology to Messrs. Jiang and Yu, on demand.

       In addition, we, Focus Media Technology and Focus Media Digital have entered into the following agreements with Focus Media Advertisement and its subsidiaries and shareholders that provide us with effective control over Focus Media Advertisement and its subsidiaries:

•  a voting rights proxy agreement, pursuant to which Jason Nanchun Jiang, as the shareholder of Focus Media Advertisement, Jimmy Wei Yu, as the shareholder of Focus Media Advertisement and some of its subsidiaries, and Focus Media Advertisement, as the shareholder of its subsidiaries, have granted a PRC individual designated by Focus Media Technology the right to appoint directors and senior management of Focus Media Advertisement and its subsidiaries and to exercise all of their other voting rights as shareholders of Focus Media Advertisement and its subsidiaries, as the case may be, as provided under the articles of association of each such entity;

•  a call option agreement, pursuant to which:

•  neither Focus Media Advertisement nor any of its subsidiaries may enter into any transaction that could materially affect its assets, liabilities, equity or operations without the prior written consent of Focus Media Technology;

•  neither Focus Media Advertisement nor any of its subsidiaries will distribute any dividends without the prior written consent of Focus Media Technology; and

•  Focus Media Technology or its designee has an exclusive option to purchase all or part of the equity interests in Focus Media Advertisement, all or part of the equity interests in Focus Media Advertisement’s subsidiaries owned by Focus Media Advertisement or its nominee holders, or all or part of the assets of Focus Media Advertisement, in each case when and to the extent permitted by PRC law. The purchase price for such equity interests shall be equal to the respective portion of equity interest in the registered capital multiplied by the amount of registered capital of Focus Media Advertisement and its subsidiaries, or such higher price as is required under PRC laws at the time of such purchase. The purchase price for all of the assets of Focus Media Advertisement shall be equal to the registered capital of Focus Media Advertisement, or a pro rata portion thereof for a purchase of a portion of the assets, or such higher price as is required under PRC Laws at the time of such purchase. Pursuant to a separate letter of undertaking entered into by and among us, Focus Media Technology, Jason Nanchun Jiang and Jimmy Wei Yu, dated as of March 28, 2005, each of Jason Nanchun Jiang and Jimmy Wei Yu agrees to pay to Focus Media Technology or us any excess of the purchase price paid for such equity interests in, or assets of, Focus Media

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Advertisement or its subsidiaries over the respective registered capital of Focus Media Advertisement or its subsidiaries in the event that Focus Media Technology or its designee exercises such option; and

•  an equity pledge agreement pursuant to which each of Jason Nanchun Jiang, Jimmy Wei Yu and Focus Media Advertisement has pledged his or its equity interest in Focus Media Advertisement and its subsidiaries, as the case may be, to Focus Media Technology and Focus Media Digital to secure their obligations under the relevant contractual control agreements, including but not limited to, the obligations of Focus Media Advertisement and its subsidiaries under the technical services agreement and trademark license agreement described above, and each of them has agreed not to transfer, sell, pledge, dispose of or create any encumbrance on their equity interest in Focus Media Advertisement or its subsidiaries without the prior written consent of Focus Media Technology and Focus Media Digital.

       Each of our contractual arrangements with Focus Media Advertisement and its shareholders and subsidiaries can only be amended with the approval of our audit committee or another independent body of our board of directors. See “Related Party Transactions” for further information on our contractual arrangements with these parties.

       In the opinion of Fangda Partners, our PRC legal counsel:

•  the respective ownership structures of (i) Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Focus Media Advertisement and their respective subsidiaries and (ii) except as already disclosed under “Risk Factors — Risks Relating to Our Recent Acquisitions — Historical deficiencies in Framedia’s compliance with relevant corporate law requirements could result in fines, revocation of its business license or the invalidation of agreements to which it is a party”, Framedia Investment, Framedia Advertising, Guangdong Framedia and New Structure Advertisement, are in compliance with existing PRC laws and regulations;

•  the contractual arrangements (i) among us, Focus Media Technology, Focus Media Digital, Focus Media Advertisement and its shareholders and subsidiaries and (ii) except as already disclosed under “Risk Factors — Risks Relating to Our Recent Acquisitions — Historical deficiencies in Framedia’s compliance with relevant corporate law requirements could result in fines, revocation of its business license or the invalidation of agreements to which it is a party”, among Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment, Framedia Advertisement, Guangdong Framedia, New Structure Advertisement, Liu Lei and Shi Yong, in each case governed by PRC law, are or, with respect to Framedia, will be after completion of legal formalities for those newly-signed agreements, valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect; and

•  the business operations of (i) Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Focus Media Advertisement and their respective subsidiaries and (ii) Framedia Investment, Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, as described in this prospectus, are in compliance with existing PRC laws and regulations in all material respects.

       We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities, in particular the SAIC which regulates advertising companies, will not in the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised by our PRC counsel that

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if the PRC government finds that the agreements that establish the structure for operating our PRC advertising business do not comply with PRC government restrictions on foreign investment in advertising businesses, we could be subject to severe penalties. See “Risk Factors — 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”, “— Our business operations may be affected by legislative or regulatory changes” and “— The PRC legal system embodies uncertainties which could limit the legal protections available to you and us”.

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USE OF PROCEEDS

       We estimate that we will receive net proceeds from this offering of approximately $60.6 million, whether or not the underwriters exercise their option in full to purchase additional ADSs, after deducting underwriting discounts and the estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

       We anticipate using approximately $40.0 million of the net proceeds of this offering to fund a portion of the cash consideration in connection with the acquisitions we made prior to the date of this offering. We may use any remaining amounts for our future strategic acquisitions, expansion of our advertising network and general corporate purposes. If and when we qualify for direct ownership of Focus Media Advertisement, as discussed more fully in “Our Corporate Structure — Our Corporate Structure and Contractual Arrangements”, we may explore the possibility of using a portion of the proceeds of this offering to acquire Focus Media Advertisement, taking into consideration relevant cost, market, competitive and other factors.

       The foregoing represents our current intentions with respect to the use of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds of the offering. The occurrence of new business opportunities, unforeseen events or changed business conditions may result in application of the proceeds of this offering in a manner other than as described in this prospectus.

       To the extent that the net proceeds we receive from this offering are not immediately applied for the above purposes, we intend to invest our net proceeds in short-term, interest bearing, debt instruments or bank deposits. These investments may have a material adverse effect on the U.S. federal income tax consequences of your investment in our ADSs. It is possible that we may become a passive foreign investment company for United States federal income tax purposes, which could result in negative tax consequences for you. These consequences are described in more detail in “Risk Factors — Risks Relating to Our Business and Industry — We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax consequences to U.S. investors” and “Taxation — United States Federal Income Taxation — Passive Foreign Investment Companies”.

       In utilizing the proceeds of this offering in the manner described above, as an offshore holding company of our PRC operating subsidiaries and affiliates, we may make loans to our PRC subsidiaries and consolidated PRC affiliated entities, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries or consolidated PRC affiliated entities are subject to PRC regulations and approvals. For example:

•  loans by us to Focus Media Technology and Focus Media Digital through Focus Media Technology, each a foreign invested enterprise, to finance its activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange or its local counterpart; and

•  loans by us to Focus Media Advertisement or its subsidiaries, which are domestic PRC enterprises, must be approved by the relevant government authority and must also be registered with the State Administration of Foreign Exchange or its local counterpart.

       We may also determine to finance Focus Media Technology, Focus Media Digital and New Focus Media Advertisement through Focus Media Technology or Framedia Investment by means of capital contributions. These capital contributions must be approved by the PRC Ministry of Commerce or its local counterpart. Because Focus Media Advertisement, Framedia Advertising, Guangdong Framedia, New Structure Advertisement and their respective subsidiaries are domestic PRC enterprises, we are not likely to finance their activities by means of capital contributions due to regulatory issues relating to foreign investment in domestic PRC enterprises, as well as the licensing and other regulatory issues discussed in “Regulation of Our Industry” included elsewhere in this prospectus. We cannot assure you that we can obtain these government registrations or approvals

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on a timely basis, if at all, with respect to future loans or capital contributions by us to Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Framedia Investment, Focus Media Advertisement or any of their respective subsidiaries. See “Risk Factors — Risks Relating to Regulation of Our Business and to Our Structure — 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”.

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DIVIDEND POLICY

       We have not previously declared any dividends. In 2004, we recorded deemed dividends of $8.3 million, $2.2 million and $13.4 million in connection with our Series A, Series B and Series C-1 and Series C-2 convertible redeemable preference shares, of which $4.9 million of the deemed dividend related to the difference between the fair value at that time of the Series C-1 convertible redeemable preference shares and ordinary shares in connection with a sale of 9,729,600 ordinary shares by Jason Nanchun Jiang, our chairman and CEO, to a third-party investor, which shares were redesignated as Series C-1 convertible redeemable preference shares. These deemed dividends were not cash dividends and upon conversion of our Series A, Series B and Series C-1 and Series C-2 convertible redeemable preference shares into ordinary shares, we are no longer required to record deemed dividends prospectively. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our ordinary shares, or indirectly on our ADSs, for the foreseeable future.

       Future cash dividends, if any, will be at the discretion of our board of directors and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, shareholders’ interests, contractual restrictions and other factors as our board of directors may deem relevant. In addition, we can pay dividends only out of our profits or other distributable reserves. Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit agreement, to the same extent as holders of our ordinary shares, less the fees and expenses payable under the deposit agreement. Other distributions, if any, will be paid by the depositary to holders of our ADSs in any means it deems legal, fair and practical. Any dividend will be distributed by the depositary, in the form of cash or additional ADSs, to the holders of our ADSs. Cash dividends on our ADSs, if any, will be paid in U.S. dollars. See “Description of American Depositary Shares”.

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MARKET PRICE INFORMATION FOR OUR ADSs

       Our ADSs, each representing ten of our ordinary shares, have been listed on the Nasdaq National Market since July 13, 2005. Our ADSs trade under the symbol “FMCN”. For the period from July 13, 2005 to January 26, 2006 the trading price of our ADSs on Nasdaq has ranged from US$17.60 to US$53.34 per ADS. The following table provides the high and low trading prices for our ADSs on the Nasdaq National Market Inc. for each of the seven months since July 2005.

		Sale Price
		High		Low
		US$		US$
Monthly Highs and Lows
2005 (from July 13)
	July (from July 13 until July 31)		21.00		17.60
	August		22.09		18.25
	September		27.00		18.25
	October		27.31		22.50
	November		31.94		26.00
	December		35.30		29.70
2006
	January (through January 26)		53.34		34.51

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CAPITALIZATION

       The following table sets forth, as of September 30, 2005:

•  our actual capitalization; and

•  to give effect to the issuance and sale of 1,500,000 ADSs offered by our company in this offering at a public offering price of $40.43 per ADS, after deducting underwriting discounts, commissions and estimated offering expenses.

       You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, included elsewhere in this prospectus.

	As of September 30, 2005
	Actual
				Pro Forma(1)(2)
	(in thousands of
	U.S. dollars, except for
	share and per share data)
Shareholders’ equity:
Ordinary shares ($0.00005 par value; 885,516,600 shares authorized; 400,463,003 shares issued and outstanding (actual) and 415,463,003 shares issued and outstanding)(pro forma)	$	19		$	20
Additional paid-in capital		178,027			238,669
Deferred share-based compensation		(814	)		(814	)
Retained earnings (accumulated deficit)		3,572			3,572
Accumulated other comprehensive loss		1,074			1,074
Total shareholders’ equity		181,878			242,521
Total capitalization		181,878		$	242,521

(1)	Assumes that the underwriters do not exercise their over-allotment option.
(2)	To give effect to this offering.

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EXCHANGE RATES

       Our operating businesses are currently conducted in China and substantially all of our revenues and expenses are denominated in Renminbi. The People’s Bank of China, or PBOC, sets and publishes daily a base exchange rate with reference primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day. The PBOC also takes into account other factors, such as the general conditions existing in the international foreign exchange markets. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong dollars and U.S. dollars, has been based on rates set by the PBOC, which are set daily based on the previous day’s inter-bank foreign exchange market rates and current exchange rates in the world financial markets. From 1994 to July 20, 2005, the official exchange rate for the conversion of Renminbi to U.S. dollars was generally stable. Although PRC governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration for Foreign Exchange and other relevant authorities. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2.0% against the U.S. dollar. Since then, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day.

       The conversion of Renminbi into U.S. dollars in this prospectus is based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. For your convenience, this prospectus contains translations of Renminbi at $1.00 to RMB8.0930, which was the prevailing rate on September 30, 2005. The prevailing rate at January 26, 2006 was $1.00 to RMB8.0620. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.

       The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and

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are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.

		Renminbi per U.S. dollar noon buying rate
		Average		High		Low		Period-End
2000			8.2784		8.2799		8.2768		8.2774
2001			8.2770		8.2786		8.2676		8.2766
2002			8.2770		8.2800		8.2669		8.2800
2003			8.2770		8.2800		8.2272		8.2769
2004			8.2768		8.2774		8.2764		8.2765
2005
	January		8.2765		8.2765		8.2765		8.2765
	February		8.2765		8.2765		8.2765		8.2765
	March		8.2765		8.2765		8.2765		8.2765
	April		8.2765		8.2765		8.2765		8.2765
	May		8.2765		8.2765		8.2765		8.2765
	June		8.2765		8.2765		8.2765		8.2765
	July		8.2264		8.2765		8.1056		8.1056
	August		8.1017		8.1090		8.0954		8.0998
	September		8.0919		8.0956		8.0871		8.0920
	October		8.0895		8.0924		8.0840		8.0845
	November		8.0845		8.0877		8.0816		8.0815
	December		8.0755		8.0808		8.0702		8.0702
2006 (through January 26)
	January (through January 26)		8.0662		8.0702		8.0596		8.0620

Source: Federal Reserve Bank of New York.

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

       The following selected consolidated financial information has been derived from our consolidated financial statements. Our consolidated financial statements are prepared by including the financial statements of Focus Media Advertisement, formerly Aiqi Advertising, through May 2003 and our consolidated financials, which include the consolidation of Focus Media Advertisement as a variable interest entity, thereafter and presented in accordance with U.S. GAAP. Our statements of operations for 2002, 2003 and 2004 and our balance sheets as of December 31, 2002, 2003 and 2004 have been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting firm. The report of Deloitte Touche Tohmatsu CPA Ltd. on those financial statements is included elsewhere in this prospectus.

       Our selected consolidated financial information for the years ended December 31, 2000 and 2001 and our balance sheet data as of December 31, 2000 and 2001 have been derived from Focus Media Advertisement unaudited consolidated financial statements, which are not included in this prospectus. Our statement of operations for each of the nine months ended September, 2004 and 2005 and balance sheet data as of September 30, 2004 and 2005 has been derived from our unaudited consolidated financial data which has been included elsewhere in this prospectus. We have prepared the unaudited consolidated financial data on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results for any prior or interim period are not necessarily indicative of results to be expected for a full fiscal year or for any future period. The selected consolidated financial information for the periods and as of the dates indicated should be read in conjunction with our financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

       Prior to May 2003, we operated as an advertising agency, the operations and services of which differ markedly from our current business. As an advertising agency, we assisted media companies in selling their advertising time or space to companies seeking to advertise in exchange for a commission. In May 2003, we ceased acting as an advertising agency and commenced our current business as an operator of an out-of-home advertising network.

													For the nine months
													ended
			For the year ended December 31,										September 30,
			2000		2001		2002		2003		2004		2004		2005
			(in thousands of U.S. dollars, except per share and per ADS data)
Selected Consolidated Statements of Operations Data:
Revenues:
	Advertising services revenue(1)		$	36	$	30	$	24	$	3,369	$	26,321	$	15,238	$	42,852
	Advertising equipment revenue			—		—		—		389		2,889		2,206		772
		Total revenues		36		30		24		3,758		29,210		17,444		43,624
Cost of revenues:
	Net advertising service cost			—		—		—		1,566		6,823		4,080		16,479
	Net advertising equipment cost			—		—		—		275		1,934		1,694		544
		Total cost of revenues		—		—		—		1,841		8,757		5,774		17,023
Gross profit				36		30		24		1,917		20,453		11,670		26,601

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														For the nine months
														ended
		For the year ended December 31,												September 30,
		2000		2001		2002		2003			2004			2004			2005
		(in thousands of U.S. dollars, except per share and per ADS data)
Operating expenses:
	General and administrative (including share-based compensation of $489 for 2004, $nil and $646 for the nine months ended September 30, 2004 and 2005, respectively)		31		28		21		985			4,015			2,009			6,578
	Selling and marketing		5		2		3		407			3,426			1,928			6,135
	Goodwill impairment loss		—		—		—		—			59			—			—
Total operating expenses			36		30		24		1,392			7,500			3,937			12,713
Income from operations			—		—		—		525			12,953			7,733			13,888
Interest income			—		—		—		1			10			5			822
Other income (expense), net			—		—		—		(9	)		(4	)		(3	)		10
Change in fair value of derivative liability associated with Series B convertible redeemable preference shares			—		—		—		—			(11,692	)		(3,166	)		—
Income before income taxes and minority interest			—		—		—		517			1,267			4,569			14,720
Total income taxes			—		—		—		482			908			2,830			491
Minority interest			—		—		—		8			13			(41	)		(107	)
Equity loss of affiliates			—		—		—		(18	)		—			—			—
Net income			—		—		—		25			372			1,698			14,122

								For the nine months ended
	For the year ended December 31,							September 30,
	2002		2003		2004			2004			2005
	(in thousands of U.S. dollars, except share data)
Earnings per share data:
Deemed dividend on Series A convertible redeemable preference shares(2)		—		—		(8,308	)		(8,308	)		—
Deemed dividend on Series B convertible redeemable preference shares(2)		—		—		(2,191	)		(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	)	$	(8,801	)	$	14,122
Income (loss) per share — basic	$	—	$	0.00	$	(0.07	)	$	(0.06	)	$	0.07
Income (loss) per share — diluted	$	—	$	0.00	$	(0.07	)	$	(0.06	)	$	0.06
Shares used in calculating basic income per share		—		144,657,600		160,998,600			138,027,670			210,377,820
Shares used in calculating diluted income per share		—		144,657,600		160,998,600			138,027,670			238,206,610

	As of December 31,							As of
								September 30,
	2002		2003		2004			2005
	(in thousands of U.S. dollars)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	15	$	716	$	22,669		$	83,974
Other current assets(4)		106		1,902		12,713			60,589
Non-current assets(5)		8		2,688		21,033			57,174
Total assets		129		5,306		56,415			201,737
Total current liabilities		7		4,119		8,634			19,666
Minority interest		—		4		81			193
Mezzanine equity		—		—		53,273			—
Total shareholders’ equity (deficiency)	$	122	$	1,183	$	(5,573	)	$	181,878

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			As of
			December 31,				As of
							September 30,
			2003		2004		2005
Selected Operating Data:
Number of displays in our commercial location network:
	Our direct cities			827		12,786		34,079
	Our regional distributors(6)			201		2,629		3,273
		Total		1,028		15,415		37,352
Number of displays in our in-store network(7)				—		—		20,061
Number of stores in our in-store network				—		—		2,702

	For the three months ended
	December 31,						September 30,
	2003			2004			2004			2005
Commercial Location Network:
Number of time slots available for sale(8)		1,299			5,170			3,542			8,348
Number of time slots sold(9)		292			2,209			1,280			4,240
Average utilization rate(10)		22.5	%		42.7	%		36.1	%		50.8	%
Average quarterly advertising service revenue per time slot sold (US$)	$	8,177		$	5,018		$	5,506		$	4,077

(1)	Advertising service revenue is presented net of business tax, which amounted to $1,405, $311,770, $2,788,233, $1,559,989 and $4,346,367 in 2002, 2003 and 2004 and for the nine months ended September 30, 2004 and 2005, respectively. Business tax includes business tax of 5.55% and cultural industries tax of 4.0% of our gross advertising service revenue.
(2)	We are no longer required to record deemed dividends prospectively following conversion at the Closing of our initial public offering of our Series A, Series B, Series C-1 and Series C-2 convertible redeemable preference shares into ordinary shares.
(3)	Each ADS represents ten of our ordinary shares.
(4)	Other current assets is equal to total current assets less cash and cash equivalents.
(5)	Non-current assets is equal to total assets less total current assets.
(6)	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.
(7)	We commenced operation of our in-store network in April 2005.
(8)	Includes the time slots for our directly operated cities and the time slots we are entitled to sell on the portion of our network operated by our regional distributors. Number of time slots available refers to the number of 30-second equivalent time slots available on our network during the period presented and is calculated by taking the total advertising time available on our network during the period presented, calculated in aggregate seconds, which we then divide by 30 to determine the number of 30-second equivalent time slots available. The number of advertising time slots available for sale is determined by the number of cities in which we directly operate, the two-ninths portion of time slots on our regional distributors’ networks which we have the right to sell and the length of the advertising cycle, which is currently twelve minutes in all of our directly operated cities.
(9)	Number of time slots sold refers to the number of 30-second equivalent time slots sold during the period presented and is calculated by taking the total advertising time we sold during the period presented, calculated in aggregate seconds, which we then divide by 30 to determine the number of 30-second equivalent time slots sold.

(10)  Utilization rate refers to total time slots sold as a percentage of total time slots available during the relevant period.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

       You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this prospectus reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, see “Risk Factors”.

Overview

       Our out-of-home advertising network consists of our commercial location network, our in-store network and our recently acquired poster frame network. We have experienced significant revenue and earnings growth, and the size of our network has grown significantly, since the commercial launch of our advertising network in May 2003:

•  In 2003, we generated total revenues and net income of $3.8 million and $25,483, respectively, which we derived primarily from operating our out-of-home television advertising network and partially from the advertising agency business we operated prior to May 2003. As of December 31, 2003, we operated 827 flat-panel displays located in 754 locations in six cities in China;

•  In 2004, we generated total revenues and recorded net income of $29.2 million and $372,752, respectively, which we derived primarily from the operation of our advertising network. Our net income of $372,752 in 2004 reflected a one-time non-cash charge of $11.7 million from a change in fair value of derivative liability associated with our Series B convertible redeemable preference shares; and

•  For the nine months ended September 30, 2005, we generated total revenues and net income of $43.6 million and $14.1 million, respectively, which we derived primarily from the operation of our commercial location network. As of September 30, 2005, our commercial location network consisted of 34,079 flat-panel displays in 18,538 locations in the 23 cities where we operate directly and approximately 3,273 flat-panel displays in approximately 2,656 locations in the 31 cities where the network is operated by our regional distributors. As of September 30, 2005, our in-store network comprised a total of 20,061 flat-panel displays in 553 hypermarkets, 1,272 supermarkets and 877 convenience stores throughout China.

       The significant increase in our operating results since we commenced our current business operations is attributable to a number of factors, including the substantial expansion of our flat-panel display network, including placement of our flat-panel displays in a majority of the buildings surveyed by CTR, an independent market research company, in Beijing, Shanghai, Guangzhou and Shenzhen, which we refer to as our Tier I cities, and the growing acceptance of our flat-panel display network as an appealing advertising medium by our clients. We have also expanded our network through contractual arrangements with regional distributors who operate our network in cities throughout China.

       We expect our future growth to be driven by a number of factors and trends including:

•  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;

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•  The anticipated expansion of our commercial location network when we complete our acquisition of Target Media, which we expect to occur in the first quarter of 2006;

•  Our ability to expand our network into new locations and additional cities;

•  Our ability to expand our sales force and engage in increased sales and marketing efforts;

•  Our ability to increase sales of advertising time slots and extend the duration of our advertising cycle on our commercial location and in-store networks;

•  Our ability to expand our client base through promotion of our services;

•  Our ability to successfully operate and expand our poster frame network, which we acquired from Framedia in January 2006, including increasing the number of residential complexes in which we place advertising poster frames;

•  Our ability to expand our in-store network which commenced operation in April 2005; and

•  Our ability to identify and create new advertising channels by establishing separate advertising networks that enable advertisers to target consumer groups with specific demographic profiles, such as our stand-alone golf country club network and our airport shuttle bus network.

       Because our primary source of revenue is our advertising service revenue, we pay particular attention to factors that directly affect our advertising service revenue such as the number of advertising time slots that we have available for sale, our utilization rate as measured by the percentage of available time slots that we actually sell to advertisers, and the price we charge for our advertising time slots after taking into account any discounts. On July 1, 2005, we extended the cycle time to twelve minutes, or 24 30-second time slots per week in those of our directly operated cities that used nine-minute cycles. The effective price we charge advertising clients for time slots on our network and our utilization rate are affected by the attractiveness of our network to advertisers, the level of demand for time slots in each city and the perceived effectiveness of our network in achieving the goals of our advertising clients. On July 1, 2005, we also implemented a 5-10% price increase for time slots on our commercial location network in Beijing, Shanghai, Guangzhou and Shenzhen. On October 30, 2005, we implemented a 30-40% price increase for time slots on our commercial location network in our other directly operated cities. The attractiveness and effectiveness of our commercial location network is in turn directly related to our ability to secure and retain prime locations for our displays and to increase the number of displays, locations and cities in our network.

       As we continue to expand our network, we expect to face a number of challenges. We have expanded our network rapidly, and we, as well as our competitors, have occupied many of the most desirable locations in China’s major cities. In order to continue expanding our network in a manner that is attractive to potential advertising clients, we must continue to enter into new advertising media platforms, such as our poster frame network, and to establish other stand-alone networks that provide effective channels for advertisers. In addition, we must react to continuing technological innovations, such as the potential uses of wireless and broadband technology in our network, and changes in the regulatory environment, such as the regulations allowing 100% foreign ownership of PRC advertising companies and new regulations governing cross-border investment by PRC persons.

Corporate Structure

       We were incorporated on April 11, 2003 as an international business company formed under the laws of the British Virgin Islands. We changed our corporate domicile to the Cayman Islands on April 1, 2005 and are now a Cayman Islands company. Substantially all of our operations are conducted through Focus Media Technology, our indirectly wholly-owned operating subsidiary in China, Focus Media Digital, a 90%-owned subsidiary of Focus Media Technology, and through

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contractual arrangements with several of our consolidated affiliated entities in China. These affiliated entities include Focus Media Advertisement, which is 85% and 15% owned by Jason Nanchun Jiang and Jimmy Wei Yu, and Focus Media Advertisement’s subsidiaries, including Focus Media Advertising Agency. See “Our Corporate Structure — Our Corporate Structure and Contractual Arrangements”.

       In January 2006, we acquired Framedia, which we believe operates the largest out-of-home residential advertising network of advertising poster frames placed mainly in elevators of residential complexes. Since we did not begin to place advertising poster frames in elevators and public areas of residential complexes and commercial locations until our acquisition of Framedia in January 2006, Framedia was not consolidated with our financial statements for any period prior to that time and its financial conditions and results of operations are not discussed in this section. For more information concerning Framedia, see “Recent Developments — Our Recent Acquisition of Framedia”.

       On January 7, 2006, we entered into a definitive share purchase agreement to acquire Target Media. Target Media operates an out-of-home advertising network using flat-panel displays placed in elevator lobbies and other public areas in commercial buildings, hospitals, hotels, banks, residential buildings, convenience stores and other locations in cities in China similar to our commercial location network. We expect to complete our acquisition of Target Media in the first quarter of 2006.

Revenues

       In 2003 and 2004 and for the nine months ended September 30, 2005, we had total revenues of $3.8 million, $29.2 million and $43.6 million, respectively. We generate revenues primarily from the sale of advertising time slots on our out-of-home television advertising network. Since April 2005, our network comprises both our commercial location network and our in-store network. Our advertising service revenue includes the sale of advertising time slots on our network, as well as a small amount of revenue attributable to other advertising related services we provide to our advertising clients. Prior to May 2003, advertising revenue included commissions from our advertising agency business. We also derive revenues from the sale of our flat-panel displays to regional distributors, which we refer to as our advertising equipment revenue. In 2003 and 2004 and for the nine months ended September 30, 2005, our advertising service revenue accounted for 89.6%, 90.1% and 98.2% of our total revenues, respectively. After the completion of our acquisition of Framedia in January 2006, we began to generate revenues from the sale of advertising frame space on Framedia’s poster frame network.

       The following table sets forth a breakdown of our total revenues for the periods indicated:

																	For the nine months ended
		For the year ended December 31,															September 30,
		2002					2003					2004					2004					2005
				% of total					% of total					% of total					% of total					% of total
		$		revenues			$		revenues			$		revenues			$		revenues			$		revenues
		(in thousands of U.S. dollars, except percentages)
Revenues:
Advertising service revenue(1):
	Unrelated parties	$	24		100.0	%	$	2,270		60.4	%	$	22,896		78.4	%	$	15,001		86.0	%	$	39,337		90.2	%
	Related parties		—		—			1,099		29.2	%		3,425		11.7	%		237		1.4	%		3,515		8.0	%
Advertising equipment revenue			—		—			389		10.4	%		2,889		9.9	%		2,206		12.6	%		772		1.8	%
Total revenues		$	24		100.0	%	$	3,758		100.0	%	$	29,210		100.0	%	$	17,444		100.0	%	$	43,624		100.0	%

(1)  Advertising service revenue is presented net of business tax, which amounted to $1,405, $311,770, $2.8 million, $1.6 million and $4.3 million in 2002, 2003 and 2004 and for the nine months ended September 30, 2004 and 2005, respectively. Business tax includes business tax of 5.55% and cultural industries tax of 4.0%.

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Advertising Service Revenue

       Sources of Revenues. We derive most our total revenues from the sale of time slots on our commercial location network and our in-store network to unrelated third parties and to some of our related parties. We report our advertising revenue between related and unrelated parties because more than 10% of our advertising service revenues come from clients related to our directors. Our advertising services to related parties were provided in the ordinary course of business on the same terms as those provided to our unrelated advertising clients on an arm’s-length basis. In addition, we generate a small percentage of advertising services revenue from other advertising related services we provide to our advertising clients. Prior to May 2003, these other advertising-related services included commissions we received when we operated as an advertising agent. Since May 2003, these other advertising-related services have been derived from technical services we provide to some of our regional distributors and other advertising-related services commissioned by some of our advertising clients.

       Our advertising service revenue is recorded net of any sales discounts from our standard advertising rate cards that we may provide to our advertising clients. These discounts include volume discounts and other customary incentives offered to our advertising clients, including additional broadcast time for their advertisements if we have unused time slots available in a particular city’s advertising cycle, and represent the difference between our standard rate card and the amount we charge our advertising clients. Our advertising clients include advertisers that directly engage in advertisement placements with us and advertising agencies retained by some advertisers to place advertisements on the advertiser’s behalf. We expect that our advertising service revenue will continue to be the primary source, and constitute the substantial majority of, our revenues for the foreseeable future. As of January 2006, we also derive revenue from the sale of frame space on our poster frame network, which we acquired from Framedia.

       Our advertising service revenue reflects a deduction for business taxes and related surcharges incurred in connection with the operations of Focus Media Advertisement and its subsidiaries. Their revenues are subject to a 5.55% business tax and a 4.0% cultural industries tax on revenues earned from their advertising services provided in China. We deduct these amounts from our advertising service revenues to arrive at our total revenues attributable to advertising services.

       Factors that Affect our Advertising Service Revenue.

       Commercial location network. Our advertising service revenue derived from our commercial location network is directly affected by:

•  the number of advertising time slots that we have available to sell, which is determined by the number of cities in which we directly operate, our expansion into additional cities, the two-ninths portion of cycle time available on our regional distributors’ networks and the length of the advertising cycle, which is currently twelve minutes in our directly operated cities and nine minutes in the cities operated by our regional distributors. We calculate the number of time slots available by taking the total advertising time available on our network during a particular period, calculated in aggregate seconds, which we then divide by 30 to determine the number of 30-second equivalent time slots available. We can increase the number of advertising time slots that we have available to sell by expanding into additional cities or acquiring our regional distributors, which provides us with seven minutes of additional time slots per regional distributor. The length of our advertising cycle can potentially be extended to longer durations depending on demand in each city. In our directly operated cities, the twelve-minute advertising cycle amounts to the equivalent of 24 30-second time slots per week, except for time slots reserved for use by the landlord. In the cities where our regional distributors operate, the nine-minute advertising cycle amounts to the equivalent of 18 30-second time slots per week, except for time slots reserved for use by the landlord;

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•  our utilization rate, or the percentage of available time slots that we actually sell to advertisers. In order to provide meaningful comparisons of our utilization rate, we normalize our time slots into 30-second units, which we can then compare across each city and period to allow us to chart the normalized utilization rate of our network by geographic region and over time; and

•  the average price we charge for our advertising time slots, which we calculate by dividing our advertising service revenue by the number of 30-second equivalent time slots sold during that period, after taking into account any discount offered. We calculate average quarterly advertising service revenue for our Tier I, Tier II cities and as a blended average of all cities each quarter. On July 1, 2005, we implemented a 5-10% price increase for time slots on our commercial location network in Beijing, Shanghai, Guangzhou and Shenzhen and on October 1, 2005, we implemented a 30-40% increase for time slots on our commercial location network in our Tier II cities.

       In-store network. Our advertising service revenue derived from our in-store network is directly affected by:

•  the number of stores in our in-store network. As the location and size of particular stores affects advertisers’ decisions to place advertisements on our in-store network, we sell time slots on our in-store network on a per store basis. Increasing the number of stores on our network therefore increases the total number of available time slots for sale to advertisers;

•  the number of advertising time slots that we have available to sell, which is determined by the number of stores in which we operate, our expansion into additional stores, and the length of the advertising cycle, which is currently twelve minutes, or 24 30-second equivalent time slots. As with our commercial location network, for our in-store network we calculate the number of time slots according to the number of 30-second equivalent time slots available. The length of our advertising cycle can potentially be extended to longer durations depending on demand in each city;

•  our utilization rate, or the percentage of available time slots that we actually sell to advertisers. In order to provide meaningful comparisons of our utilization rate, we normalize our time slots into 30-second units, which we can then compare across each city and period to allow us to chart the normalized utilization rate of our network by geographic region and over time;

•  the average price we charge for our advertising time slots, which we calculate by dividing our advertising service revenue by the number of 30-second equivalent time slots sold during that period, after taking into account any discount offered. Our revenues are also affected by the average quarterly advertising service revenue we derive per 30-second equivalent time slot sold per quarter.

       Poster frame network. Our advertising service revenue derived from our poster frame network is directly affected by:

•  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 locations on our poster frame network allows us to increase the number of frames on our network, thereby increases the available frame space for sale to advertisers. We generally place up to three advertising poster frames in each elevator where we deploy frames per display. When we complete development of a rolling display that will allow display of up to three advertising posters, we expect to further increase the total available frame space on our poster frame network;

•  our utilization rate, or the percentage of available frame space that we actually sell to advertisers;

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•  the average price we charge for frame space on a per frame basis, after taking into account any discount offered.

       Network expansion. As we have expanded our network in China’s major urban areas, many of the most desirable locations for our network have been occupied, either by our network or by competitors. In addition, as our utilization rate on our network in key cities increases, the number of time slots or frame spaces available for sale in those cities decreases. As a result, we will need to rely on means other than the rapid increase in the number of locations, flat-panel displays and advertising poster frames in order to continue growing our revenues. We have focused, and expect to continue to focus, on developing new channels in our out-of-home television advertising networks and entering into new types of advertising media operations to continue to grow our revenues and to address these potential capacity constraints on our existing network. In recent months, these steps have included: (1) launching our in-store network in April 2005 allowing advertisers to reach consumers at the point-of-purchase in hypermarkets, supermarkets and convenience stores, (2) establishing discrete stand-alone channels on our commercial location network, such as the golf country club locations and airport shuttle bus locations on our commercial location network, enabling us to increase the number of time slots available for sale, and (3) acquiring Framedia’s network of advertising poster frames placed mainly in elevators and public areas of residential complexes. We expect to continue to explore opportunities to open up additional channels on our existing network and to enter into new advertising media platforms in China. We believe these measures will enable us to continue the future growth of our business. We have also expanded our advertising network with the addition of Framedia’s frame advertising network in January 2006. We intend to continue expanding our out-of-home advertising network both through increasing the number of locations, displays and advertising poster frames on our commercial location, in-store and poster frame networks and through strategic acquisition of competitors and businesses that complement our existing out-of-home advertising network. Upon the completion of our acquisition of Target Media, which we expect to occur in the first quarter of 2006, our network will expand significantly when we combine Target Media’s flat-panel display network with our current network.

       Seasonality. Our advertising service revenue is subject to key factors that affect the level of advertising spending in China generally. In addition to fluctuations in advertising spending relating to general economic and market conditions, advertising spending is also subject to fluctuations based on the seasonality of consumer spending. In general, a disproportionately larger amount of advertising spending is concentrated on product launches and promotional campaigns prior to the holiday season in December. In addition, advertising spending generally tends to decrease in China during January and February each year due to the Chinese Lunar New Year holiday. We believe this effect will be less pronounced with regard to advertising spending on our in-store network, as we believe commercial activity in hypermarkets and supermarkets is stable or even enhanced during the period of Chinese Lunar New Year. We also experience a slight decrease in revenues during the hot summer months of July and August each year, when there is a relative slowdown in overall commercial activity in urban areas in China. Our past experience, although limited, indicates that our revenues would tend to be lower in the first quarter and higher in the fourth quarter of each year, assuming other factors were to remain constant, such as our advertising rates and the number of available time slots on our network. We expect this effect to be partially offset by steady or enhanced advertising service revenue from our in-store network, which we believe is less susceptible to the effects of seasonality than our commercial location network and poster frame network.

       Revenue Recognition. We typically sign standard advertising contracts with our advertising clients, which require us to run the advertiser’s advertisements on our network in specified cities for a specified period, typically from four to twelve weeks. We understand that the corresponding periods in Target Media’s contracts are longer. If we complete the acquisition, the average contract period of our advertising contracts may increase as a result of our taking over their contracts. We expect the contract period to revert to our current historical periods as we re-sign these contracts using our form contract to replace Target Media’s form contract. We recognize advertising service

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revenue ratably over the performance period of the advertising contract, so long as collection of our fee remains probable. We do not bill our advertising clients under these contracts until we perform the advertising service by broadcasting the advertisement on our network. Revenue collected from our poster frame network beginning in January 2006 will be recognized in substantially the same manner as revenues collected under the advertising contracts used for our commercial location and in-store networks.

       We collect our advertising service fees by billing our advertising clients within 60 to 90 days after completion of the advertising contract and book these unbilled or unpaid amounts as accounts receivable until we receive payment or determine the account receivable to be uncollectible. We understand that Target Media’s accounts receivable historically have remained outstanding for longer periods of time than ours. If we complete the Target Media acquisition, we expect the average number of days outstanding for our accounts receivable to increase in the near term as a result of our acquiring Target Media’s accounts receivable. We expect the average period that our accounts receivable will remain outstanding to revert to our historical levels after we begin to apply our accounts receivable policy to Target Media’s accounts receivable.

       Our accounts receivable are general unsecured obligations of our advertising clients and we do not receive interest on unpaid amounts. We make specific reserves for accounts that we consider to be uncollectible. We also provide a general reserve for uncollectible accounts that we reassess on an annual basis. We made no provision for uncollectible accounts in 2003. In 2004 and for the nine months ended September 30, 2005, we made provision of $173,837 and $430,124, respectively, for accounts receivable that were outstanding for longer than six months. The average number of days outstanding of our accounts receivable, including from related parties, was 71, 66 and 78, respectively, as of December 31, 2003 and 2004 and September 30, 2005.

Advertising Equipment Revenue

       We also derive a portion of our total revenues from the sale of flat-panel displays to our regional distributors on a cost-plus basis, which we record as advertising equipment revenue. Our advertising equipment revenue represented 10.4%, 9.9% and 1.8% of our total revenues in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. Our advertising equipment revenue is recorded net of the 17% value added tax to which equipment sales in China are subject.

       Factors that Affect our Advertising Equipment Sales. We expect that advertising equipment sales in future periods as a percentage of our total revenues will remain relatively low for a number of reasons:

•  As we acquire our regional distributors, any growth in our network in these cities will not involve any future sales of advertising equipment and accordingly we expect the growth in advertising equipment revenue to decrease over time.

•  Growth in the size of the networks of our regional distributors is expected to slow as the most desirable locations have been occupied by them or our competitors, which will result in reduced sales of flat-panel displays to our regional distributors, including by replacing existing equipment as it becomes worn or obsolete.

•  We expect that the revenues from advertising equipment sales will constitute a smaller percentage of our revenues in future periods, as we believe the growth of our advertising service revenue will be significantly higher than our ability to increase the amount we charge for our advertising equipment and due to the decreasing unit cost of flat-panel displays and components.

       Revenue Recognition. We recognize advertising equipment revenue when delivery of flat-panel displays has occurred and risk of ownership has passed to the distributor. We bill our regional distributors for flat-panel displays upon delivery and generally require payment within three to five days of delivery.

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Cost of Revenues

       Our cost of revenues consists of costs directly related to the offering of our advertising services and costs related to our sales of advertising equipment.

       The following table sets forth our cost of revenues, divided into its major components, by amount and percentage of our total revenues for the periods indicated:

																			For the nine months ended
				For the year ended December 31,															September 30,
				2002					2003					2004					2004					2005
						% of total					% of total					% of total					% of total					% of total
				$		revenues			$		revenues			$		revenues			$		revenues			$		revenues
				(in thousands of U.S. dollars, except percentages)
Total revenues				$	24		100.0	%	$	3,758		100.0	%	$	29,210		100.0	%	$	17,444		100.0	%		43,624		100.0	%
Cost of revenues:
	Net advertising service cost:
		Location costs								1,159		30.8	%		4,643		15.9	%		2,924		16.7	%		10,481		24.0	%
		Flat-panel display depreciation								149		4.0	%		774		2.6	%		436		2.5	%		2,474		5.7	%
		Other(1)			—		—			258		6.9	%		1,406		4.8	%		720		4.2	%		3,524		8.1	%
			Sub-total		—		—			1,566		41.7	%		6,823		23.4	%		4,080		23.4	%		16,479		37.8	%
	Net advertising equipment cost				—		—			275		7.3	%		1,934		6.6	%		1,694		9.7	%		544		1.2	%
Total cost of revenues					—		—		$	1,841		49.0	%	$	8,757		30.0	%	$	5,774		33.1	%		17,023		39.0	%
Gross profit				$	24		100.0	%	$	1,917		51.0	%	$	20,453		70.0	%	$	11,670		66.9	%	$	26,601		61.0	%

(1)  Includes primarily salaries for and travel expenses incurred by our network maintenance staff and costs for materials.

Net Advertising Service Costs

       Our cost of revenues related to the offering of our advertising services on our commercial location network and our in-store network consists of location costs, flat-panel display depreciation costs and other cost items, including salaries for and travel expenses incurred by our network maintenance staff and costs for materials.

       Location Costs. Location costs are the largest component of our cost of revenues. Location costs for our out-of-home television advertising networks accounted for approximately 30.8%, 15.9% and 24.0% of our total revenues in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. Our location costs consist of:

•  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.

       Rental fees under our display placement agreements form the largest component of our location costs, representing approximately 71.1%, 69.8% and 84.1%, of our out-of-home television advertising network location costs in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. As a result, the primary factors affecting the amount of our location costs include the number of display placement agreements we enter into and the rental fees we pay under those agreements. We expect our location costs to continue to increase in 2006 as we expand our in-store network, continue to acquire regional distributors, other companies, including Target Media, and as a result of possible rate increases we may experience upon renewal of our existing agreements. However, we expect these costs to decrease as a percentage of our total revenues in the future, as our advertising service revenue is expected to increase faster than the additional cost we incur from entering into new display placement agreements and any increases we may experience in renewing existing display placement agreements. We expect any additional location costs for our commercial location network to be lower than in the past, as many of the most desirable locations have already

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been occupied and many of the remaining locations will have a lower cost base. However, when our display placement agreements expire, we may be unable to renew these agreements on favorable terms and the rental fee portion of our location costs attributable to these existing locations could increase. In addition, location costs incurred in connection with the expansion and maintenance of our in-store network are expected to increase as we increase the size of our in-store network. We also expect our total location costs to increase upon the completion of our acquisition of Target Media, which we expect to occur in the first quarter of 2006.

       We expect our results of operations for a period of at least seven years beginning in 2006 to be negatively affected by the amortization of intangible assets in relation to, among other things, material contracts and customer lists as a result of several acquisitions, particularly Framedia and Target Media, if consummated. Specific items of intangible assets that are subject to amortization are yet to be identified upon the completion of our acquisitions of Framedia and Target Media.

       Flat-panel Display Depreciation. Flat-panel display depreciation costs for our out-of-home television advertising networks accounted for 4.0%, 2.6% and 5.7%, respectively, of our total revenues in 2003 and 2004 and for the nine months ended September 30, 2005. Generally, we capitalize the cost of our flat-panel displays and recognize depreciation costs on a straight-line basis over the term of their useful lives, which we estimate to be five years. The primary factors affecting our depreciation costs are the number of flat-panel displays in our network and the unit cost for those displays, as well as the remaining useful life of the displays. As we continue to increase the size of our commercial location and in-store networks and as we update and replace our existing displays with new technology, our depreciation costs are expected to increase. Moreover, we expect depreciation costs as a percentage of total revenues to increase in 2005 and 2006 as we substantially increased the size of our in-store network, including through our acquisition of Target Media. However, we expect these costs to decrease as a percentage of total revenues in the longer term.

       Other. Our other net advertising service costs accounted for 6.9%, 4.8% and 8.1% of our total revenues in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. Our other cost of revenues consists of salary for and travel expenses incurred by our network maintenance staff and costs for materials and maintenance in connection with the upkeep of our advertising network. The primary factor affecting our other costs of revenues is the size of our network maintenance staff. As the size of our network increases, we expect our network maintenance staff, and associated costs, to increase. However, we expect that other cost of revenues will decrease as a percentage of total revenues as we expect our advertising service revenue to outpace any increases in our other cost of revenues.

Net Advertising Equipment Cost

       Our net advertising equipment cost consists of the amounts we pay to the contract assembler who purchases the components and assembles them into the flat-panel displays we sell to our regional distributors. Our net advertising equipment cost accounted for 7.3%, 6.6% and 1.2%, respectively, of our total revenues in 2003 and 2004 and for the nine months ended September 30, 2005. The primary factors affecting our net advertising equipment cost are the number of flat-panel displays we sell and the unit cost we pay to our contract assembler for each such flat-panel display. We expect our net advertising equipment cost as a percentage of total revenues to decrease for the foreseeable future as the growth rate of the size of our regional distributors’ portion of our commercial location network slows, as we acquire more of our regional distributors and as our revenues from advertising services are expected to outpace our net advertising equipment cost.

Operating Expenses and Net Income

       Our operating expenses consist of general and administrative and selling and marketing expenses. In 2004, our operating expenses also included a goodwill impairment loss. The following

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table sets forth our operating expenses, divided into their major categories by amount and as a percentage of our total revenues for the periods indicated.

																		For the nine months ended
			For the year ended December 31,															September 30,
			2002					2003					2004					2004					2005
					% of total					% of total					% of total					% of total					% of total
			$		revenues			$		revenues			$		revenues			$		revenues			$		revenues
			(in thousands of U.S. dollars, except percentages)
Gross profit			$	24		100	%	$	1,917		51.0	%	$	20,453		70.0	%	$	11,670		66.9	%	$	26,601		61.0	%
Operating expenses:
	General and administrative (including share-based compensation of $489 in 2004, $nil and $646 in the nine months ended September 30, 2004 and 2005)			21		87.5	%		985		26.2	%		4,015		13.7	%		2,009		11.5	%		6,578		15.1	%
Selling and marketing				3		12.5	%		407		10.8	%		3,426		11.7	%		1,928		11.1	%		6,135		14.1	%
Goodwill impairment loss				—		—			—		—			59		0.2	%		—		—			—		—
		Total	$	24		100.0	%	$	1,392		37.0	%	$	7,500		25.7	%		3,937		22.6	%		12,713		29.2	%
Income from operations				—		—		$	525		14.0	%	$	12,953		44.3	%	$	7,733		44.3	%	$	13,888		31.8	%

       General and Administrative. General and administrative expenses primarily consist of salary and benefits for management, business tax mainly relating to license fees paid by our affiliated PRC companies to Focus Media Advertisement and to Focus Media Digital, accounting and administrative personnel, office rental, maintenance and utilities expenses, depreciation of office equipment, other office expenses and professional services fees. General and administrative expenses accounted for 26.2%, 13.7% and 15.1%, respectively, of our total revenues in 2003 and 2004 and for the nine months ended September 30, 2005. The decrease in general and administrative expenses as a percentage of total revenues between 2003 and 2004 was largely attributable to our establishment of a dedicated sales force in 2004 and assignment of sales, maintenance and location relationship personnel previously included within our administrative department to our newly established sales and location relationship and maintenance departments. The increase in our general and administrative expenses in the nine months ended September 30, 2005 is a result of increased business tax during this period, share-based compensation, increased personnel costs and increases in costs associated with enhancing our internal controls and preparing to become a publicly listed company. Salaries and benefits accounted for 28.1%, 20.2% and 26.7% of our general and administrative expenses in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. We expect that our general and administrative expenses will increase as a percentage of total revenues in the near term as we hire additional personnel and incur additional costs in connection with the expansion of our business and with being a publicly traded company, including costs of enhancing our internal controls.

       Share-based Compensation Relating to General and Administrative. Our share-based compensation expense relating to general and administrative consists of the amortized portion of deferred share-based compensation recognized by us. We adopted the 2003 Employee Share Option Scheme, or our 2003 Option Plan, in June 2003, under which we were authorized to issue options with the right to purchase up to 30% of our share capital to our directors, officers, employees, individual consultants and advisors. We issued options representing 10.87% of our issued share capital under the 2003 Option Plan. In May 2005, we adopted our 2005 Share Option Plan, or our 2005 Option Plan. Under our 2005 Option Plan, the amount of options we may issue has been reduced to an aggregate of 20% of our share capital, including the 10.9% already granted under our 2003 Option Plan. In addition, during the three years from the adoption of our 2005 Option Plan, we may issue no more than 5% of our share capital for grants of new options. We have issued options representing 3.95% of our issued share capital under the 2005 Option Plan. In connection

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with the adoption of our 2005 Option Plan, no additional options may be granted under the 2003 Option Plan. Our general and administrative expenses, including our share-based compensation, are expected to increase after the effectiveness of the new accounting treatment Statement of Financial Accounting Standards No. 123(R) relating to share-based compensation.

       In July and August 2004, we issued options to purchase 20,643,400 of our ordinary shares to our directors, officers and employees with an exercise price of $0.24 per share. 10,620,600 of these options vest over three years while the remaining 10,022,800 options vest over one year. In addition, in July and August 2004, we also issued options to purchase 4,564,800 of our ordinary shares to third-party consultants at an exercise price of $0.24 per share. 1,310,400 of these options vest over three years while 3,254,400 of these options vest over one year. In July 2005, we granted options to purchase 11,683,630 of our ordinary shares to some of our directors and executive officers at an exercise price of $1.70 per share. These options vest over three years. In February and July 2005, we also granted options to purchase 1,340,000 of our ordinary shares to third-party consultants with an exercise price of $0.75 to $1.70 per share. These options vest over three years.

       Selling and Marketing. Our selling and marketing expenses primarily consist of salaries and benefits for our sales staff, marketing and promotional expenses, and other costs related to supporting our sales force. Selling and marketing expenses accounted for 10.8%, 11.7% and 14.1% of our total revenues in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. As we acquired more of our regional distributors and continue to expand our client base, we increased our sales force, which resulted in an increase in salary expenses. Although this has increased our salary expenses as a percentage of total revenues in the nine months ended September 30, 2005, we do not expect this to result in a significant increase in salary expenses as a percentage of total revenues on a long-term basis. We now budget approximately 15% of our advertising revenues to be used for selling and marketing. We expect selling and marketing expenses to remain relatively stable as a percentage of total revenues.

Critical Accounting Policies

       We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on our management’s judgment.

Share-based Compensation

       Our Option Plan is described more fully in Note 12 to the consolidated financial statements. We account for this plan under the recognition and measurement principles of Accounting Principles Board (“APB”) Option No. 25, Accounting for Stock Issued to Employees, and related interpretations. We amortize deferred share-based compensation over the vesting periods of the related options, which are generally four years, in accordance with FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, an interpretation of APB Options No. 15 and 25.

       We have recorded deferred share-based compensation representing the difference between the deemed fair market value of our ordinary shares for accounting purposes and the option exercise price. We determined the fair value of the ordinary shares underlying the options granted in July and

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August 2004 to be $0.29 per ordinary share. In determining the deemed fair value of the ordinary shares underlying the options granted in July and August 2004, we calculated the deemed fair value of the ordinary shares on August 1, 2004 based on a retrospective third-party valuation using a generally accepted valuation methodology, the guideline companies approach, which incorporates specific assumptions including the market performance of comparable listed companies as well as our financial results and growth trends to derive our total equity value. The valuation model then allocated the equity value between the ordinary shares and the preference shares and determined the fair value of ordinary shares based on two assumptions: where conversion into ordinary shares would result in a higher economic value, preference shares were treated as if they had converted into ordinary shares; and preference shares that have a value higher than their conversion price were assigned a value that took into consideration their liquidation preference. Our ordinary shares were assigned a value equal to their pro rata share of the residual amount, if any, that remained after consideration of the liquidation preference of preference shares with a value below their conversion price. Had different assumptions or criteria been used to determine the fair market value of our ordinary shares, materially different amounts of share-based compensation could have been reported. Our determination of the fair value of the ordinary shares underlying the options granted on January 1, 2005 and February 2, 2005 of $0.51 was based on the cash sale price of our Series C convertible redeemable preference shares to third party investors in November and December 2004.

       Subsequent to the initial public offering, options were granted at the fair market value at the date of grant. We did not grant any stock options subsequent to the initial public offering.

       Pro forma information regarding net loss attributable to ordinary shareholders and net loss per share attributable to ordinary shareholders is required in order to show our net loss as if we had accounted for employee share options under the fair value method of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure. This information is contained in Note 2 to our consolidated financial statements. The fair value of options issued pursuant to our option plan at the grant date were estimated using the Black-Scholes option-pricing model.

Income Taxes

       We account for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes”, with the required disclosures as described in note 12 to our consolidated financial statements. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on our taxable income using the balance sheet liability method at the effective rate applicable to each of our affiliated entities in China in our consolidated statements of operations and comprehensive income.

Goodwill and Acquisition Impairment

       Beginning in 2002, with the adoption of SFAS 142, “Goodwill and Other Intangible Assets”, goodwill is no longer amortized, but instead tested for impairment upon first adoption and annually thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. SFAS No. 142 requires us to complete a two-step goodwill impairment test. The first step compares the fair values of each business unit to its carrying amount, including goodwill. If the fair value of each business unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. SFAS No. 142 requires completion of this first step within the first six months of initial adoption and annually thereafter. If the carrying amount of a reporting

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unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a business unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

       As of December 31, 2003 and December 31, 2004, we had a goodwill balance of nil and $9.1 million, respectively, which is not deductible for tax purposes. We incurred a goodwill impairment loss of $58,397 in 2004 in connection with our acquisition of Perfect Media. In conducting our annual impairment test, we undertook a valuation of Perfect Media using the expected present value of cash flow and the income approach valuation methods, which resulted in a goodwill impairment loss of $58,397 in 2004, indicating that the value of Perfect Media was less than what we paid at the time we acquired it. We will perform the annual goodwill impairment test generally as of December 31, to determine if there is any further goodwill impairment. We recorded goodwill of $9.1 million in 2004 in connection with the acquisition of ten of the eleven companies we acquired during that year, which will be subject to the annual goodwill impairment test on December 31 of each year. The purpose of our acquisitions of our regional distributors was to expand the size of our network while our acquisition of Shanghai Qianjian Advertising Co., Ltd., or Qianjian, and Perfect Media enhanced our advertising services by adding to our existing network complementary lines of business, such as advertising networks placed in commercial banks, in the case of Qianjian, and advertising services offered at automatic shoe-shine machines located in buildings, in the case of Perfect Media. The recognition of goodwill from these acquisitions was a result of a purchase price in excess of the tangible assets of these companies and the goodwill they had generated from the operation of various advertising services. We may incur additional goodwill impairment charges in the future although we cannot predict whether this will occur when we perform our goodwill impairment test each year.

Taxation

       Under the current laws of the Cayman Islands and Hong Kong, neither Focus Media Holding Limited, incorporated in the Cayman Islands, nor Focus Media Hong Kong, our wholly owned subsidiary incorporated in Hong Kong, is subject to tax on its income or capital gains. In addition, payment of dividends by either company is not subject to withholding tax in those jurisdictions.

       Our PRC entities are also subject to PRC business tax. We primarily pay business tax on gross revenues generated from our advertising services. Focus Media Advertisement and its subsidiaries pay a 5% business tax on the gross revenues derived from advertising services and this business tax is deducted from total revenues. Focus Media Technology and Focus Media Digital pay a 5% business tax on the gross revenues derived from their contractual arrangements with Focus Media Advertisement and its subsidiaries and these taxes are primarily recorded in operating expenses.

       In addition to business tax and cultural industries tax imposed on our advertising business and VAT imposed on our sales of advertising equipment, as discussed in greater detail above, Focus Media Technology, Focus Media Digital and Focus Media Advertisement and its subsidiaries, including Focus Media Advertising Agency and New Focus Media Advertisement, are subject to PRC enterprise income tax on their taxable income, except to the extent some of them enjoy temporary tax exempt status as described in further detail below.

       Pursuant to PRC law, enterprise income tax is generally assessed at the rate of 33% of taxable income. Focus Media Technology, Focus Media Advertisement and New Focus Media Advertisement are currently subject to this 33% enterprise income tax. State tax bureaus of the PRC are authorized

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to grant an exemption from enterprise income tax of up to two years to newly established domestic companies that have no direct foreign ownership and that are financially independent and engaged in consulting services, technology services or the information industry, which includes advertising services. A qualifying company must apply for this tax-exempt status for each of the two years separately. Focus Media Digital and Focus Media Advertising Agency were established in October 2004 and both were granted exemptions from enterprise income tax in 2004 and 2005. In 2006 and 2007, we intend to continue our tax exempt status through New Focus Media Advertisement Co., Ltd., or New Focus Media Advertisement, which was established in December 2005 and has applied for tax-exempt status for 2006 and 2007.

       In November 2004, Focus Media Technology, Focus Media Advertisement and some of its subsidiaries sold all of their flat-panel display equipment to Focus Media Digital at fair market value. As a result of this sale, Focus Media Technology and Focus Media Advertisement recorded a non-cash charge to earnings in the aggregate of $4,773,030 in the fourth quarter of 2004, which reflected the difference between the fair market value of the equipment and its then current book value. In addition, since its establishment, Focus Media Advertising Agency has generated revenue by selling time slots on our advertising network and pays a distribution fee to Focus Media Advertisement, which places advertisements for Focus Media Advertising Agency’s clients on our network. Finally, Focus Media Advertisement and its subsidiaries also license technology used in our business operations from Focus Media Digital in exchange for license fees paid to Focus Media Digital. As a result of Focus Media Advertisement’s amortization of the license fee paid to Focus Media Digital, it incurred a charge to earnings of $3.7 million in the fourth quarter of 2004. See “Related Party Transactions” for further information on these transactions and contractual agreements. Although these transactions were eliminated upon consolidation as transactions among members of our consolidated companies for financial accounting purposes, they did have the affect of reducing our total income tax expense and increasing our net income in 2004.

       As a result of these transactions, our effective tax rate was 72% in 2004. Excluding the non-recurring non-cash charge resulting from the change in fair value of derivative liability associated with Series B convertible redeemable preference shares and goodwill impairment loss, our effective tax rate for 2004 would have been 7.0%. The tax savings resulting from the non-cash charge to earnings from the write-down of flat-panel display equipment in 2004 and the charge to earnings from the amortization of the license fee paid in 2004 will not continue in the future. We expect our effective tax rate to be approximately 5% in each of 2005 and 2006, which rate may increase in the future depending on PRC tax regulations. In addition, once their tax exemptions expire, the income from operations of Focus Media Digital and Focus Media Advertising Agency will each become subject to the full 33% enterprise income tax rate. Moreover when income generated by Focus Media Advertisement and its subsidiaries, which are subject to the ordinary enterprise income tax rate of 33%, is subsequently transferred to Focus Media Technology, it may also be subject to additional enterprise income tax. This would result in an effective tax rate of greater than 33% on a substantial portion of our total revenues. However, we believe that through effective tax planning and management of our potential tax exposure, the total effective tax rate applicable to us should not exceed 33%, although we cannot assure you that it will not exceed 33%. For example, we established New Focus Media Advertisement in December 2005 which has applied for tax-exempt status for 2006 and 2007.

       In December 2005, Focus Media Digital sold all of its flat-panel display equipment to New Focus Media Advertisement at fair market value and we expect Focus Media Digital to sell all of its technology to New Focus Media Advertisement in January 2006 at a fixed fee. Starting in January 2006, New Focus Media Advertisement will generate revenue by selling time slots on our advertising network and pay a distribution fee to Focus Media Advertisement, which places advertisements for New Focus Media Advertisement’s clients on our network. We also expect to execute license trademarks used in our business operations to New Focus Media Advertisement, Focus Media Advertisement and its subsidiaries for a fee. While we expect these transactions to be eliminated

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upon consolidation as transactions among members of our consolidated companies for financial accounting purposes, we expect them to have the affect of reducing our total income tax expense and increasing our net income in 2006 and 2007. See “Related Party Transactions” for further information on these transactions and contractual agreements. In addition, upon expiration of these tax exemptions, we will consider available options, in accordance with applicable law, that would enable us to qualify for further tax exemptions, if any, to the extent they are then available to us.

       Under PRC law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions described above are found not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow our tax savings, adjust the profits and losses of our respective PRC entities and assess late-payment interest and penalties. A finding by the PRC tax authorities that we are ineligible for the tax savings we achieved in 2004, or that we expect to achieve in 2005, 2006 and 2007, or that Focus Media Digital, Focus Media Advertising Agency or New Focus Media Advertisement are ineligible for their tax exemptions, would substantially increase our taxes owed and reduce our net income and the value of your investment. As a result of this risk, you should evaluate our results of operations and financial condition without regard to these tax savings. See “Risk Factors — Risks Relating to Regulation of Our Business and to Our Structure — 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.”

Recently Issued Accounting Standards

       In January 2003, the FASB issued FIN 46. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights, referred to as variable interest entities or “VIEs” and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (i) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (ii) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December 2003), “Consolidation of Variable Interest Entities”, or “FIN 46 (Revised)”, to address several FIN 46 implementation issues. We have elected to retroactively apply FIN 46-R and have consolidated Focus Media Advertisement and Shanghai Perfect Media as our variable interest entities from their respective inception.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. This statement establishes standards for how an issuer classifies and measures certain financial instruments. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statement of operations or consolidated balance sheets, as appropriate. The financial instruments within the scope of the statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This statement does not apply to features embedded in a

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financial instrument that is not a derivative in its entirety. The statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on our financial condition, cash flows or results of operations.

       In December 2003, the SEC issued Staff Accounting Bulletin No. 104, or SAB 104, “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on our consolidated financial statements.

       In March 2004, the Emerging Issues Task Force, or EITF, reached a consensus on Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and requires additional disclosures for those investments. The recognition and measurement guidance provided in EITF No. 03-01 is required to be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for fiscal years ending after June 15, 2004 and are required only for annual periods. We do not believe that the adoption of this standard will have a material impact on our financial condition or results of operations.

       In December 2004, the FASB issued SFAS No. 123 (revised 2004), or SFAS No. 123(R), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123, However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on the grant-date fair values. Pro forma disclosure previously permitted under SFAS 123 is no longer an alternative. The new standard will be effective for us in the first annual reporting period beginning after January 1, 2006. Under SFAS 123(R), we could elect the modified prospective or modified retrospective method for transition on the adoption of this new standard. Under the modified retrospective method, prior periods are adjusted on a basis consistent with the pro forma disclosures previously required for those periods by SFAS 123. Under the modified prospective method, compensation expense for all unvested stock options must be recognized on or after the required effective date based on the grant-date fair value of those stock options. We are currently evaluating the impact of adopting this standard on our financial statements. Prior to the adoption of SFAS 123(R), we will continue to utilize the accounting method prescribed by APB Opinion No. 25 and have adopted the disclosure requirements of SFAS 123, as amended by SFAS No. 148.

Acquisitions

       Since we commenced our current business operations in May 2003, we have acquired 19 companies to expand the coverage of our network in China and to acquire companies that are complementary to our business operations.

       Since September 30, 2005, we have acquired an additional six companies including Fuzhou Focus Media Advertising Co., Ltd., Jinan Hezhong Advertising Co., Ltd., and four companies consolidated with Framedia: Infoachieve, New Structure Advertising Co., Ltd., Guangdong Framedia and Framedia Advertisement. On January 7, 2006, we entered into a definitive share purchase agreement to acquire Target Media. For more information concerning our acquisitions of Framedia and Target Media, see “Recent Developments — Our Recent Acquisition of Framedia” and “— Our Proposed Acquisition of Target Media”.

       Some of the businesses we acquired had entities located both in and outside of China. The consideration we paid for these businesses was made in two parts, one part for the entity located in China, and the other part for the entity located outside of China. For consideration paid to acquire

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entities located in China, we withheld on behalf of sellers who are natural persons 20% of the amount by which the acquisition price exceeded the registered capital of such PRC entity as required under the PRC Individual Income Tax Law and related implementation rules. We were not required to and did not withhold any tax in connection with payments made to acquire the entities located outside of China. See “Risk Factors — Risks Relating to the People’s Republic of China — 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”.

       As required under SEC regulations, the financial statements of:

•  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;

•  Capital Beyond Limited for the periods ended, and as of, December 31, 2004 and March 31, 2005, respectively;

•  Infoachieve, for the periods ended, and as of, December 31, 2003 and 2004 and September 30, 2004 and 2005 and;

•  Target Media Holdings, for the periods ended, and as of, December 31, 2003 and 2004 and September 30, 2004 and 2005,

are included elsewhere in this prospectus.

Quarterly Results of Operation

       The following tables present unaudited consolidated quarterly financial data by amount and as a percentage of our total revenues for each of the seven quarters in the period from January 1, 2004 to September 30, 2005. You should read the following table in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited consolidated quarterly financial information on substantially the same basis as our audited consolidated financial statements and using information derived from our unaudited consolidated financial statements which are not included in this prospectus. The following information contains normal recurring adjustments which are, in the opinion of our management, necessary for a fair presentation of the results for such unaudited period. Our operating results for any quarter are not necessarily indicative of results that may be expected for any future period.

			For the three months ended
Consolidated Statement			March 31,		June 30,		September 30,		December 31,		March 31,		June 30,		September 30,
of Operations Data			2004		2004		2004		2004		2005		2005		2005
			(in thousands of U.S. dollars)
Revenues:
Advertising service revenue(1):
		Commercial location network:
		Unrelated parties	$	2,694	$	5,395	$	7,049	$	7,758	$	8,400	$	12,439	$	16,346
		Related parties		—		100		—		3,325		1,032		1,542		941
	Total commercial location network			2,694		5,495		7,049		11,083		9,432		13,981		17,287
In-store network
		Unrelated parties		—		—		—		—		—		339		1,813
		Related parties		—		—		—		—		—		—		—
	Total in-store network			—		—		—		—		—		339		1,813
	Total advertising service revenue			2,694		5,495		7,049		11,083		9,432		14,320		19,100
	Advertising equipment revenue			438		905		863		683		142		264		366

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		For the three months ended
Consolidated Statement		March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
of Operations Data		2004			2004			2004			2004			2005			2005			2005
		(in thousands of U.S. dollars)
	Total revenues		3,132			6,400			7,912			11,766			9,574			14,584			19,466
Cost of revenues:
	Net advertising service cost		1,037			1,377			1,665			2,742			3,256			5,554			7,669
	Net advertising equipment cost		304			722			668			242			71			189			285
	Total cost of revenues		1,341			2,099			2,333			2,984			3,327			5,743			7,954
Gross profit			1,791			4,301			5,579			8,782			6,247			8,841			11,512
Operating expenses:
	General and administrative		405			500			1,105			2,005			1,895			2,346			2,337
	Selling and marketing		289			704			936			1,497			1,478			1,954			2,703
	Goodwill impairment loss		—			—			—			59			—			—			—
Total operating expenses			694			1,204			2,041			3,561			3,373			4,300			5,040
Income from operations			1,097			3,097			3,538			5,221			2,874			4,541			6,472
Interest income			3			1			1			5			11			20			791
Other income (expenses), net			(2	)		—			—			(2	)		5			(3	)		8
Change in fair value of derivative liability associated with Series B convertible redeemable preference shares			—			—			(3,166	)		(8,526	)		—			—			—
Income (loss) before income taxes and minority interest			1,098			3,098			373			(3,302	)		2,890			4,558			7,271
Total income taxes			(382	)		(1,065	)		(1,382	)		1,922			(249	)		(155	)		(87	)
Minority interest			(2	)		(49	)		10			54			1			(55	)		(52	)
Equity income (loss) of affiliates			—			—			—			—			—			—			—
Net income (loss)			714			1,984			(999	)		(1,326	)		2,642			4,348			7,132
Deemed dividend on Series A convertible redeemable preference shares			—			(8,308	)		—			—			—			—			—
Deemed dividend on Series B convertible redeemable preference shares			—			(2,191	)		—			—			—			—			—
Deemed dividend on Series C-1 convertible redeemable preference shares			—			—			—			(13,356	)		—			—			—
Premium of Series B convertible redeemable preference shares			—			—			—			12,906			—			—			—
Income (loss) attributable to holders of ordinary shares		$	714		$	(8,515	)	$	(999	)	$	(1,776	)	$	2,642		$	4,348		$	7,132

(1)  Advertising service revenue is presented net of business tax, which amounts to $324,634, $574,729, $714,647, $1.6 million, $936,405, $1.5 million and $2.0 million for the three months ended March 31, 2004, June 30, 2004, September 30, 2004, December 31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005, respectively. Business tax includes business tax of 5.55% and cultural industries tax of 4.0%.

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			For the three months ended
Consolidated Statement			March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
of Operations Data			2004			2004			2004			2004			2005			2005			2005
			(in thousands of U.S. dollars)
Revenues:
	Advertising service revenue(1) :
		Commercial location network:
		Unrelated parties		86.0	%		84.3	%		89.1	%		65.9	%		87.7	%		85.3	%		84.0	%
		Related parties		—			1.6	%		—			28.3	%		10.8	%		10.6	%		4.8	%
	Total commercial location network			86.0	%		85.9	%		89.1	%		94.2	%		98.5	%		95.9	%		88.8	%
		In-store network:
		Unrelated parties		—			—			—			—			—			2.3	%		9.3	%
		Related parties		—			—			—			—			—			—			—
	Total in-store network			—			—			—			—			—			2.3	%		9.3	%
	Total advertising service revenue			86.0	%		85.9	%		89.1	%		94.2	%		98.5	%		98.2	%		98.1	%
	Advertising equipment revenue			14.0	%		14.1	%		10.9	%		5.8	%		1.5	%		1.8	%		1.9	%
	Total revenues			100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues:
	Net advertising service cost			33.1	%		21.5	%		21.0	%		23.3	%		34.0	%		38.1	%		39.4	%
	Net advertising equipment cost			9.7	%		11.3	%		8.5	%		2.1	%		0.7	%		1.3	%		1.5	%
	Total cost of revenues			42.8	%		32.8	%		29.5	%		25.4	%		34.7	%		39.4	%		40.9	%
Gross profit				57.2	%		67.2	%		70.5	%		74.6	%		65.3	%		60.6	%		59.1	%
Operating expenses:
	General and administrative			12.9	%		7.8	%		14.0	%		17.0	%		19.8	%		16.1	%		12.0	%
	Selling and marketing			9.2	%		11.0	%		11.8	%		12.7	%		15.5	%		13.4	%		13.9	%
	Goodwill impairment loss			—			—			—			0.5	%		—			—			—
Total operating expenses				22.1	%		18.8	%		25.8	%		30.2	%		35.3	%		29.5	%		25.9	%
Income from operations				35.1	%		48.4	%		44.7	%		44.4	%		30.0	%		31.1	%		33.2	%
Interest income				0.1	%		—			—			0.04	%		0.1	%		0.1	%		4.1	%
Other expenses, net				(0.1	)%		—			—			(0.01	)%		—			—			0.1	%
Change in fair value of derivative liability associated with Series B convertible redeemable preference shares				—			—			(40.0	)%		(72.5	)%		—			—			—
Income (loss) before income taxes and minority interest				35.1	%		48.4	%		4.7	%		(28.1	)%		30.1	%		31.2	%		37.4	%
Total income taxes				(12.2	)%		(16.6	)%		(17.4	)%		16.3	%		(2.6	)%		(1.0	)%		(0.4	)%
Minority interest				(0.1	)%		(0.8	)%		0.1	%		0.5	%		0.1	%		(0.4	)%		(0.3	)%
Equity income (loss) of affiliates				—			—			—			—			—			—			—
Net income (loss)				22.8	%		31.0	%		(12.6	)%		(11.3	)%		27.6	%		29.8	%		36.7	%
Deemed dividend on Series A convertible redeemable preference shares				—			(129.8	)%		—			—			—			—			—
Deemed dividend on Series B convertible redeemable preference shares				—			(34.2	)%		—			—			—			—			—
Deemed dividend on Series C-1 convertible redeemable preference shares				—			—			—			113.5	%		—			—			—
Premium of Series B convertible redeemable preference shares				—			—			—			109.7	%		—			—			—
Income (loss) attributable to holders of ordinary shares				22.8	%		(133.0	)%		(12.6	)%		(15.1	)%		27.6	%		29.8	%		36.7	%

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(1)  Advertising service revenue is presented net of business tax, which represents 8.6%, 9.0%, 9.0%, 13.6%, 9.8%, 10.0% and 10.1% of total revenues for the three months ended 2003, March 31, 2004, June 30, 2004, September 30, 2004, December 31, 2004, March 31, 2005 June 30, 2005 and September 30, 2005, respectively. Business tax includes business tax of 5.55% and cultural industries tax of 4.0%.

Results of Operations

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

       Total Revenues. Our total revenues increased substantially from $17.4 million for the nine months ended September 30, 2004 to $43.6 million for the nine months ended September 30, 2005 due to an increase in our advertising service revenue which was partially offset by a decrease in advertising equipment revenue.

       Our total advertising service revenue increased significantly from $15.2 million for the nine months ended September 30, 2004 to $42.9 million for the nine months ended September 30, 2005. Advertising service revenue from our commercial location network increased significantly from $15.2 million, including $236,843 to related parties, for the nine months ended September 30, 2004 to $40.7 million, including $3.5 million to related parties, for the nine months ended September 30, 2005. Advertising service revenue from our in-store network, which commenced operations in April 2005, totaled $2.1 million for the nine months ended September 30, 2005. This increase in advertising service revenue is attributable to:

•  an increase in the number of 30-second-equivalent advertising time slots we sold on our commercial location network from 2,515 for the nine months ended September 30, 2004 to 9,295 for the nine months ended September 30, 2005 and partially offset by a decrease in the average selling price per time slot sold from $6,060 for the nine months ended September 30, 2004 to $4,379 for the nine months ended September 30, 2005. Total network capacity, measured by number of available time slots, also increased from 7,664 for the nine months ended September 30, 2004 to 21,095 for the nine months ended September 30, 2005. The increase in the number of 30-second-equivalent advertising time slots sold between these two periods is due primarily to the following factors:

•  Our network reach increased from 35 cities as of September 30, 2004, including 14 cities directly operated by our company and 21 cities operated by our regional distributors, to 54 cities as of September 30, 2005, including 23 cities directly operated by our company and 31 cities operated by our regional distributors;

•  We gained an additional seven minutes of advertising cycle time from each of our regional distributors after we acquired them between September 30, 2004 and September 30, 2005; and

•  On July 1, 2005, we extended the cycle time in our directly operated Tier II cities from nine minutes to twelve minutes.

•  The increase in the number of 30-second-equivalent advertising time slots sold on our commercial location network was also attributable to an increase in our utilization rate from 32.8% for the nine months ended September 30, 2004 to 43.9% for the nine months ended September 30, 2005, which reflects the increased acceptance of our network among our advertising clients, which we believe is primarily due to the increased coverage and effectiveness of our network that grew from 4,664 commercial locations as of September 30, 2004 to 21,194 commercial locations as of September 30, 2005, and from 9,794 flat-panel displays as of September 30, 2004 to 37,352 displays as of September 30, 2005, including our regional distributors.

•  The decrease in the average selling price was largely due to growth in sales of time slots with lower selling prices in our Tier II cities, while the average selling price of our advertising services in our Tier I cities increased between these two periods.

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•  The launch of our in-store network in April 2005. We generated advertising service revenues of $2.1 million from our in-store network for the nine months ended September 30, 2005. We expect the contribution to our total revenues from our in-store network to increase in the near future.

•  Our advertising equipment revenue decreased from $2.2 million for the nine months ended September 30, 2004 to $772,414 for the nine months ended September 30, 2005. This decrease was primarily attributable to our acquisition of fourteen regional distributors during 2004 and the nine months ended September 30, 2005 because, following each acquisition, we no longer sell flat-panel displays to each former regional distributor. This decrease was also partially attributable to decreased sales to our existing regional distributors, as the initial installation of the network in their respective cities of operation was largely completed in 2004 and the first quarter of 2005.

       Cost of Revenues. Our cost of revenues increased significantly from $5.7 million for the nine months ended September 30, 2004 to $17.0 million for the nine months ended September 30, 2005 due to increases in our net advertising service cost for our commercial location network and our in-store network and in our net advertising equipment cost.

•  Net advertising service cost — commercial location network. Our net advertising services cost for our commercial location network increased substantially from $4.1 million for the nine months ended September 30, 2004 to $12.2 million for the nine months ended September 30, 2005. This increase was due to the substantial increase in our advertising service business on our commercial location network between these two periods.

•  Our location costs increased substantially from $2.9 million for the nine months ended September 30, 2004 to $10.5 million for the nine months ended September 30, 2005 due to a substantial increase in the number of commercial locations where we entered into display placement agreements from 4,256 as of September 30, 2004 to 18,538 as of September 30, 2005. 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 network (2) increased rental payments for the renewal of display placement agreements in the more desirable locations on our commercial location network offset in part by lower rental payments paid for new locations in our commercial location network because of a further reduction in the number of available desirable locations that command more expensive rental fees, many of which have been occupied either by us or our competitors.

•  Flat-panel display depreciation costs increased from $435,501 for the nine months ended September 30, 2004 to $2.5 million for the nine months ended September 30, 2005, as a result of an increase in the number of flat-panel displays we own and operate directly from 7,476 as of September 30, 2004 to 34,079 as of September 30, 2005. This increase in our depreciation costs was also attributable to our acquisition of 14 regional distributors and the expansion of our network in our directly operated cities during this period.

•  Other cost of revenues related to net advertising service cost increased from $720,384 for the nine months ended September 30, 2004 to $3.5 million for the nine months ended September 30, 2005. This was primarily a result of (1) an increase in the volume of CF cards we purchased even as the per-unit cost of CF cards decreased and (2) an increase in salary and benefit expenses for personnel responsible for location relations and display placement agreements with landlords and property managers and for maintaining and monitoring our network. Other cost of revenues related to net advertising service cost for our commercial location network decreased as a percentage of total revenues between these two periods as a result of the increase in advertising service revenue significantly outpacing the increase in other cost of revenues.

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•  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 $4.3 million in net advertising service cost for our in-store network for the nine months ended September 30, 2005, consisting of location costs and depreciation costs relating to the installation and maintenance of our in-store network.

•  Net advertising equipment cost. We incurred net advertising equipment costs of $1.7 million for the nine months ended September 30, 2004 compared to $544,145 for the nine months ended September 30, 2005, which decrease reflects the fact that we have acquired many of our fastest-growing regional distributors. We expect net advertising equipment costs to continue to decrease.

       Gross Profit. As a result of the foregoing, our gross profit increased from $11.7 million for the nine months ended September 30, 2004 to $26.6 million for the nine months ended September 30, 2005 although our gross margin decreased during the same period from 66.9% to 60.9%. The decrease in our gross margin was largely a result of increased rental payments, including fixed initial payments, to stores and depreciation costs incurred as we launched our in-store network. In the future, our gross margin may fluctuate depending on the respective financial performance and stage of development of each of our networks as well as the relative contribution to our revenues and costs of each network.

       Operating Expenses. Our operating expenses increased significantly from $3.9 million for the nine months ended September 30, 2004 to $12.7 million for the nine months ended September 30, 2005. This increase was primarily due to increases in our business tax, our selling and marketing expenses and in our general and administrative expenses associated with the growth of our business, such as salaries and costs associated with preparing to become a publicly listed company.

•  General and Administrative. General and administrative expenses increased substantially from $2.0 million for the nine months ended September 30, 2004 to $6.6 million for the nine months ended September 30, 2005 mainly due to an increase in the size of our administrative staff and corresponding increases in expenses for salary and benefits by $1.3 million as our operations have grown. In addition, in connection with the options granted to our directors, employees and consultants since July 2004, we recorded stock based compensation of $646,400 for the nine months ended September 30, 2005.

•  Selling and Marketing. Selling and marketing expenses increased substantially from $1.9 million for the nine months ended September 30, 2004 to $6.1 million for the nine months ended September 30, 2005 due to increases in marketing and promotional expenses by our sales force, and in salary and benefits associated with the expansion of our sales force. Marketing and promotional expenses increased significantly from $1.6 million for the nine months ended September 30, 2004 to $4.7 million for the nine months ended September 30, 2005 as a result of increased sales and promotional activities relating to the increase in our advertising services revenue between these two periods and to our in-store network. Salary expenses in connection with our sales force increased from $281,647 for the nine months ended September 30, 2004 to $1.0 million for the nine months ended September 30, 2005 as we hired additional sales staff to meet the growth in our advertising business, including our in-store network.

       Income from Operations. As a result of the foregoing, we had income from operations of $7.7 million for the nine months ended September 30, 2004 compared to $13.9 million for the nine months ended September 30, 2005.

       Income Before Income Taxes and Minority Interest. Income before income taxes and minority interest was $4.6 million for the nine months ended September 30, 2004 compared to $14.7 million for the nine months ended September 30, 2005, which included interest income and

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other income (expenses) and change in fair value of series B convertible redeemable preferred shares for the nine months ended September 30, 2004.

•  Interest Income. Interest income increased from $5,210 for the nine months ended September 30, 2004 to $822,163 for the nine months ended September 30, 2005. This interest income was the result of a significant increase in our cash and cash equivalents balances resulting from cash payments collected from our advertising operations, sales of our preference shares and proceeds from our initial public offering.

•  Other Income (Expense). We recorded other expense of $2,759 for the nine months ended September 30, 2004 compared to other income of $9,894 for the nine months ended September 30, 2005.

•  Change in Fair Value of Series B Convertible Redeemable Preferred Shares. We incurred a change in fair value of series B convertible redeemable preferred shares of $3.2 million for the nine months ended September 30, 2004. Upon the occurrence of our initial public offering in July 2005, all outstanding preference shares were converted into ordinary shares, and accordingly we did not incur any change in fair value of series B convertible redeemable preferred shares for the nine months ended September 30, 2005.

•  Income Taxes. Our income taxes were $2.8 million for the nine months ended September 30, 2004 compared to $491,067 for the nine months ended September 30, 2005, which decrease resulted from the fact that in the nine months ended September 30, 2005, we derived most of our revenue from Focus Media Advertising Agency, which had no tax liability during this period, whereas during the nine months ended September 30, 2004, we derived most of our revenues from Focus Media Advertisement, which had tax liability.

•  Minority Interest. We had minority interest expense of $40,616 and $106,304 for the nine months ended September 30, 2004 and 2005, respectively, in connection with the pro rata income attributable to minority shareholders of four of our subsidiaries.

       Net Income. As a result of the foregoing, we recorded net income of $1.7 million for the nine months ended September 30, 2004 compared to net income of $14.1 million for the nine months ended September 30, 2005.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

       Total Revenues. Our total revenues increased substantially from $3.8 million in 2003 to $29.2 million in 2004 due primarily to an increase in our advertising service revenue and partially to sales of our flat-panel displays to our regional distributors which commenced in the fourth quarter of 2003. For the periods prior to January 1, 2005, our out-of-home advertising network consisted of our commercial location network, and all discussion for these periods, including references to our network, refers only to our commercial location network.

•  Our advertising service revenue increased significantly from $3.4 million in 2003 to $26.3 million in 2004 (including $3.4 million to related parties). This increase is attributable to:

•  the fact that we commenced our advertising network operations in May 2003 and therefore derived no revenues from the sale of time slots on our advertising network for the first five months of 2003;

•  an increase in the number of 30-second-equivalent advertising time slots we sold from 415 in 2003 to 4,723 in 2004, which increase was slightly offset by a decrease in the average selling price per time slot sold from $8,088 in 2003 to $5,573 in 2004. The increase in the number of 30-second-equivalent advertising time slots sold between these two periods is due primarily to the following factors:

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•  we expanded our network to include an additional 24 cities in 2004, including eleven cities operated by our company and 23 cities operated by our regional distributors;

•  we gained an additional seven minutes of advertising cycle time from each of our regional distributors after we acquired them in 2004; and

•  we extended the cycle time from nine minutes in 2003 to twelve minutes in 2004 in our Tier I cities.

•  The increase in the number of 30-second-equivalent advertising time slots sold was also attributable to an increase in our utilization rate from 25.0% in 2003 to 36.8% in 2004, which reflects the increased acceptance of our network among our advertising clients, which we believe is primarily due to the increased coverage and effectiveness of our network that grew from 923 commercial locations in 2003 to 8,977 commercial locations in 2004, and from 1,028 flat-panel displays in 2003 to 15,415 displays in 2004, including our regional distributors.

•  The decrease in the average selling price was largely due to growth in sales of time slots with lower selling prices in our second-tier cities, while the average selling price of our advertising services in our major four cities increased between 2003 and 2004.

•  We commenced sales of flat-panel displays to regional distributors in the fourth quarter of 2003 and generated $389,282 in advertising equipment revenue in 2003 compared to $2.9 million in 2004.

•  Revenues generated by the eleven companies we acquired in 2004 accounted for approximately 1% of our total revenues in 2004.

       Cost of Revenues. Our cost of revenues increased significantly from $1.8 million in 2003 to $8.8 million in 2004 due to increases in both of our net advertising service cost and net advertising equipment cost.

•  Net Advertising Service Cost. Our net advertising services cost increased substantially from $1.6 million in 2003 to $6.8 million in 2004. This increase was due to the substantial increase in our advertising service business between these two periods.

•  Our location costs increased substantially from $1.2 million in 2003 to $4.6 million in 2004 due to a substantial increase in the number of commercial locations where we entered into display placement agreements from 754 in 2003 to 8,866 in 2004. Despite the increase in our rental expense between these two periods, our rental fees decreased as a percentage of total revenues in 2004 as a result of (i) the increase in our advertising services revenue significantly outpacing the increase in rental payments due to the increase in the number of display placement agreements we entered into and (ii) lower rental payments paid for new locations because many of the most desirable and expensive locations had been occupied either by us or our competitors.

•  Flat-panel display depreciation costs increased from $148,701 in 2003 to $774,375 in 2004, as a result of an increase in the number of flat-panel displays we own and operate directly from 827 as of December 31, 2003 to 12,786 as of December 31, 2004. This increase in our depreciation costs was also attributable to our acquisition of eight regional distributors during this period. Flat-panel display depreciation costs decreased as a percentage of total revenues, however, because the growth in our advertising services revenue significantly outpaced our purchase of flat-panel displays and corresponding depreciation costs.

•  Other cost of revenues related to net advertising service cost increased significantly from $257,574 in 2003 to $1.4 million in 2004. This was primarily a result of (i) an

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increase in the volume of DVDs we purchased even as the per-unit cost of DVDs decreased and (ii) an increase in salary and benefit expenses for personnel responsible for location relations and display placement agreements with landlords and property managers and for maintaining and monitoring our network. Other cost of revenues related to net advertising service cost decreased as a percentage of total revenues between these two periods as a result of the increase in advertising service revenue significantly outpacing the increase in other cost of revenues.

•  Net Advertising Equipment Cost. We incurred net advertising equipment costs of $275,360 in 2003 compared to $1.9 million in 2004, reflecting our cost for flat-panel displays we sold to our regional distributors. We did not commence our regional distributor relationships until November 2003 and, accordingly, we recorded significantly lower costs related to such sales in 2003. We expect net advertising equipment costs to decrease as our purchase of flat-panel displays for resale to regional distributors decreases as a result of our ongoing acquisition of our regional distributors.

       Gross Profit. As a result of the foregoing, our gross profit increased from $1.9 million in 2003 to $20.5 million in 2004.

       Operating Expenses. Our operating expenses increased significantly from $1.4 million in 2003 to $7.5 million in 2004. This increase was primarily due to increases in our selling and marketing expenses and in our general and administrative expenses associated with the growth of our business and to the share-based compensation expense we recognized in 2004.

•  General and Administrative. General and administrative expenses increased substantially from $1.0 million in 2003 to $4.0 million in 2004 due to an increase in the size of our administrative staff and corresponding increases in expenses for salary and benefits of $435,665 as our operations have grown, an increase in our office rental payments of $292,078 as we established branch offices in a number of new cities, and increases in public relations expenses, communications and travel expenses and fees for professional services of $170,898. General and administrative expenses, however, decreased as a percentage of total revenues from 26.2% to 13.7% due to (i) the overall growth of our total revenues which outpaced these expenses and (ii) our establishment of a dedicated sales force in 2004 and assignment of sales, maintenance and location relationship personnel previously included within our administrative department, respectively, to our newly established sales and location relationship and maintenance departments. Our general and administrative expenses in 2004 include share-based compensation. We incurred share-based compensation expense of $488,711 in 2004 relating to the issuance of options to purchase 25,208,200 of our ordinary shares that were granted to certain directors, officers, employees and individual consultants and advisers in July and August 2004. We did not incur share-based compensation expense in 2003.

•  Selling and Marketing. Selling and marketing expenses increased substantially from $406,634 in 2003 to $3.4 million in 2004 due to increases in marketing and promotional expenses by our sales force, and in salary and benefits associated with the creation and expansion of our sales force. Marketing and promotional expenses, for which we budget 10% of our advertising revenues, increased significantly from $355,398 in 2003 to $2.8 million in 2004 as a result of increased sales and promotional activities relating to the increase in our advertising services revenue between these two periods. Salary expenses in connection with our sales force increased from $49,870 in 2003 to $471,723 in 2004 because, prior to 2004, we did not have a dedicated sales force and for prior periods all salary expenses of our employees were classified under general and administrative expenses. Our salary expenses increased slightly as a percentage of total revenues between these two periods because we hired additional sales staff to meet the growth in our advertising business.

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•  Goodwill Impairment Loss. We incurred a one-time goodwill impairment loss of $58,397 in 2004 in connection with our acquisition of Perfect Media. This goodwill impairment loss represents the difference between the amount we paid to acquire Perfect Media on September 22, 2004 and the fair market value of Perfect Media. In conducting our annual impairment test, we undertook a valuation of Perfect Media using the expected present value of cash flow and the income approach valuation methods, which resulted in a goodwill impairment loss of $58,397 in 2004, indicating that the value of Perfect Media was less than what we paid at the time we acquired it.

       Income from Operations. As a result of the foregoing, we had income from operations of $525,110 in 2003 compared to $13.0 million in 2004.

       Income Before Income Taxes and Minority Interest. Income before income taxes and minority interest was $516,751 in 2003 compared to income of $1.3 million in 2004, which included taxes and minority interest included interest income and other expenses and a one-time non-cash charge of $11.7 million for the change in fair value of derivative liability associated with Series B convertible redeemable preference shares.

•  Interest Income. Interest income increased from $1,005 in 2003 to $9,739 in 2004. This interest income was the result of a significant increase in our cash and cash equivalents balances resulting from cash payments collected from our advertising operations and sales of our preference shares.

•  Change in Fair Value of Derivative Liability Associated with Series B Convertible Redeemable Preference Shares. We recorded a one-time non-cash charge to reflect the change in fair value of derivative liability associated with Series B convertible redeemable preference shares of $11.7 million in 2004, which, under applicable accounting rules required us to mark to market the conversion feature of our Series B convertible redeemable preference shares because they may be net settled in cash upon conversion. We will not incur any such charges commencing January 1, 2005 as the redemption feature of our Series B convertible redeemable preference shares was removed prior to December 31, 2004.

•  Other Income (Expense). We recorded other expense of $9,364 in 2003 compared to other expense of $3,843 in 2004.

•  Income Taxes. Our income taxes increased from $481,505 in 2003 to $907,550 in 2004 increased taxable income by certain of our consolidated entities that are subject to PRC income tax.

•  Minority Interest. We had minority interest income of $8,360 and $13,516 in 2003 and 2004, respectively in connection with the pro rata loss attributable to four affiliates in which we hold a minority interest.

       Net Income. As a result of the foregoing, we recorded net income of $372,752 in 2004 compared to net income of $25,483 in 2003. Our net income of $372,752 in 2004 includes a one-time non-cash charge of $11.7 million reflecting the change in fair value of derivative liability associated with our Series B convertible redeemable preference shares. We will not incur any such charges commencing January 1, 2005 as the redemption feature of our Series B convertible redeemable preference shares was removed prior to December 31, 2004.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

       Total Revenues. Our total revenues increased substantially from $23,895 in 2002 to $3.8 million in 2003. Our revenues in 2002 and for the first four months of 2003 consisted of commissions from the placement of advertisements with media companies on behalf of advertising clients. Beginning in May 2003, we no longer earned revenues as an advertising agency and began deriving revenue from the sale of advertising time slots on our out-of-home television advertising

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network to advertising clients and, in the fourth quarter of 2003, from equipment sales to our regional distributors.

       Cost of Revenues. Our cost of revenues increased from nil in 2002 to $1.8 million in 2003 due largely to costs associated with the substantial increase in our advertising services revenue and the commencement of our sales of flat-panel displays in 2003 to our regional distributors. In 2002 and prior to May 2003 all of our costs were booked as operating expenses.

       Gross Profit. As a result of the foregoing, gross profit increased from $23,895 in 2002 to $1.9 million in 2003.

       Operating Expenses. Our operating expenses increased significantly from $23,710 in 2002 to $1.4 million in 2003. This resulted from the increase in our operating expenses associated with the commencement and expansion of our current business operations after May 2003.

       Income from Operations. As a result of the foregoing, our income from operations increased significantly from $185 in 2002 to $525,110 in 2003.

       Income Before Income Taxes and Minority Interest. Income before income taxes and minority interest increased significantly from $223 in 2002 to $516,751 in 2003 largely as a result of an increase in our total income taxes from $40 in 2002 to $481,505 in 2003 as a result of the significant increase in our revenues from 2002 to 2003.

       Net Income. As a result of the foregoing, our net income increased substantially from $183 in 2002 to $25,483 in 2003.

Liquidity and Capital Resources

Cash Flows and Working Capital

       To date, we have financed our operations primarily through internally generated cash, the sale of our shares to investors in May 2003, April 2004 and November 2004, and our initial public offering in July 2005. As of September 30, 2005, we had approximately $84.0 million in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash on hand and liquid investments with original maturities of three months or less that are deposited with banks and other financial institutions. We generally deposit our excess cash in interest bearing bank accounts. Although we consolidate the results of Focus Media Advertisement and its subsidiaries in our consolidated financial statements and we can utilize their cash and cash equivalents in our operations through Focus Media Advertisement and its subsidiaries, we do not have direct access to the cash and cash equivalents or future earnings of Focus Media Advertisement. As we have expanded our network, entered into a large number of display placement agreements and increased our acquisition of regional distributors and related businesses, our cash needs for such acquisitions, the purchase of flat-panel displays, payment of our location and maintenance costs and employee costs increased significantly and accounted for the net cash used in investing activities. However, these cash balances can be utilized by us for our normal operations pursuant to our agreements with Focus Media Advertisement and its subsidiaries that provide us with effective control over Focus Media Advertisement and its subsidiaries. In addition, we have access to the cash flows of Focus Media Advertisement and its subsidiaries through contractual arrangements with our subsidiaries Focus Media Technology and Focus Media Digital, which provide technical and other services in exchange for fees. See “Related Party Transactions — Agreements Among Us, Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Focus Media Advertisement and Its Subsidiaries”.

       We expect to require cash in order to fund our ongoing business needs, particularly the location costs connected with the placement of our television displays, to fund the ongoing expansion of our network and for payments in connection with our acquisitions. Other possible cash needs may include the upgrading of technology on our network as well as any payment of claims

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that could be made against us. We have not encountered any difficulties in meeting our current cash obligations and expect to continue meeting our liquidity and cash needs through revenue generated by our business and through the proceeds of our initial public offering and this offering.

       The following table shows our cash flows with respect to operating activities, investing activities and financing activities in 2002, 2003, 2004 and for the nine months ended September 30, 2004 and 2005:

									For the nine
	For the year ended								months ended
	December 31,								September 30,
	2002		2003			2004			2004			2005
	(in thousands of U.S. dollars)
Net cash provided by operating activities	$	3	$	1,891		$	5,080		$	(292	)	$	9,868
Net cash used in investing activities		—		(3,277	)		(12,106	)		(4,766	)		(71,347	)
Net cash provided by financing activities		—		2,125			28,978			11,563			121,940
Net increase (decrease) in cash and cash equivalents		3		701			21,953			6,504			61,305
Cash and cash equivalents at beginning of period		12		15			716			716			22,669
Cash and cash equivalents at end of period	$	15	$	716		$	22,669		$	7,220		$	83,974

       We had cash provided by operating activities of $9.9 million for the nine months ended September 30, 2005. This was primarily attributable to net income generated from the operation of our advertising network, adjusted up $1.5 million, $3.9 million, $756,637 and $1.6 million to reflect amounts due from related parties, accounts payable, income taxes payable and accrued expenses and other current liabilities, and adjusted down $13.8 million and $1.6 million to reflect accounts receivable and prepaid expenses and other current assets. We had net cash provided by operating activities of $5.1 million in 2004. This was primarily attributable to our net income from operation of our network, adjusted down $4.5 million, $2.5 million, $1.6 million and $1.7 million to reflect our accounts receivable from our advertising clients and regional distributors, a decrease in amounts due from related parties, accounts payable from location and maintenance costs owed to third parties and prepaid expenses and other current assets including location costs, respectively, and adjusted up $11.7 million, $4.2 million and $0.8 million to reflect the change in fair value of derivative liability, accrued expenses from location costs and maintenance costs and other current liabilities and income taxes payable, respectively. We had net cash provided by operating activities of $1.9 million in 2003. This was primarily attributable to accounts payable for location costs and equipment, accrued expenses and other current liabilities, amount due to related parties and income taxes payable, which was partially offset by accounts receivable from our advertising clients and regional distributors, prepaid expenses and other current assets, amount due from related parties and inventory, which consists primarily of our television displays. Our net cash provided by operating activities was $3,303 in 2002, which was attributable to accounts receivable, offset in large part by prepaid expenses and other current assets and accounts payable.

       We had net cash used in investing activities of $71.3 million for the nine months ended September 30, 2005, primarily in connection with the acquisition of companies, subsidiaries and regional distributors, purchase of equipment used to expand our commercial location and in-store networks, and rental deposits paid for locations on both our commercial location and in-store networks. We had net cash used in investing activities of $12.1 million in 2004. This was primarily attributable to our purchase of property and equipment for the operation of our network, rental deposits made in connection with our display placement agreements and our acquisition of eleven businesses, eight of which were our former regional distributors. We had net cash used in investing activities of $3.3 million in 2003, largely as a result of purchases of property and equipment and the acquisition of a business from a related party. We had no net cash used in or provided by investing activities in 2002. Subsequent to September 30, 2005, we acquired Framedia in January 2006. Our acquisition of Framedia involved our payment of $39.6 million in cash and issuance of $55.4 million of our ordinary shares to the seller parties at a fixed value of $2.456 per ordinary share. We expect

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that this issuance of our ordinary shares will result in lower earnings per share or per ADS when we calculate our earnings for 2005 than would otherwise be the case were such additional shares not issued. In addition, subject to Framedia’s attainment of certain financial performance goals in 2006, we may be obligated to issue up to $88 million in additional Focus Media ordinary shares, at a fixed value of $2.456 per ordinary share, to the selling parties in 2007. Pursuant to the share purchase agreement we entered into with E-Times and Skyvantage, effective as of January 1, 2006, we will be required to pay the seller parties $5.0 million when the transaction is completed. When we consummate our acquisition of Target Media, we will also pay $94 million in cash and issue 77 million ordinary shares to the shareholders of Target Media. The issuance of such additional ordinary shares will also result in lower earnings per share or per ADS when we calculate our earnings for 2007 than would otherwise be the case were such additional shares not issued. See “Risk Factors — Risks Relating to this Offering — The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price”, “Recent Developments — Our Recent Acquisition of Framedia” and “— Our Proposed Acquisition of Target Media”.

       $121.9 million net cash was provided by financing activities for the nine months ended September 30, 2005, primarily from the proceeds of our initial public offering in July 2005. We had net cash provided by financing activities of $29.0 million in 2004. This was attributable to the proceeds from the issuance of our Series B and Series C-2 convertible redeemable preference shares, offset slightly by the repayment of a short-term loan from one of our shareholders. We had net cash provided by financing activities of a $2.1 million in 2003. This was attributable to the proceeds from the issuance of ordinary shares in May 2003 and proceeds from a short-term loan from one of our shareholders. We used this loan for our business operations and the loan was secured by our ordinary shares. We repaid the loan when it came due in June 2004. We had no net cash provided by financing activities in 2002.

       We believe that our current cash and cash equivalents, cash flow from operations and the proceeds from this offering will be sufficient to meet our anticipated cash needs, including for working capital and capital expenditures, for the foreseeable future. These additional cash needs may include costs associated with the expansion of our network, such as the purchase of flat-panel displays and increased location costs, including in connection with our acquisition of Framedia and proposed acquisitions of Target Media and E-Times, as well as possible acquisitions of our regional distributors. We are also required under PRC law to set aside 10% of our after-tax profits into a general reserve fund. We expect that revenues from operation of our advertising network and the proceeds from this offering will be sufficient to cover any such obligations and costs. We may, however, require additional cash resources due to changed business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell debt securities or additional equity securities or obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financial covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

       From time to time, we evaluate possible investments, acquisitions or divestments and may, if a suitable opportunity arises, make an investment or acquisition or conduct a divestment.

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Contractual Obligations and Commercial Commitments

       The following table sets forth our contractual obligations as of September 30, 2005:

	Payments due by period
	Total		2005		2006		2007		2008		Thereafter
	(in thousands of U.S. dollars)
Display placement agreement obligations	$	64,779	$	19,773	$	16,967	$	13,323	$	8,669	$	6,047
Operating lease obligations		865		659		152		36		18		—
Short-term debt(1)		3,113		2,122		991		—		—		—
Total contractual obligations	$	68,757	$	22,554	$	18,110	$	13,359	$	8,687	$	6,047

(1)  Includes interest.

       We have entered into certain leasing arrangements relating to the placement of our flat-panel displays in the commercial locations where we operate our network and in connection with the lease of our office premises. Our rental expenses under these leases were $5,030, $803,079 and $3.6 million in 2002, 2003 and 2004, respectively. Apart from the above, as of September 30, 2005, we did not have any long-term debt obligations, operating lease obligations or purchase obligations. However, pursuant to our option agreement with the owners of Focus Media Advertisement, Focus Media Technology has an option, exercisable at such time as it becomes legally permissible to acquire 100% of the equity interest in Focus Media Advertisement at a purchase price equal to the registered capital of Focus Media Advertisement or such higher price as required by PRC law on the date of such purchase. Subsequent to September 30, 2005, we have incurred additional contractual obligations in connection with our acquisition of Framedia and Target Media. In connection with the closing of our acquisition of Framedia, we paid $39.6 million in cash to the seller parties of Framedia in December 2005. See “Recent Developments — Our Recent Acquisition of Framedia — Share Purchase Agreement — Purchase Price”. Under the terms of the definitive share purchase agreement for the acquisition of Target Media, we will be required to make three cash payments. The first installment of $45 million is to be paid at closing, which is expected to occur in the first quarter of 2006. The second installment of $25 million is to be paid on April 28, 2006. The final installment of $24 million is to be paid on July 31, 2006, and may be increased or decreased based on a calculation of Target Media’s net working capital as of the closing date. See “Recent Developments — Our Proposed Acquisition of Target Media — Share Purchase Agreement — Purchase Price.” Under the terms of the share purchase agreement for the acquisition of E-Times, we will be required to make a cash payment of $5.0 million at closing, which is expected to occur in the first quarter of 2006. See “Recent Developments — Recent Acquisitions Expanding Our Network.”

       As of September 30, 2005, we held short-term debt securities in the amount of $35.0 million. As of September 30, 2005, we had no other indebtedness, material contingent liabilities, or material mortgages or liens. We intend to meet our future funding needs primarily through net cash provided from operating activities and the proceeds of this offering. Our objective is to maintain the safety and liquidity of our cash. Therefore we intend to keep our cash and cash equivalents in short-term bank deposits and short-term bonds.

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Capital Expenditures

       The following table sets forth our historical capital expenditures for the periods indicated. Actual future capital expenditures may differ from the amounts indicated below.

					For the
	For the year ended				nine months ended
	December 31,				September 30,
	2003		2004		2005
	(in thousands of U.S. Dollars)
Total capital expenditures	$	1,468	$	6,373	$	24,307

       Our capital expenditures were made primarily to acquire flat-panel displays for our advertising network. Our capital expenditures are primarily funded by net cash provided from operating activities. We expect our capital expenditures in 2006, in an amount of approximately $20.0 million, to primarily consist of purchases of components for our flat-panel displays and new poster frames as we continue to expand our commercial location network, in-store network and poster frame network. We also intend to upgrade our financial, accounting systems and internal control systems. As opportunities arise, we may make additional acquisitions of regional distributors and other businesses that complement our operations. We believe that we will be able to fund these upgrades and equipment purchases through the revenues we generate, and do not anticipate that these obligations will have a material impact on our liquidity needs.

Foreign Exchange

       We maintain our accounts in Renminbi and substantially all of our revenues and expenses are denominated in Renminbi, while we report our financial results in U.S. dollars. Fluctuations in exchange rates, primarily those involving the U.S. dollar against the Renminbi, may affect our reported operating results in U.S. dollar terms. In addition, we will receive the proceeds of this offering in U.S. dollars and changes in the U.S. dollar/ Renminbi exchange rate could affect the buying power of those proceeds. Under the current foreign exchange system in the PRC, our operations in the PRC may not be able to hedge effectively against currency risk, including any possible future Renminbi devaluation. Moreover, due to the recent devaluation of the U.S. dollar against the Euro and several other currencies, the PRC government recently revised its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. As of July 21, 2005 the Renminbi is no longer pegged solely to the U.S. dollar. Instead, it will be pegged against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. For example, on July 21, 2005 the Renminbi was revalued against the U.S. dollar to approximately RMB8.11 to the U.S. dollar, representing an upward revaluation of 2.1% of the Renminbi against the U.S. dollar, as compared to the exchange rate the previous day. See “Risk Factors — Risks Relating to the People’s Republic of China — Fluctuations in exchange rates could result in foreign currency exchange losses”.

Restricted Net Assets

       Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, PRC laws and regulations require that annual appropriations of 10% of after-tax income for our general reserve fund should be set aside prior to payment of dividends. As a result of these PRC laws and regulations, our PRC subsidiaries and our affiliated PRC entities are restricted in their ability to transfer a portion of their net assets to us whether in the form of dividends, loans or advances. As of December 31, 2004, the amount of our restricted net assets was approximately $14,792,000.

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Off-balance Sheet Commitments and Arrangements

       We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

       Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. We have not used derivative financial instruments in our investment portfolio. Interest earning instruments carry a degree of interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in market interests rates. However, our future interest income may fall short of expectations due to changes in market interest rates.

Foreign Currency Risk

       Substantially all our revenues and expenses are denominated in Renminbi. We have not had any material foreign exchange gains or losses. Although in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars relative to the Renminbi because the value of our business is effectively denominated in Renminbi, while the ADSs will be traded in U.S. dollars. Furthermore, a decline in the value of the Renminbi could reduce the U.S. dollar equivalent of the value of the earnings from, and our investments in, our subsidiaries and PRC-incorporated affiliates in China. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our reported financial results in U.S. dollar terms. See “Risk Factors — Risks Relating to the People’s Republic of China — Fluctuations in exchange rates could result in foreign currency exchange losses”.

Inflation

       In recent years, China has not experienced significant inflation, and thus inflation has not had a significant effect on our business historically. According to the National Bureau of Statistics of China, the change in the Consumer Price Index in China was 0.7%, (0.8)%, 1.2%, 3.9% and 1.8% in 2001, 2002, 2003, 2004 and the eleven months ended November 30, 2005, respectively.

       However, following a 3.2% average change in the Consumer Price Index in China in the fourth quarter of 2004 and a 3.9% change in the month of February 2005, the PRC government has announced measures to restrict lending and investment in China in order to reduce inflationary pressures in China’s economy. The PRC government may introduce further measures intended to reduce the rate of inflation in China. Any such measures adopted by the PRC government may not be successful in reducing or slowing the increase in China’s rate of inflation. Sustained or increased inflation in China may adversely affect our business and financial results.

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OUR INDUSTRY

China’s Advertising Market

       The advertising market in China is one of the largest and fastest growing advertising markets in the world and has the following characteristics:

•  Largest Market in Asia Excluding Japan. Advertising spending in China totaled $9.0 billion in 2004 according to ZenithOptimedia’s October 2005 Advertising Expenditure Forecasts report, making it the largest advertising market in Asia excluding Japan.

•  High Growth Rate. According to ZenithOptimedia, advertising spending in China grew 18.0% between 2003 and 2004 compared to the average worldwide growth rate of 7.5%, making it one of the fastest growing advertising markets in the world during that period.

•  Urban Concentration of Advertising Spending. Advertising spending in China is highly concentrated in China’s more economically developed regions and increasingly concentrated in urban areas. For example, Beijing, Shanghai and Guangdong province (Guangdong province includes the major cities of Guangzhou and Shenzhen), together accounted for 51.6% of total advertising spending in China in 2004, according to the State Administration for Industry and Commerce.

•  Importance of New Alternative Advertising Media. Alternative advertising media, which is a term we use to refer to media other than traditional broadcast and print media, account for a larger percentage of total advertising spending in China compared to Europe, the United States and other countries in Asia.

•  Fragmented Industry. The advertising industry in China is highly fragmented and is not dominated by a small number of advertising companies. According to the China Advertising Association, there were approximately 76,210 advertising companies in China in 2004.

       Market Size and Composition. According to ZenithOptimedia statistics, China’s advertising market in terms of advertising spending is expected to remain the largest in Asia excluding Japan through at least 2007. The following table sets forth historical and estimated future advertising spending in the countries and regions described and for the years indicated:

		2001		2002		2003		2004		2005E		2006E		2007E
		(In billions of U.S. dollars)
China			5.1		6.3		7.7		9.0		10.5		12.2		14.2
South Korea			5.9		6.8		7.1		6.8		6.6		6.7		6.9
India			1.8		2.0		2.5		3.0		3.7		4.2		4.6
Taiwan			1.9		2.0		2.1		2.0		2.1		2.3		2.4
Hong Kong			1.9		1.9		1.8		2.2		2.5		2.8		2.9
Other Asia(1) (excluding Japan)			4.9		5.7		6.6		8.2		9.2		10.6		12.0
	Total Asia (excluding Japan)		21.5		24.6		27.8		31.4		34.6		38.6		43.0
Japan			41.7		38.9		38.8		40.3		40.9		41.8		44.2
	Total Asia		63.2		63.5		66.6		71.7		75.5		80.4		87.2
United States			147.2		149.8		152.3		161.5		167.4		176.9		184.8

(1)  Other Asia includes Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.

Source: Advertising Expenditure Forecasts, ZenithOptimedia, October 2005.

       The advertising industry is generally divided into television, newspaper, magazine, radio and other types of advertising media. Other advertising media includes Internet, outdoor, billboard, out-of-home, bus-stop display and other outdoor advertising media. Other advertising media account for a larger percentage of total advertising spending in China than in Europe, the United States or other

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countries in the Asia Pacific region. The following table sets forth the percentage breakdown of advertising spending by medium in the countries and regions described below for 2004:

Country/Region:	Television		Newspaper		Magazine		Radio		Other
China		37.5%		40.6%		4.6%		4.3%		13.0%
United States		34.4%		30.1%		14.1%		12.6%		8.9%
Europe(1)		33.8%		31.9%		18.9%		5.7%		9.7%

(1)  Europe includes Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

Source: Advertising Expenditure Forecasts, ZenithOptimedia, October 2005.

       Growth. We believe advertising spending in China has considerable growth potential over the next few years. According to ZenithOptimedia, advertising spending in China is expected to increase to $14.2 billion in 2007 from $9.0 billion in 2004, a compound annual growth rate of 16.3% from 2004 to 2007, a much faster rate compared to 6.7%, 4.6% and 4.0%, respectively, for Asia, the United States and Europe. However, we cannot provide any assurance that we or our business will benefit from growth that occurs in China’s advertising industry. The following table sets forth the historical and prospective growth in China’s advertising industry:

Source:  Advertising Expenditure Forecasts, ZenithOptimedia, October 2005.

       The growth of China’s advertising industry is being driven by a number of factors including:

•  High and Sustained Levels of Economic Growth. China’s economy has grown and continues to grow rapidly compared to the growth experienced by other developed economies. China’s GDP grew by 8.1%, 11.1% and 13.8% in 2002, 2003 and 2004, respectively, and is projected to grow by 11.9%, 9.5%, and 8.6% in 2005, 2006 and 2007 according to ZenithOptimedia.

•  Growing Consumer Class. We believe the emergence and ongoing expansion of a consumer class concentrated in major cities in China will encourage companies to spend increasing amounts on advertising for new products and services particularly in major urban areas.

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•  Relatively Low Levels of Advertising Spending in China Per Capita and as a Percentage of GDP. Advertising spending per capita and as a percentage of GDP in China remains very low relative to other countries and regions, indicating that there is significant growth potential in China’s advertising industry as its consumer markets continue to develop and income levels increase.

       The following table sets forth advertising spending per capita and as a percentage of GDP for the countries and regions indicated for 2004:

	Advertising Spending
			As a
			Percentage
Country/ Region	Per Capita		of GDP
	(in U.S. dollars,
	except percentage)
China	$	7		0.6	%
Hong Kong	$	328		1.3	%
South Korea	$	141		1.0	%
Japan	$	316		0.9	%
Asia(1) Weighted Average	$	24		0.8	%
United Kingdom	$	346		1.0	%
United States	$	550		1.4	%

(1)  Asia includes China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam.

Source: Advertising Expenditure Forecasts, ZenithOptimedia, October 2005.

       Rapid Urbanization and Concentration of Advertising Spending. While the total size of China’s advertising market is expected to increase by a compound annual growth rate of 16.3% from 2004 to 2007, we expect that advertising spending in certain regions and urban areas will increase at a faster rate compared to the national average. This is due to:

•  Rapid urbanization. According to the National Bureau of Statistics of China, China’s urban population increased from 17.9% in 1978 to 29.0% in 1995, to 41.8%, or 543 million people, in 2004. China’s Academy of Social Sciences estimates that China’s urban population will reach 610 million people by 2010.

•  Faster growth of consumer spending in urban areas. Rapid urbanization, in turn, will result in faster growth of consumer spending in urban areas, which already accounts for a disproportionately larger amount of consumer spending. According to the National Bureau of Statistics, in 2004, 77.4% of retail sales for consumer goods took place in urban areas. Retail sales in urban areas grew by 14.4% compared to growth in rural areas of 9.9% relative to the same period in 2003.

       The impact of these trends is particularly notable in certain regions and urban centers. For example, Beijing, Shanghai and Guangdong province (Guangdong includes the major cities of Guangzhou and Shenzhen) together accounted for 51.6% of total advertising spending in China in 2004, according to the State Administration for Industry and Commerce, while accounting for only 8.9% of the population in 2004.

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BUSINESS

Overview

       We believe we operate the largest out-of-home advertising network in China using audiovisual television displays, based on the number of locations and number of flat-panel television displays in our network. It is our goal to create the largest multi-platform out-of-home advertising network in China, reaching urban consumers at strategic locations over a number of media formats, including audiovisual television displays in buildings and stores, advertising poster frames and, in the future, other new and innovative media. To date, our out-of-home advertising network consists of the following:

•  our commercial location network, which refers to our network of flat-panel television displays placed in high-traffic areas of commercial office buildings, such as in lobbies and near elevators, as well as in beauty parlors, karaoke parlors, golf country clubs, auto shops, banks, pharmacies, hotels, airports, airport shuttle buses and in-air flights;

•  our in-store network, which refers to our network of flat-panel television displays placed in specific product areas such as the personal care and food and beverage sections and other store locations with high-traffic concentration such as the main aisles and check-out lines in large-scale chain retail stores, which are referred to in China as hypermarkets, as well as inside selected supermarkets and convenience stores; and

•  our poster frame network, which refers to our network of advertising poster frames placed mainly in the elevators and public areas of residential complexes which we acquired through our acquisition of Framedia. According to an independent survey conducted by Sinomonitor International Media Research, or Sinomonitor, Framedia’s frames were installed in 99.0%, 90.7%, 92.7% and 85.3% of a total of 2,789 residential buildings with advertising poster frames surveyed in Beijing, Shanghai, Guangzhou and Shenzhen.

       We derive revenue principally by selling advertising time slots on our commercial location and in-store networks, and from January 2006, by selling frame space on our poster frame network. Substantially all of the content displayed on our commercial location and in-store networks consists of advertisements which are broadcast repeatedly approximately 60 or 80 times per day in twelve or nine-minute cycles, depending on the city in which the cycle is operated. Our poster frame network consists of advertising poster frames placed in elevators and public areas in residential complexes and commercial locations. For advertising poster frames placed in elevators, generally two, three or four advertising poster frames can be placed in each elevator.

       Our flat-panel displays 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. Accordingly, our network provides a targeted and cost-effective way for advertising clients to reach segmented consumer groups with attractive demographic characteristics. Due to the captive and low distraction nature of the locations where we place our displays, we believe our commercial location network produces higher consumer recall rates of advertisements than traditional television advertisements.

       As of September 30, 2005, more than 1,200 advertisers purchased advertising time slots on our out-of-home television advertising networks, including over 70 advertisers who purchased time slots on our in-store network, and for the nine months ended September 30, 2005, we acquired over 700 new advertising clients. Some of our largest advertising clients in terms of revenue include leading international brand name advertisers such as NEC, Nokia, Samsung, Toyota and Volkswagen, and leading domestic brand name advertisers such as China Merchants Bank, China Mobile, China Unicom and Dongfeng Motor Corporation, which together accounted for approximately 20% of our revenue in 2004. In addition, over 600 advertisers have bought frame space from

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Framedia since 1999, including leading international and domestic companies, such as Audi, Lenovo, Microsoft, Motorola, Omega, Samsung and Sony.

       We believe our high market share of desirable locations in key cities in China and the exclusivity and renewal terms contained in most of our display placement agreements with landlords and property managers create higher barriers to entry for potential competitors than other out-of-home and outdoor advertising business models, such as billboards.

       In addition, we believe that lower installation costs and ongoing maintenance costs for operating our network have allowed us to generate higher gross margins than several competing advertising business models, including outdoor billboards and bus stop displays.

       Our network has the following key features:

•  Substantially all of the content we broadcast on our flat-panel displays and place on our advertising poster frames consists of advertisements.

•  The advertising cycle consists of our out-of-home television advertising networks of nine or twelve minutes of advertising content broadcast repeatedly 60 to 80 times per day and is sold to advertising clients in 30-, 15- or five-second time slots.

•  The advertising cycle of our out-of-home television advertising networks is broadcast repeatedly, for approximately twelve-hours per day.

•  The majority of our flat-panel displays contain a 17-inch LCD screen, while the remainder contain 42-inch plasma screens.

•  Over 77,000 450 mm x 600 mm plastic advertising poster frames have been placed in elevators on our poster frame network.

       Since we commenced our current business operations in May 2003, we have experienced significant growth in our network and in our financial results. As of September 30, 2005, we operated our commercial location network directly in a total of 23 cities throughout China, including Beijing, Shanghai, Guangzhou and Shenzhen, which we refer to as our Tier I cities, and 19 other directly operated cities. As of September 30, 2005, we covered an additional 31 cities through contractual arrangements with regional distributors that, together with the other 19 directly operated cities, we refer to as our Tier II cities. Between January 1, 2004 and September 30, 2005, the number of commercial locations in which we operate directly increased from 754 to 18,538, and the number of displays in those locations increased from 827 to 34,079. As of September 30, 2005, our commercial location network operated by our regional distributors consisted of approximately 3,273 flat-panel displays in approximately 2,656 locations in the 31 cities. We commenced commercial operations of our in-store network in April 2005. As of September 30, 2005, our in-store network consisted of 20,061 flat-panel displays placed in 2,702 store locations in our directly operated cities, including 553 hypermarkets and 1,272 supermarkets and 877 convenience stores. As of September 30, 2005, Framedia owned and operated over 77,000 advertising poster frames in its network in six cities throughout China, including Beijing, Shanghai, Guangzhou and Shenzhen.

       For the nine months ended September 30, 2005, we recorded total revenues of $43.6 million, income from operations of $13.9 million and net income of $14.1 million as compared to total revenues, income from operations and net income of $17.4 million, $7.7 million and $1.7 million for the nine months ended September 30, 2004. In 2004, we recorded total revenues of $29.2 million, income from operations of $13.0 million and net income of $372,752 as compared to total revenues of $3.8 million, income from operations of $525,110 and net income of $25,483 in 2003. Our net income of $372,751 in 2004 reflects a one-time non-cash charge of $11.7 million for a change in fair value of derivative liability associated with our Series B convertible redeemable preference shares. We have not incurred, and will not incur, any such charges from January 1, 2005 as the redemption feature of our Series B convertible redeemable preference shares was removed prior to December 31, 2004.

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       The following table sets forth operating data related to our network and our total advertising service revenues for the periods indicated

		For and as of the three months ended
		March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
		2004			2004			2004			2004			2005			2005			2005
Commercial location network:
Number of displays:
	Our direct cities		1,491			3,128			7,476			12,786			16,025			20,267			34,079
	Our regional distributors(1)		479			1,040			2,318			2,629			1,847			2,664			3,273
Total			1,970			4,168			9,794			15,415			17,872			22,931			37,352
Time slot data:
	Number of time slots available for sale		1,775			2,347			3,542			5,170			6,010			6,737			8,346
	Number of time slots sold		403			832			1,280			2,209			1,998			3,057			4,240
	Utilization rate(2)		22.7	%		35.4	%		36.1	%		42.7	%		33.2	%		45.4	%		50.8	%
	Average advertising service revenue per time slot (ASP) (US$)	$	6,693		$	6,607		$	5,506		$	5,018		$	4,721		$	4,573		$	4,077
Total commercial location advertising service revenues (in ’000s of US$)		$	2,694		$	5,495		$	7,049		$	11,083		$	9,432		$	13,981		$	17,287
In-store Network:
Number of displays in our in-store network			—			—			—			—			3,149			12,779			20,061
Number of stores in our in-store network			—			—			—			—			423			1,835			2,702
Total in-store advertising service revenues (in ’000s of US$)			—			—			—			—			—		$	339		$	1,813

(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)	Utilization rate refers to total time slots sold as a percentage of total time slots available during the relevant period.

Our Competitive Strengths

       We believe we have the following competitive strengths:

Effective and Focused Advertising Network Accepted by Both Advertisers and Consumers.

       Since commencing our current business operations in May 2003, we have created an advertising network that:

•  Targets Segmented Consumer Groups. Our flat-panel displays and frames are primarily placed in venues that have a high concentration of consumers with higher-than-average disposable incomes or that have a high concentration of consumers who are likely to be interested in particular types of products and services. As a result, our network enables advertisers to target consumers with demographic profiles attractive to them. Moreover, our network allows advertisers to further segment these consumers through separate specified advertising channels, such as our golf country club network and airport shuttle bus network, which are marketed as a stand-alone channels of our commercial location network.

•  Effectively Reaches Captive Viewers in Low Distraction Environments. Our flat-panel displays are placed in lobbies, near elevator banks and in other environments where there are few broadcast or display media competing for viewers’ attention, which we believe increases the effectiveness of our network. In addition, the advertising poster frames on our poster frame network are placed primarily in elevators of residential complexes presenting advertisements to viewers in what we believe is a relatively captive and low-distraction environment.

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•  Cost-effectively Reaches Consumers with Desired Demographic Profiles. 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. According to a study by CTR Market Research, or CTR, the cost of reaching 1,000 consumers with average monthly incomes greater than RMB3,000 ($371) was significantly lower on our commercial location network than advertising on traditional television stations in our Tier I cities.

       We believe these characteristics and advantages of our business model have made us an effective and well-accepted alternative advertising medium with a strong market position that enables us to compete successfully in China’s advertising market.

The Largest Out-of-home Television Advertising Network in China with National Coverage

       We believe we operate the largest out-of-home television advertising network in China based on the number of locations and the number of flat-panel displays in our network. As of September 30, 2005, we operated:

•  34,079 flat-panel displays installed in 18,538 commercial locations directly in 23 cities in China, and through our regional distributors, we also operated approximately 3,273 flat-panel displays in approximately 2,656 commercial locations in 31 cities in China; and

•  20,061 flat-panel displays installed in 553 hypermarkets, 1,272 supermarkets and 877 convenience stores in cities in China.

Out-of-Home Advertising Network with Multiple Media Platforms Provides Advertisers with Complementary and Reinforcing Methods of Reaching Targeted Consumers

       Our network provides advertisers with multiple advertising media to reach their target audience. Our network currently enables advertisers to reach (1) consumers with higher than average incomes through our commercial location network, (2) consumers at the point-of-purchase through our in-store network and (3) consumers as they leave and return home through our poster frame network. By offering advertisers a range of advertising media that can reach consumers during different times of the day in a wide variety of locations, we believe our network has enhanced appeal to advertisers over competitors who offer only one advertising medium or channel to advertisers. We believe that by offering multiple advertising media platforms, we enable advertisers to reach a wide range of consumers with complementary and mutually reinforcing advertising campaigns and are better able to attract advertisers who want to reach targeted consumer groups through a number of different advertising media in different venues and at different times of the day.

Sustainable Competitive Advantages through the Size of Our Network and Our Exclusive, Renewable Agreements.

       We believe the following factors provide us with a sustainable business advantage over existing and prospective competitors:

•  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 will enhance these

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	advantages. Through our acquisition of Framedia, we also expect to gain a strong market presence in the poster frame advertising market in residential complexes.
•	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 and retail locations in 54 cities in China. We believe the extent of our network coverage makes us more attractive to advertising clients than competing networks. Through the number of flat-panel displays we operate and the national scope of our network, we enable advertising clients to reach a wide audience in urban consumer markets across China. We believe the size and scope of our network has attained a scale that draws advertising clients to our network and gives us a competitive edge over competing networks as well as over many traditional advertising media.
•	Exclusive and Renewable Display Placement Agreements. As of September 30, 2005, approximately 90% 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. In addition, as of September 30, 2005, in the cities we operate directly, approximately 81% of our display-placement agreements 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.

       We believe our high market share of desirable locations in key cities in China, the wide extent of our network coverage and the exclusivity and renewal terms contained in approximately 90% of our display placement agreements with landlords and property managers create higher barriers to entry for potential competitors than other out-of-home and outdoor advertising business models, such as billboards.

Our Brand Name and Reputation Have Attracted a Large Base of Leading Advertising Clients.

       We believe we are building a respected brand name in the advertising industry in China by developing a reputation for innovative and effective delivery of large-scale yet focused high-quality television advertising to consumers with desirable demographic profiles. This has enabled us to develop a strong client base consisting of major international brand name advertisers such as NEC, Nokia, Samsung, Toyota and Volkswagen, and major domestic brand name advertisers such as China Merchants Bank, China Mobile, China Unicom and Dongfeng Motor Corporation which together accounted for approximately 20% of our revenue in 2004. Among our top ten advertisers based on total advertising contracts in 2004, seven had previously advertised on our network in 2003 while the other three were new customers we developed in 2004. The total number of advertising contracts accounted for by the seven repeat advertising customers increased from 15 to 49 and the total contract amount increased by 243%, in each case from 2003 to 2004. In addition, as of September 30, 2005, more than 1,200 advertisers purchased advertising time on our network, including over 70 advertisers on our in-store network, and for the nine months ended September 30, 2005, we acquired over 700 new advertising clients. The strength and depth of our client base enhance our reputation in the industry and position us to further expand our advertising network.

       We believe our acquisition of Framedia has further enhanced our brand name in China by adding a large out-of-home poster frame advertising network in China to our network. Over 600 advertisers have bought frame space on Framedia’s advertising network since 1999, including leading international and domestic companies such as Audi, Lenovo, Microsoft, Motorola, Omega, Samsung and Sony.

Strong Management and Sales Team with Extensive Industry Experience.

       We have assembled a management and sales team with extensive experience in China’s advertising industry. Jason Nanchun Jiang, our founder, chairman, chief executive officer and a

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major shareholder, has 10 years of experience in China’s advertising industry, including his previous experience until 2003 as chief executive officer of Shanghai Everease Advertising Corporation, or Everease, one of China’s top 50 advertising agencies. Daniel Mingdong Wu, our chief financial officer, has over six years of experience in investment banking, including for Merrill Lynch and Lehman Brothers, and served as chief financial officer of Harbour Networks, a telecommunications equipment provider in China. In August 2005, we hired our chief strategy officer Cindy Yan Chan, who was deputy general manager for iMPACT, ZenithOptimedia’s outdoor media department and the largest outdoor media buyer in China. With our acquisition of Framedia, Zhi Tan, chairman and chief executive officer of Framedia, continues to be involved in the operation of our poster frame network. In addition, we employ experienced and knowledgeable managers to run operations in each of the cities we operate directly. Our marketing managers have an average of eight years’ experience in the advertising industry in China and have worked for a number of major domestic and international advertising firms in China. We believe the strength and experience of our management and sales teams have enabled us to expand our advertising network, enhance our reputation in our industry and build up a strong client base.

Our Strategies

       Our objectives are to extend our position in the out-of-home advertising industry in China and to become a leading multi-platform advertising media brand in China’s advertising industry. We intend to grow our business by:

•  expanding our network, both in cities in which we currently operate as well as in additional cities;

•  continuing to promote the effectiveness of our business model while enhancing our brand name, with the aim to increase advertiser demand for time slots on our network which in turn will allow us to increase our advertising fees;

•  developing additional advertising channels based on new types of locations, such as our in-store network placed in hypermarkets, supermarkets and convenience stores, and the golf country club and airport shuttle bus stand-alone channels of our commercial location network;

•  expanding into new advertising media operations as opportunities arise, such as our entry into the frame advertising business through our acquisition of Framedia; and

•  taking advantage of synergies and cross-selling opportunities afforded by our different advertising media platforms.

Enhance Our Market Position and Revenues by Expanding Our Networks.

       We intend to aggressively expand our flat-panel display and frame networks in order to erect barriers to expansion and entry by current and prospective competitors, enhance critical mass appeal to our advertisers, and increase our fee rates and revenues. To achieve this goal, we intend to:

•  Increase the Number of Locations and Flat-Panel and Poster Frame Displays in Our Network. We intend to aggressively enter into new display and poster frame placement agreements to increase the number of locations in which we install our flat-panel displays and poster frames in order to enhance our current position in many of the most desirable locations in key urban areas in China.

•  Expand into New Cities including through Strategic Acquisitions of Important Regional Distributors. We expect to continue to acquire certain of our regional distributors as a means to expand the size and scope of our network. Pursuant to our arrangements with our regional distributors, they are licensed to use our technology, and bear all of the revenues,

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profits or losses of their operations. This method enables us to evaluate the potential profitability of executing our business model in a specific city and expanding the size of the network before we incur the expense of operating in the city directly. As of September 30, 2005, we have successfully acquired 17 of our regional distributors. We will continue to pursue this strategy as a means of expanding our national coverage and offering advertising clients wider distribution of their advertising content.

Identify and Create New Networks and Advertising Channels that Target Specific Consumer Demographics.

       In-store Network. We commenced commercial operations of our in-store network in April 2005, enabling our advertising clients to target consumers at the time and place where consumers are likely to purchase a range of consumer and household products. As of September 30, 2005, we had placed 20,061 flat-panel displays in 2,702 locations on our in-store network. We intend to expand this network and will continue to strengthen efforts to enter into long-term and exclusive relationships with hypermarkets, supermarkets and convenience stores and to market this new service to advertisers.

       Targeted Advertising Channels. We have placed flat-panel displays in office buildings, shopping malls, restaurants, beauty parlors, golf country clubs, automobile repair shops, banks, pharmacies, airports, hospitals and other commercial locations. Currently, most of these channels are integral parts of our advertising network, and we typically charge advertising clients a fee based on an advertising campaign over the entire advertising network in a given city. However, many of these venues are suitable for targeting specific consumer groups. As we expand the number of these venues, we intend to separate some of them into distinct stand-alone networks and to market them to specific advertising clients who wish to advertise their products and services to targeted consumer groups. For instance, in October we began marketing our golf country club and airport shuttle bus locations as independent channels of our commercial location network, as we believe these channels will attract advertisers who wish to target consumers likely to frequent these venues. We believe our ability to identify and create focused advertising networks will distinguish us from our competitors and attract additional advertising clients who will use our services to reach their target consumers in a more effective manner.

       Complementary Advertising Media Platforms. We intend to continue expanding the scope of our advertising activities and type of media platforms we employ by entering into new types of advertising media businesses. For example, our recent acquisition of Framedia has enabled us to expand our business into the poster frame advertising business and to extend our advertising network into residential complexes. We believe by expanding our business into complementary media businesses that focus on venues and at periods of the day less comprehensively covered by traditional advertising media, we will enhance the value of our advertising services to advertisers and provide us with a marketing advantage over competitors and potential competitors. We intend to continue expanding into new and complementary advertising media platforms, such as direct marketing advertising and large out-door light-emitting diode, or LED, panels, which will enable us to provide advertisers with additional out-of-home advertising platforms to reach targeted consumers.

Promote our Brand Name and Augment Our Service Offerings to Attract a Wider Client Base and Increase Revenues.

       Enhancing our brand name in the industry will allow us to solidify and broaden our client base by enhancing market awareness of our services and our ability to target discrete consumer groups more effectively than mass media. We believe the low cost of reaching consumers with higher-than-average disposable incomes through our network and our development of additional advertising media platforms and channels within our network we plan to develop in the future can enable advertisers to reach that goal. As we increase our advertising client base and increase sales, demand for and sale of time slots on our network will grow. As demand for time slots on our network

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increases, we believe we will be able to increase our rates and thereby improve our results of operations.

Continue to Explore New Digital Media Opportunities to Target Segmented Consumer Groups.

       Consumer acceptance of technology-driven advertising and entertainment media, including the Internet and advanced mobile communications systems, is a feature of the advertising industry in China. We intend to identify and take advantage of new opportunities in the PRC advertising market in order to enhance our ability to target segmented consumer groups through innovative advertising techniques and media. As new opportunities that fit our brand image and business model present themselves, we expect to expand our operations and continue to pursue innovative advertising techniques and media that provide effective solutions to advertising clients and target consumers with desirable demographic profiles.

Our Network

       Our network includes:

•  commercial locations comprising our commercial location network and including the stand-alone golf country club and airport shuttle bus channels of this network, which can be marketed separately to advertisers;

•  supermarkets, convenience stores and large-scale chain retail stores, which we refer to as hypermarkets, comprising our in-store network; and

•  following our acquisition of Framedia, our frame network of advertising poster frames placed primarily in elevators and public areas of residential complexes.

       Our commercial locations network and in-store network use audiovisual flat-panel LCD displays, while Framedia’s poster frame network consists of advertising poster frames.

Commercial Location Network

       The majority of displays on our commercial location network are currently placed in high-traffic areas of commercial office buildings. The locations in our commercial location network also include shopping malls and hotels as well as more specialized locations such as beauty parlors and golf country clubs. We market our commercial location network to advertisers of consumer products and services, such as home electronics, mobile communications devices and services, cosmetics, health products and financial services. As of September 30, 2005, our commercial location network, including the portions of our commercial location network operated by our regional distributors, was comprised of approximately 37,352 flat-panel displays placed in approximately 21,194 distinct locations in 54 cities throughout China. We operate our commercial location network directly in 23 cities and indirectly through contractual arrangements with regional distributors in an additional 31 cities. We also offer our advertising services in several cities outside of China, including Hong Kong, Taipei and Singapore through contracts with local operators. None of these arrangements outside of China currently constitutes a material part of our business. Upon the completion of our acquisition of Target Media, which we expect to occur in the first quarter of 2006, we will also operate Target Media’s network of flat-panel displays placed in elevator lobbies and other public areas of commercial buildings, hospitals, hotels, banks, residential buildings, convenience stores and other commercial locations similar to our commercial location network. Information, including business, operations, financial conditions and results of operations relating to Target Media included in this prospectus has been provided to us by Target Media’s management and has not been prepared by us. Additionally, due to the commercially sensitive nature of our transaction with Target Media, we and our advisors have not had an opportunity to independently verify all of the information relating to Target Media included in this prospectus. See “Risk Factors — Risks Relating to our Recent Acquisitions”. As of September 30, 2005, Target Media’s flat-panel display network consisted

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of approximately 25,100 flat-panel displays placed in approximately 16,650 locations in 43 cities in China.

       As we expand the number of venues in our commercial location network, we intend to separate certain types of venues into distinct stand-alone channels of this network. As of September 30, 2005, we had established two such stand-alone channels — golf country club and airport shuttle bus locations — that are marketed as separate focused channels of our commercial location network. We also intend to develop other stand-alone networks, such as a beauty parlor network, that will provide advertisers of cosmetics, hair care, skin care and other beauty products with an advertising channel able to reach consumers with their desired demographic characteristics in a relatively captive environment. We believe that by increasingly offering new advertising channels on our out-of-home television networks, we will be able to offer advertisers more targeted and effective audience reach, thereby enabling us to increase our advertising rates.

       Our Direct Operations. As of September 30, 2005, we operated our commercial network directly in 23 cities throughout China, including Beijing, Shanghai, Guangzhou and Shenzhen, or our Tier I cities, which are the four major cities located in the three regions that together accounted for 51.6% of total advertising spending in China in 2004, according to the State Administration for Industry and Commerce. We believe we have established ourselves as the leading provider of out-of-home television advertising in each of these four cities. Our Tier I cities accounted for more than 75% of our total revenues in 2004. We believe that many of the other cities in which we operate directly will contribute to our future revenue growth as the populations and income levels in these cities continue to grow.

       Our Regional Distributors. As of September 30, 2005, we entered into distribution agreements with 31 regional distributors who currently operate in 31 of the 54 cities covered by our commercial locations network. Under the terms of our contractual relationships with our regional distributors:

•  We provide training, operational and logistical instructions to our regional distributors and allow them to use our brand name, all at no cost.

•  We also sell our flat-panel displays to our regional distributors.

•  Each regional distributor is responsible for signing display placement agreements with commercial locations to establish and grow a network presence in the city in which they operate.

•  Each regional distributor is responsible for selling advertising time slots to advertisers and for maintenance, monitoring and other client services.

•  Our regional distributors have the right to sell seven-ninths of the cycle time, while we retain the right to sell two-ninths of the cycle time on the portion of the network for which they are responsible. This gives us the flexibility to sell those time slots directly to advertisers or to sell the time to the regional distributor.

•  We do not share any of the revenues, profits or losses of our regional distributors.

       Expanding our network through regional distributors enables us to provide our advertisers with broader nationwide coverage and to test, develop and evaluate these regional advertising markets without our having to incur start-up and ongoing expenses at the early stages of their development. We also seek to acquire our regional distributors when we believe it is more likely for us to benefit economically from the full integration of their operations into our network. We do not have the contractual right to purchase our regional distributors, and any such acquisition must be negotiated with each regional distributor separately. As of September 30, 2005, we had acquired 17 former regional distributors.

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       Each of our regional distributors operates independently from us and is responsible for independently complying with all relevant PRC laws and regulations including those related to advertising. We periodically monitor our regional distributors to ensure they have obtained all required licenses and are complying with regulations relating to advertising content, although it is possible that one or more of our regional distributors may not be in compliance with all PRC regulations. If we learn of any such non-compliance, we will notify the relevant regional distributor and monitor what steps it needs to take to become compliant. See “Risk Factors — Risks Relating to Our Business and Industry — One or more of our regional distributors could engage in activities that are harmful to our reputation in the industry and to our business”.

In-store Network

       As part of our growth strategy, we commenced operations of our in-store network in April 2005. As of September 30, 2005, we had placed 20,061 flat-panel displays in 553 hypermarkets, 877 supermarkets and 1,272 convenience stores throughout China. We believe the rapid expansion of hypermarkets and other chain retail stores in China provides opportunities and incentives for advertisers to take advantage of in-store television advertising networks such as our in-store network. Hypermarkets in which we have placed flat-panel displays include Carrefour and Lotus. Our in-store network primarily attracts advertisers of food and beverage products, household, kitchen and bathroom products, and household appliances. An independent survey conducted by CTR indicates that television advertising networks placed in hypermarkets and other stores allow advertisements to effectively reach the consumer during the purchasing decision-making process. According to a 2005 survey conducted by CTR, with 600 samples taken across Beijing, Shanghai, and Guangzhou, over 11,600 people visit a typical hypermarket each day of the week. Over 70% of these visitors are the primary decision makers in determining purchases. Such viewers were also found to visit hypermarkets on average over five times per month, with each visit lasting over 65 minutes on average. Out of that period, survey respondents reported spending an average of 7.8 minutes viewing advertisements shown on our displays. The CTR survey also indicates that the majority of purchases are unplanned purchases. We believe that this suggests that shoppers are highly receptive to advertisements in these settings and that by placing advertisements to these shoppers where they make purchases, advertisers may have more influence on purchasing decisions through an in-store network than through traditional media. According to CTR, over 98% of shoppers noticed Focus Media’s displays, over 84% of all shoppers paid attention to the advertisements shown on those displays and on average, viewers spent over 24 minutes shopping in hypermarkets. As our displays are placed in various locations throughout the store, we believe viewers are likely to encounter our displays frequently. We operate our in-store network directly, not through regional distributors. Following the completion of our acquisition of Target Media, which we expect to occur in the first quarter of 2006, we will also add the flat-panel displays of Target Media’s network that are placed in convenience stores to our in-store network. As of September 30, 2005, Target Media placed approximately 1,430 displays in approximately 1,420 convenience stores in 8 cities in China.

       Frame Network. Through our acquisition of Framedia, we own and operate a network of advertising poster frames deployed primarily in the elevators and public areas of residential complexes. Framedia places two, three or four advertising frames in each elevator in which it leases space and sells frame space to advertising clients on a per frame per month basis. As of September 30, 2005, Framedia owned and operated approximately 77,000 frames in cities throughout China. Framedia’s poster frame network is operated directly by Framedia.

Advertising Clients, Sales and Marketing

       Our Advertising Clients. The quality and coverage of our network has attracted a broad base of international and domestic advertising clients. As of September 30, 2005, more than 1,200 advertisers purchased advertising time slots on our network, including over 70 advertisers on our in-store network. Our advertising clients include leading international brand name advertisers

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NEC, Nokia, Samsung, Toyota and Volkswagen, and leading domestic brand name advertisers such as China Merchants Bank, China Mobile, China Unicom and Dongfeng Motor Corporation. Dongfeng Motor, Toyota, Samsung, NEC and Volkswagen, which were our top five customers in 2004, accounted for 15.2% of our total revenues in that year, while Dongfeng Motor Corporation, Samsung, China Mobile, Motorola and NEC, which were our top five customers for the nine months ended September 30, 2005, accounted for 21.5% of our total revenues for that period.

       Advertisers purchase advertising time slots on our advertising network either directly from us or through their advertising agencies which purchase advertising time on our network on behalf of their domestic and international clients. In 2003 and 2004 and for the nine months ended September 30, 2005, direct sales to advertisers accounted for 55.4%, 48.7% and 53.8% of our revenues, respectively. In 2003 and, 2004 and for the nine months ended September 30, 2005, sales to advertising agencies accounted for 44.6%, 51.3% and 46.2% of our revenues, respectively.

       Our top thirty advertising clients accounted for 46.6%, 39.0% and 49.2% of our revenues in 2003, 2004 and for the nine months ended September 30, 2005, respectively. No single advertising client accounted for more than 6% of our revenues in 2003, 2004 or for the nine months ended September 30, 2005. We believe the appeal and effectiveness of our advertising network is largely evidenced by the number of advertising clients who place multiple advertising campaigns on our network, which is reflected in the percentage increase of advertising fees we receive from clients over time.

       Sales. We employ an experienced advertising sales force in each city in which we operate. Our marketing managers have an average of eight years’ experience in the advertising industry in China. The members of our current sales team have an average of five years of sales experience in the advertising industry. We provide in-house education and training to our sales force to ensure they provide our current and prospective clients with comprehensive information about our services, the advantages of using our out-of-home television advertising network as a marketing channel, and relevant information regarding the advertising industry. Our sales team is organized by city, industry and client accounts. We also market our advertising services from time to time by placing advertisements on third-party media, including primarily magazines and Internet websites. We maintain separate devoted sales teams for our commercial locations network and our in-store network. Members of our commercial location network sales team also markets our golf country club and airport shuttle bus stand-alone networks to customers it believes may be interested in such stand-alone networks. Through Framedia, we maintain a separate sales team for our frame network. We have begun engaging in cross-selling initiatives to enable existing and potential advertising clients to take advantage of our multi-platform advertising network.

       Advertising Contracts. We offer advertisers five-, fifteen- or thirty-second time slots on our out-of-home television advertising networks. For our commercial location network, our standard advertising package includes a time slot on our entire network in each city in which the advertiser wishes to display the advertisement. Our sales are made pursuant to written contracts with commitments ranging from one week to several months. Our advertising rates vary by city and by the number of cities in which the advertisement is placed, as well as by the length of the time slot purchased and the duration of the advertising campaign.

       Certain of our advertising contracts provide that up to 10% of the specific locations at which an advertisement will be displayed for an advertiser may vary from the list of sites provided under the relevant contract. If the number of locations and/or the actual sites where advertisements are displayed vary from the sites prescribed under the contract by more than 10%, we will arrange to extend the duration of the advertising campaign or display such advertisements at additional sites, although to date, we have never needed to do so. This provision gives us flexibility to account for any potential technical problems, advertiser conflicts or turnover in the composition of our physical network location.

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       We generally require our clients to submit advertising content at least seven days prior to the campaign start date. We also reserve the right to refuse to disseminate advertisements that are not in compliance with content requirements under PRC laws and regulations.

       Advertising contracts for our in-store network are substantially similar to those used for our commercial network. Advertising clients generally purchase time slots on our in-store network on a store-by-store basis. For our poster frame network, advertising clients purchase frame space on a per-frame basis for terms of one month or more.

       Network Monitoring and Evaluation. We provide a number of services in connection with each client’s advertising campaign following the sales process. Our network operations team monitors the displays in our network on a daily basis. They are also responsible for compiling reports that are supplied under some of our agreements to clients as evidence of the broadcast of their advertisements on our network. The report generally includes a list of buildings the advertisements of clients were broadcast as well as photographs of representative television displays showing their advertisements being displayed. The advertising campaign reports are provided to our clients for information purposes and do not constitute a customer acceptance provision. The reports we provide to our clients may also contain portions prepared by independent third-party research companies that verify the proper functioning of our flat-panel displays and the proper dissemination of the advertisement, by conducting on-site evaluations and polls to analyze the effectiveness of and public reaction to the advertisement.

       Aside from third-party verification services, we and our regional distributors conduct substantially all client services using our own employees or the employees of the relevant regional distributor. In Beijing and Guangzhou, we contract some of these services to third-party agents. These agents provide us with network development, installation, maintenance, monitoring and reporting services.

       Market Research. We believe our advertising clients derive substantial value from our ability to provide advertising services targeted at specific segments of consumer markets. Market research is an important part of evaluating the effectiveness and value of our business to advertisers. We conduct market research, consumer surveys, demographic analysis and other advertising industry research for internal use to evaluate new and existing advertising channels. We also purchase or commission studies containing relevant market study data from reputable third-party market research firms, such as CTR Market Research and Sinomonitor. We typically consult such studies to assist us in evaluating the effectiveness of our network to our advertisers. A number of these studies contains research on the numbers and socio-economic and demographic profiles of the people who visit the locations of our network.

Programming

       Substantially all of the content on our out-of-home television advertising networks consists of audiovisual television advertising provided to us by our advertising clients. We also provide a limited amount of time for landlords and property managers to display location-specific information, building announcements and related promotional material on our network. We do not produce or create any of the advertising content shown on our network, except our own marketing content. All of the advertising content displayed on the portion of the network we operate directly is reviewed by qualified members of our staff to ensure compliance with PRC laws and regulations, while our agreements with our regional distributors require each of them to review the contents shown on the portion of the network they operate for compliance with PRC laws and regulations. See “Regulation of Our Industry — Regulation of Advertising Services — Advertising Content”.

       Each flat-panel display contains a pre-recorded CF card containing a twelve-minute or, in the case of our regional distributors, nine-minute, cycle of advertising content and other information, such as building-specific promotional information. We change the CF cards to update the advertising content in each flat-panel display in our network on a weekly basis. We and each regional distributor

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compile each nine-or twelve-minute cycle from advertisements of five, 15 or 30 seconds in length provided by advertisers to us and our regional distributors. Each of our flat-panel displays plays the advertising content on the CF card repeatedly throughout the day so that the nine- or twelve-minute cycle is broadcast in each building within our network a total of approximately 80 or 60 times per day, respectively. We previously used digital video discs, or DVDs, rather than CF cards to play advertising content on our flat-panel displays. We have phased out the DVD components of our flat-panel displays, and less than 1% of our displays now use DVD technology. See “— Technology and Suppliers — Our Flat-panel Display Model”.

       Advertisements on our poster frame network consist of full-color glossy advertising posters designed and provided by our advertising clients.

Prices and Utilization

Commercial Location Network

       We generate revenues through the sale of advertising time slots on our commercial location network. Our revenues are directly affected by:

•  the number of advertising time slots that we have available to sell, which is determined by the number of cities in which we directly operate, our expansion into additional cities, the two-ninths portion of cycle time available on our regional distributors’ networks and the length of the advertising cycle, which is currently twelve minutes in our directly operated cities and nine minutes in the cities operated by our regional distributors. We calculate the number of time slots available by taking the total advertising time available on our network during a particular period, calculated in aggregate seconds, which we then divide by 30 to determine the number of 30-second equivalent time slots available. We can increase the number of advertising time slots that we have available to sell by expanding into additional cities or acquiring our regional distributors, which provides us with seven minutes of additional time slots per regional distributor. The length of our advertising cycle can potentially be extended to longer durations depending on demand in each city. In our directly operated cities, the twelve-minute advertising cycle amounts to the equivalent of 24 30-second time slots per week, except for time slots reserved for use by the landlord. In the cities where our regional distributors operate, the nine-minute advertising cycle amounts to the equivalent of 18 30-second time slots per week, except for time slots reserved for use by the landlord;

•  our utilization rate, or the percentage of available time slots that we actually sell to advertisers. In order to provide meaningful comparisons of our utilization rate, we normalize our time slots into 30-second units, which we can then compare across each city and period to allow us to chart the normalized utilization rate of our network by geographic region and over time; and

•  the average price we charge for our advertising time slots, which we calculate by dividing our advertising service revenue by the number of 30-second equivalent time slots sold during that period, after taking into account any discount offered. On July 1, 2005, we implemented a 5-10% price increase for time slots on our commercial location network in Beijing, Shanghai, Guangzhou and Shenzhen and on October 1, 2005, we implemented a 30-40% increase for time slots on our commercial location network in our Tier II cities.

In-store Network

       Our advertising service revenue derived from our in-store network is directly affected by:

•  the number of stores in our in-store network. As the location and size of particular stores affects advertisers decisions to place advertisements on our in-store network, we sell time slots on our in-store network on a per store basis. Increasing the number of stores on our network therefore increases the total number of available time slots for sale to advertisers;

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•  the number of advertising time slots that we have available to sell, which is determined by the number of stores in which we operate, our expansion into additional stores, and the length of the advertising cycle, which is currently twelve minutes, or 24 30-second equivalent time slots. As with our commercial location network, for our in-store network we calculate the number of time slots according to the number of 30-second equivalent time slots available. The length of our advertising cycle can potentially be extended to longer durations depending on demand in each city;

•  our utilization rate, or the percentage of available time slots that we actually sell to advertisers. In order to provide meaningful comparisons of our utilization rate, we normalize our time slots into 30-second units, which we can then compare across each city and period to allow us to chart the normalized utilization rate of our network by geographic region and over time;

•  the average price we charge for our advertising time slots, which we calculate by dividing our advertising service revenue by the number of 30-second equivalent time slots sold during that period, after taking into account any discount offered.

Poster Frame Network

       Our advertising service revenue derived from our poster frame network is directly affected by:

•  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 locations on our poster frame network allows us to increase the number of frames on our network, thereby increases the available frame space for sale to advertisers. We currently place up to four advertising poster frames in each elevator where we deploy frames. When we complete development of a rolling display that will allow display of up to three advertising posters, we expect to further increase the total available frame space on our poster frame network;

•  our utilization rate, or the percentage of available frame space that we actually sell to advertisers;

•  the average price we charge for frame space on a per frame basis, after taking into account any discount offered.

       Prices for time slots on our commercial location and in-store networks vary by city and by the number of cities in which the advertisement is placed, as well as by the length of the time slot purchased and the duration of the advertising campaign. We periodically review our prices for each city, every six months. We base our prices on a number of factors, including the location and duration of the advertising campaign, the demand for network time in the city or stores in which the advertising campaign is to appear, and the number of network locations in a city or screens in the store that in turn affect the estimated number of consumers reached. As the demand for time slots on the network in a particular city increases and therefore the nine- or twelve-minute cycle reaches saturation, we review our price structure for that city and either increase our rates for that city or extend the duration of the cycle, which effectively increases our rates by giving each advertisement fewer exposures per day and allows us to sign up more clients within that cycle. Extending the length of our advertising cycle from nine minutes to twelve minutes in our directly operated cities has not affected advertisers’ willingness to place advertisements on our network or resulted in pressure to reduce our prices for time slots. Prices for frame space on our poster frame network vary by city, location and the number of frames in which the advertisement is placed, as well as the duration of the advertising campaign.

Relationships with Location Providers

       We install our flat-panel displays in selected spaces we lease in office buildings and other commercial locations, hypermarkets, supermarkets and convenience stores. We install our advertis-

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ing poster frames in elevators and other public areas in residential complexes. Establishing and maintaining long-term relationships with landlords and property managers is a critical aspect of our business. We employ a team of location relationship personnel in each city in which we operate directly who are responsible for identifying desirable locations, negotiating display placement agreements and engaging in ongoing site placement relations.

       In addition to helping us expand our network, our location relationship personnel ensure that the needs and concerns of landlords and property managers are being met and addressed effectively and on a timely basis. These concerns generally include ensuring that the flat-panel displays are properly installed and are in proper working condition. We undertake to landlords and property managers in our network to maintain the proper operation of our flat-panel displays. We generally rely on our own employees to install, maintain, monitor and repair our flat-panel displays and advertising poster frames. Each of our flat-panel displays is inspected at least once daily.

       We enter into display placement agreements with individual landlords, property managers, hotels, shopping malls and chain store companies under which we generally pay a fixed annual rent in exchange for the right to display advertising and commercial media in lobby and elevator areas in the case of our commercial location network and in specific product areas in the major aisles and near check-out counters in hypermarkets, supermarkets and convenience stores in the case of our in-store network. In Beijing and Guangzhou, we contract a portion of the location development, monitoring and maintenance work to local agents. We attempt to maintain terms favorable to our network operations in our display placement agreements, such as long-term leases and exclusivity provisions. For example, as of September 30, 2005, approximately 90% of our display placement agreements in our commercial location and in-store networks gave us the exclusive right to place television advertising in the lobby and elevator bank area of the locations in which we operate. As of September 30, 2005, we had entered into display placement agreements covering 18,538 commercial locations in our directly operated cities and our regional distributors had entered into display placement agreements with landlords and property managers covering an additional 2,656 commercial locations. We are not reliant on any one landlord or property manager for a material portion of our network coverage and as of September 30, 2005, no individual landlord or property manager accounted for more than 1% of the locations in our commercial location network. As hypermarkets, supermarkets and convenience stores have control over multiple locations, a smaller number of display placement agreements and contractual arrangements account for a larger percentage of our in-store network coverage. As of September 30, 2005, we had entered into display placement agreements covering 553 hypermarkets, 877 supermarkets and 1,272 convenience stores on our in-store network.

       We believe that landlords and property managers generally do not view us as a major source of revenue and are instead primarily attracted to our flat-panel displays as an innovative and visually pleasing medium that complements their public areas and that provides an engaging means of conveying building-related information to their tenants. In connection with certain of our display placement agreements, we agree to provide concessions and services, such as displaying building-related notifications, publicity and other information provided by the landlord or property manager or granting time slots to the landlord or property manager for their own promotional purposes. Under some of our display placement agreements, the landlord or property manager can also sell time slots to their tenants in the building and split fees with us.

       Our display placement agreements have initial terms ranging anywhere from one to ten years. As of September 30, 2005, approximately 45.6% of our display placement agreements will expire during or after 2008. As of September 30, 2005, we had the right under approximately 81% of our display placement agreements to renew the display placement agreements provided that the terms offered by us are no less favorable than those offered by competing bidders. The rental terms and fees under our display placement agreements vary considerably depending on the city, location of the building, number of flat-panel displays that may be installed and the needs of the landlord or

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property manager. Under our display placement agreements, we retain ownership of the flat-panel displays.

       Framedia enters into similar frame placement agreements for the deployment of its advertising poster frames in elevators and public areas of residential complexes and commercial buildings. The majority of Framedia’s frame placement agreements have terms of two to three years, and contain exclusivity and best offer renewal rights.

Technology and Suppliers

       Out-of-home television advertising is a relatively new advertising medium that owes its development in large part to the emergence of new technologies, such as low-cost, light-weight, flat-panel television displays and DVD and CF card technology. The primary hardware required for the operation of our business consists of components that comprise the flat-panel displays we use in our advertising network. We also develop and install software in our flat-panel displays to assist us with the configuration, editing and operation of our advertising content cycles. Maintaining a steady supply of our proprietary flat-panel displays is important to our operations and the growth of our advertising network.

       We design the distinctive shape of our flat-panel displays, identify suppliers of component parts used in our displays and contract the assembly of our flat-panel displays to third-party contract assemblers. Our contract assemblers are responsible for purchasing the component parts from suppliers we identify each month and assembling the flat-panel displays according to our specifications using components purchased in off-the-shelf form from wholesale distributors. We select component suppliers based on price and quality. Since we commenced our current operations, we have used only one contract assembler at any one time, which we believe is logistically more efficient and also enables us to better protect the proprietary design of our flat-panel displays. Our obligation to our current contract assemblers is not exclusive. We have never experienced any material delay or interruption in the supply of our flat-panel displays.

Our Flat-panel Display Model

       Our advertising operations and services use proprietary flat-panel LCD television displays with a built in audio speaker to broadcast our content. Until recently, our display model included a self-contained automatically repeating DVD player. This model required that we physically change the advertising content DVD installed in each machine on a weekly basis. We subsequently developed a new model of flat-panel display that incorporates CF card technology and which has replaced our DVD-based model. We believe CF cards have several advantages over DVDs. CF cards are compressed flash memory devices without mechanical parts and, therefore, are lighter and more compact, require less maintenance and are less prone to damage or breakdown. In addition, CF cards, unlike DVDs, can be recorded over and reused multiple times. As of the date of this prospectus, less than 1% of our displays still employed DVD technology. Our flat-panel displays are programmed to automatically turn on or off at twelve hour intervals, so that the flat-panel displays are inactive overnight when traffic flow is low. A small portion of our current displays are also designed to display rolling text information at the bottom of each display.

Research and Development

       We intend to continue to develop a more advanced model of flat-panel display that uses mobile communications and wireless technology to receive, store, configure and playback advertising content. Whether we deploy this newer technology will depend on considerations of cost and network security. We are also developing related software systems that will enable us to configure and run the content on our advertising network in conjunction with mobile communications systems.

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Frame Displays

       Framedia uses low technology, high quality 450 mm x 600 mm plastic frames to display advertising posters. Framedia uses high-quality, durable advertising frames and is in the process of developing a frame display with a rolling display that would allow for display of up to three advertising posters in succession. Framedia believes the rolling display frame will enable it to increase advertising revenues by increasing the number of available placement slots on which advertisers may purchase space. Framedia expects to deploy the time-delay rotating display frame in the first quarter of 2007.

Patents and Trademarks

       We believe that the value of our advertising network derives from its effectiveness in reaching a large number of consumers with higher-than-average disposable incomes in urban areas. To a great extent, our business model does not rely on advanced or sophisticated technology or on proprietary trade secrets because our flat-panel displays are assembled with components purchased in off-the-shelf form from wholesale distributors. We endeavor to protect certain of the designs and operating software we use in each generation of our flat-panel displays. We are currently applying for design patents for our new model of flat-panel display and our software and for Framedia’s rolling display frame. As of September 30, 2005, we held one design patent for our flat-panel display technology. We have the right to use several trademarks relating to the “Focus Media” brand name in China and in Singapore. Framedia currently has the right to use several trademarks relating to the “Framedia” brand name in China.

Competition

       We compete with other advertising companies in China including companies that operate out-of-home advertising media networks, such as JCDecaux, Target Media, CGEN and AirTV. Upon completion of our acquisition of Target Media, which we expect to occur in the first quarter of 2006, Target Media will cease to be our competitor. We compete for advertising clients primarily on the basis of network size and coverage, location, price, the range of services that we offer and our brand name. We also compete with out-of-home television advertising network operators to gain access to the most desirable locations in economically developed cities in China. We also may compete against individual buildings, hotels, restaurants and other commercial locations that decide to independently, or through third-party technology providers, install and operate their own flat-panel television advertising screens. For example, our competitor in the in-store out-of-home television advertising space, CGEN, currently provides flat-panel advertising display technology for many Carrefour stores in China, creating a barrier to our entry into many such store locations. We also compete for overall advertising spending with other alternative advertising media companies, such as Internet, street furniture, billboard, frame and public transport advertising companies, and with traditional advertising media, such as newspapers, television, magazines and radio.

       In the future, we may also face competition from new entrants into the out-of-home television advertising network sector. Our sector is characterized by relatively low fixed costs. In addition, as is consistent with industry practice, we do not have exclusive arrangements with our advertising clients. These two factors present potential entrants to our sector of the advertising industry with relatively low entry barriers. In addition, starting December 10, 2005, wholly foreign-owned advertising companies are allowed to be established. China’s ongoing deregulation of the advertising market in China will expose us to greater competition with existing or new advertising companies in China including PRC subsidiaries of large well-established multi-national companies.

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Employees

       As of September 30, 2005, we had a total of 1,975 full-time employees and no part-time employees The following table sets out the number of staff by business area as of September 30, 2005:

	Number of
	employees(1)		Percentage
Sales and marketing		645		32.7	%
Operations		950		48.1
Management and administration		380		19.2
Total number of employees		1,975		100.0	%

(1)  This excludes employees of Framedia, which we acquired in January 2006, and of our regional distributors and agents who are not directly under our employ.

       Framedia had approximately 400 employees as of the date we acquired the company.

       As required by PRC regulations, we participate in various employee benefit plans that are organized by municipal and provincial governments, including pension, work-related injury benefits, maternity insurance, medical and unemployment benefit plans. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Members of the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. The total amount of contributions we made to employee benefit plans in 2003, 2004 and the nine months ended September 30, 2005, was $60,610, $338,923 and $616,248, respectively.

       Generally we enter into a three-year standard employment contract with our officers and managers and a one-year standard employment contract with other employees. According to these contracts, all of our employees are prohibited from engaging in any activities that compete with our business during the period of their employment with us. Furthermore, the employment contracts with officers or managers include a covenant that prohibits officers or managers from engaging in any activities that compete with our business for two years after the period of their employment with us.

Facilities

       We currently maintain our headquarters at 28-30/F, Zhao Feng World Trade Building, 369 Jiangsu Road, Shanghai 200050, People’s Republic of China. Our headquarters occupies 11,543 square feet. We also have offices in 53 other cities including those operated by our regional distributors. Framedia maintains its headquarters at 4/F, SciTech Building, No. 22 Jianguomen wai dajie, Beijing, People’s Republic of China.

Legal Proceedings

       We are not currently a party to any material legal proceeding. From time to time, we may be subject to various claims and legal actions arising in the ordinary course of business.

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RECENT DEVELOPMENTS

Our Initial Public Offering

       On July 18, 2005, we completed our initial public offering, which involved the sale by us and several of our shareholders of 10,100,000 of our ADSs, representing 101,000,000 of our ordinary shares at an initial offering price of $17.00 per ADS. On August 9, 2005, we and these shareholders completed the public offering of an additional 1,515,000 ADSs representing 15,150,000 ordinary shares at the initial public offering price pursuant to the underwriters’ exercise of their over-allotment option.

Recent Acquisitions Expanding Our Network

       On August 15, 2005, we acquired Bianjie, a local audiovisual advertising network operator in Shenzhen. Under the terms of the transaction, we acquired a 100% equity stake in the company for a purchase price of RMB3,800,000 ($456,485) and Bianjie also transferred all of its display placement agreements to us.

       On November 20, 2005, we acquired our former regional distributor, Shenyang FM. At the time of the acquisition, Shenyang FM had a commercial location network in approximately 150 office buildings, hotels and other commercial locations and a customer base of 36 local advertising clients. Under the terms of the transaction, we acquired a 70% equity stake in Shenyang FM for a purchase price of RMB4,000,000 ($494,515). Key management of Shenyang FM retained the remaining 30% share in the company and continue to run the day-to-day operations.

       Focus Media entered into a share purchase agreement, which took effect on January 1, 2006, with Shenzhen E-Times Advertising Co., Ltd., or E-Times, and Skyvantage Group Limited, or Skyvantage and the shareholders of E-Times and Skyvantage, which operate a local out-of-home poster frame advertising network placed in commercial and residential buildings. Under the terms of the transaction, Focus Media will acquire 100% of the equity of Skyvantage and E-Times will transfer all of its poster frame assets and frame placement contracts to Focus Media for a purchase price of $5,000,000. Our acquisition of E-Times and Skyvantage is expected to be completed in the first quarter of 2006.

Our Recent Acquisition of Framedia

       On January 1, 2006, we completed the acquisition of Infoachieve, and its affiliate Framedia Advertising by purchasing 100% of the shares of Infoachieve from Total Team, through which Infoachieve held their respective interests in Infoachieve. Framedia installs and deploys poster frames mainly inside elevators and throughout the public areas of residential complexes in major cities in China and sells frame space to advertising clients.

       Framedia, headquartered in Beijing, was established in 1999 and focuses on the placement of poster frames in elevators and public areas of high-end residential complexes in major cities in China. In the third quarter of 2005, Framedia acquired eight advertising companies engaged in residential and community out-of-home frame advertising, significantly expanding its existing network. Framedia places two, three or four advertising frames in each elevator in which it leases space and sells frame space to advertising clients on a per frame per month basis. As of September 30, 2005, Framedia owned and deployed approximately 77,000 advertising poster frames in cities throughout China.

       Framedia generated revenues of $4.3 million and $7.0 million and recorded net losses of $598,489 and $945,395 in 2004 and for the nine months ended September 30, 2005, respectively. As of September 30, 2005, Framedia had approximately 400 employees.

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       We believe that Framedia has the following strengths:

•  Strong market position in residential out-of-home advertising. According to an independent survey conducted by Sinomonitor International Media Research, or Sinomonitor, Framedia’s frames were installed in 99.0%, 90.7%, 92.7% and 85.3% of 2,789 residential buildings with advertising poster frames surveyed in Beijing, Shanghai, Guangzhou and Shenzhen, respectively.

•  Low distraction, effective and well-received advertising medium. We believe Framedia’s network is a low-distraction means of advertising with no sound or broadcast images and we believe is positively received by consumers.

•  Portfolio of major multinational and domestic advertising clients. Over 600 leading multinational and domestic companies have placed advertisements on Framedia’s network, including Audi, Lenovo, Microsoft, Omeda, Samsung and Sony.

       Our acquisition of Framedia’s business provides us with a new media advertising platform in residential out-of-home advertising. We believe it complements the strong position we already enjoy in commercial building out-of-home advertising and in-store advertising using audiovisual television displays. The acquisition provides us with an opportunity to expand our advertising platforms into a new complementary medium. We believe this acquisition will permit us to:

•  Leverage our existing network to expand our marketing efforts and offer advertising clients a wider range of advertising platforms, venues and time of exposure.

•  Engage in more cross-selling and service-bundling activities with our existing customer base.

•  Strengthen our market share of the out-of-home advertising market in major cities in China.

Share Purchase Agreement

       On October 15, 2005, we entered into a share purchase agreement to acquire the business of Infoachieve, its subsidiary and affiliated PRC entities, by purchasing 100% of the shares in Infoachieve from Total Team. Infoachieve, Total Team and its shareholders are referred to as the seller parties below.

       The following is a brief summary of material provisions of the share purchase agreement. This summary is qualified in its entirety by reference to the share purchase agreement.

       Structure. We acquired 100% of the shares of Infoachieve, which controls its affiliates Framedia Advertising, New Structure Advertisement and Guangdong Framedia through contractual relationships with Framedia Advertising, New Structure Advertisement and Guangdong Framedia and their shareholders. Under the share purchase agreement, we gain control of Framedia Advertising, New Structure Advertisement and Guangdong Framedia by gaining the right (i) to appoint their equity holders and (ii) to take over the contractual arrangements among Infoachieve, Framedia Advertisement, New Structure Advertisement and Guangdong Framedia and their equity holders.

       Closing. Our acquisition of Framedia closed on January 1, 2006.

       Purchase Price. On December 15, 2005, we paid the shareholders of Infoachieve $39.6 million in cash. At the closing on January 1, 2006, we also issued to the former shareholders of Infoachieve 19,306,840 Focus Media ordinary shares. We also issued 2,850,163 of our ordinary shares to Total Team in consideration for their cancellation of the share option plan of Infoachieve prior to our acquisition of it. Depending on Framedia’s achievement of an earnings target in 2006, we may issue additional Focus Media ordinary shares to Total Team in an amount no greater than $88.0 million as an earnout payment so that the maximum aggregate payment for our acquisition of Framedia will be $183.0 million. All shares issued or issuable to Total Team in connection with our acquisition of Framedia are valued at a fixed price of $2.456 per share and locked up for a specified period of time.

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       Representations and Warranties. In the share purchase agreement, the seller parties made customary representations and warranties to us concerning, among other things: corporate organization, qualification and good standing; authorization and enforceability of the share purchase agreement and the other documents to be delivered in connection with the acquisition; compliance with the provisions of Framedia’s organizational documents, debt instruments and other contracts and applicable laws; consents required from governmental authorities; title to and sufficiency and condition of assets; intellectual property matters; real property matters; tax matters; labor matters; employee benefit matters; litigation; amount of accounts receivable; financial statements; material contracts; permits; environmental matters; capital expenditures; and certain recent acquisitions of Framedia. The seller parties’ representations and warranties survive for a period of two years following the closing date.

       In the share purchase agreement, we made customary representations and warranties to the seller parties concerning, among other things: corporate organization, qualification and good standing; authorization and enforceability of the share purchase agreement; compliance with the provisions of our organizational documents, debt instruments and other contracts and applicable laws; validity of the common shares to be issued to Total Team; financial statements; and SEC filings. Our representations and warranties survive for a period of six months following the closing date.

       Covenants. During the period from the date of the share purchase agreement to the earnout payment date, Infoachieve and the other seller parties have agreed to operate Framedia’s business in the ordinary course of business and to use commercially reasonable efforts to preserve its business intact and preserve its relationships with customers, suppliers, employees and others doing business with Framedia. In furtherance of these covenants, from the date of the share purchase agreement until the closing date, Infoachieve and Framedia have agreed not to take actions as specified in the share purchase agreement, without our prior written consent.

       The share purchase agreement also includes customary covenants relating to, among other things, notification of certain matters, access to information, public announcements, noncompetition of certain persons, treatment of related party accounts, agreement to pay back or cancel all outstanding loans of Framedia, preparation of financial accounts; and to allow us to appoint certain management members to Framedia prior to the closing date. The share purchase agreement also contains covenants requiring us to enable the seller parties to operate Framedia as an independent business unit in 2006, and to retain certain existing senior management of Framedia

       Voting Rights. Under the terms of the share purchase agreement, after we issue shares to Total Team on behalf of the seller parties, each of the shareholders of Total Team is required to exercise their voting rights in Focus Media’s shares independently of each other and Total Team’s authorized representative is required to solicit a proxy statement from each shareholder indicating how the votes to which each shareholder is entitled should be voted. In the event a shareholder does not provide a proxy from a shareholder, the shareholder will be deemed to have abstained and Total Team will not be entitled to cast such votes.

       Indemnification. The seller parties have agreed to indemnify us for damages resulting from inaccuracies of their representations and warranties or failure to perform their obligations under the share purchase agreement. The seller parties’ indemnification obligation is limited to the total consideration we are to pay to them. If the seller parties indemnify us using our common shares, the value of such shares shall be the value of the shares when any indemnified losses become payable. If the seller parties’ lock-up agreements are still in effect at such time, they may dispose of only those shares that cover the amount of the indemnified losses.

       We have agreed to indemnify the seller parties for damages resulting from inaccuracies of our representations and warranties or failure to perform our obligations under the share purchase agreement. Our indemnification obligation is limited to the total consideration to be paid to the seller parties.

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Financing Our Acquisition of Framedia

       We are funding the cash portion of the purchase price of the Framedia transaction with proceeds we received from our initial public offering. We are paying the non-cash consideration in the form of newly issued Focus Media common shares.

Control over Framedia

       We have entered into a series of agreements with Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment, Framedia Advertising, Guangdong Framedia and its current shareholders and New Structure Advertisement that provide us with effective control over Framedia Advertising, Guangdong Framedia and New Structure Advertisement while enabling the Framedia business to be consolidated with Infoachieve. These agreements are substantially similar to the control agreements we have entered into with Focus Media Technology, Focus Media Digital, Focus Media Advertisement and its shareholders and subsidiaries. See “Our Corporate Structure — Our Corporate Structure and Contractual Arrangements” and “Related Party Transactions — Agreements Among Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment, Framedia Advertisement, Guangdong Framedia and New Structure Advertisement”.

Our Proposed Acquisition of Target Media

       On January 7, 2006, we entered into a definitive share purchase agreement to acquire the business of Target Media Holdings, its affiliated PRC entity Shanghai Target Media and its subsidiary Target Multi-Media, by purchasing 100% of the shares of Target Media Holdings from its shareholders. Target Media and several of its principal shareholders, including David Feng Yu, its chairman of the board of directors and SII International Holding Limited, are referred to as the seller parties. Collectively, Target Media’s shareholders, including The Carlyle Group, are referred to as the Target Media selling shareholders. We expect to complete our acquisition of Target Media in the first quarter of 2006.

       Target Media commenced operations of its flat-panel display advertising network in March 2003 and was one of the first advertising companies in China to focus on the placement of flat-panel displays in elevator lobbies and other public areas in commercial buildings, hospitals, hotels, banks, residential buildings, convenience stores and other locations in cities in China similar to our commercial location network. As of September 30, 2005, Target Media’s flat-panel display network consisted of approximately 25,100 flat-panel displays placed in approximately 16,650 locations in 43 cities in China.

       Through this acquisition, we will significantly expand the size and coverage of our commercial location network and further strengthen our leading position in China’s out-of-home advertising markets. When the acquisition is consummated, we expect to combine Target Media’s network with our commercial location network and to add its network of flat-panel displays placed in convenience stores to our in-store network.

       For the nine months ended September 30, 2005, Target Media recorded revenues of RMB 174.8 million ($21.6 million) and net income of RMB 32.6 million ($4.0 million). As of September 30, 2005, Target Media had approximately 850 employees.

       Our acquisition of Target Media’s business provides us a complementary platform to our commercial advertising network that will significantly increase the size and coverage of our existing network. We believe this acquisition will permit us to:

•  provide a larger advertising network to advertisers giving broader exposure to their advertisements through an effective and cost-effective advertising medium;

•  strengthen our market share of the out-of-home advertising market in major cities in China; and

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•  enhance our ability to target audiences on different channels.

Share Purchase Agreement

       On January 7, 2006, we entered into a definitive share purchase agreement to acquire the business of Target Media, through the purchase of 100% of the shares in Target Media from the shareholders of Target Media.

       The following is a brief summary of material provisions of the share purchase agreement. This summary is qualified in its entirety by reference to the share purchase agreement filed as an exhibit to our registration statement.

       Closing. Our acquisition of Target Media is expected to close in the first quarter of 2006 following the satisfaction or waiver of customary closing conditions provided in the share purchase agreement.

       Purchase Price. We have agreed to pay the shareholders of Target Media US$94 million in cash, subject to a working capital adjustment, and 77 million Focus Media ordinary shares. The cash portion of the purchase price will be paid in three installments. The first installment of $45 million is to be paid at closing. The second installment of $25 million is to be paid on April 28, 2006. The final installment of $24 million is to be paid on July 31, 2006, and may be increased or decreased based on a calculation of Target Media’s net working capital as of the closing date. All of the Focus Media ordinary shares to be delivered at closing under the share purchase agreement will be in the form of newly issued shares.

       Focus Media Options. We have also agreed to grant options to purchase up to 3,000,000 Focus Media ordinary shares to an agreed upon list of current employees of Target Media who enter into new employment agreements with Focus Media on or after the closing date.

       Representations and Warranties. In the share purchase agreement, the seller parties made customary representations and warranties to us concerning, among other things: corporate organization, qualification and good standing; authorization and enforceability of the share purchase agreement and the other documents to which they are a party, to be delivered in connection with the acquisition; compliance with the provisions of Target Media’s organizational documents, debt instruments and other contracts and applicable laws; consents required from governmental authorities; title to and sufficiency and condition of assets; intellectual property matters; real property matters; obligations to pay brokers or finders in connection with the acquisition; tax matters; labor matters; employee benefit matters; litigation; financial statements; material contracts; licenses; environmental matters; and absence of certain changes to its business. Generally, the seller parties’ representations and warranties survive for a period of six months following the closing date. However, a number of specified representations and warranties survive for longer periods or indefinitely.

       In the definitive share purchase agreement, the Target Media selling shareholders also made customary representations and warranties to us concerning, among other things: their respective corporate organization, qualification and good standing; authorization and enforceability of the share purchase agreement and the other documents to which they are a party to be delivered in connection with the acquisition; consents required from governmental authorities; title to the Target Media shares held by such selling shareholders; and matters relating to competing businesses. Generally, the Target Media selling shareholders’ representations and warranties survive for a period of six months following the closing date. However, a number of specified representations and warranties survive for longer periods or indefinitely.

       In the definitive share purchase agreement, we made customary representations and warranties to the Target Media selling shareholders concerning, among other things: corporate organization, qualification and good standing; authorization and enforceability of the share purchase agreement and other documents to be delivered in connection with the acquisition; compliance with

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the provisions of our organizational documents, debt instruments and other contracts and applicable laws; validity of the Focus Media ordinary shares to be issued to the Target Media selling shareholders; financial statements; and SEC filings. Generally, our representations and warranties survive for a period of six months following the closing date. However, a number of specified representations and warranties survive for longer periods or indefinitely.

       Covenants. The definitive share purchase agreement includes customary covenants relating to, among other things, notification of certain matters, public announcements, non-competition of certain persons, treatment of related party accounts and preparation of financial accounts. The share purchase agreement also contains covenants requiring us to enter into employment agreements with key employees of Target Media.

       During the period from the date of the share purchase agreement to the closing date, Target Media and the other seller parties have agreed to operate Target Media’s business in the ordinary course of business and to use commercially reasonable efforts to preserve its business intact and preserve its relationships with customers, suppliers, employees and others doing business with Target Media. In furtherance of these covenants, from the date of the share purchase agreement until the closing date, Target Media has agreed not to take certain actions, as specified in the share purchase agreement, without our prior written consent. In addition, Target Media and the other seller parties have also agreed to provide to us Target Media’s audited financial statements as of and for the year ended December 31, 2005.

       We have agreed under the definitive share purchase agreement and the employment agreement with Mr. David Feng Yu to appoint him as co-chairman of the board of directors and president of Focus Media upon the completion of the acquisition. He will be in charge of developing our out-of-home LED network. We have also agreed to increase our board of directors from five to seven members at closing, and we have agreed to assist in the nomination and appointment of David Feng Yu, the founder, chairman and chief executive officer of Target Media, and a nominee of David Feng Yu to fill the additional seats at the first annual meeting of our shareholders following the closing. The director nominated by David Feng Yu will qualify as an independent director for the purpose of complying with NASDAQ listing standards and Sarbanes-Oxley Act requirements so that a majority of our board of directors continues to be independent. We have also agreed to permit The Carlyle Group to appoint an observer to our board of directors for a limited period of time.

       Fees, Deposit and Break-up Fee. We agreed in the share purchase agreement to reimburse Target Media for up to $2,000,000 for out-of-pocket fees and expenses incurred by Target Media in connection with the completion of the acquisition. We agreed in the share purchase agreement to make, and have since made, a deposit in the amount of $10 million to an account specified by Target Media. Upon closing, the deposit will be deducted from the cash portion of the purchase price. If, however, the transaction does not close due to a breach of the share purchase agreement by us, we will forfeit the $10 million deposit and be required to pay an additional break-up fee of $10 million or, if we pursue an acquisition of Tulip Media (International) Limited or its subsidiaries and affiliates, which operate an out-of-home LED advertising business in Shanghai, $40 million, depending on the circumstances surrounding the breach. If the acquisition does not close due to a breach of the share purchase agreement by any of the seller parties, Target Media will be required to return the deposit and pay a break-up fee to us of $10 million.

       Closing Conditions. Each party’s obligation to consummate the transaction is subject to the satisfaction or waiver of certain closing conditions.

       Our obligation to close is subject to, among other things: the accuracy of the seller parties’ and other Target Media selling shareholders’ representations and warranties as of the closing date subject to specified materiality qualifications; the performance by the seller parties of their obligations and agreements in the share purchase agreement; the absence of a material adverse change in the business of Target Media; the absence of indebtedness in excess of the cash portion of the

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purchase price; completion of certain acquisitions by Target Media; the selling shareholders entering into lock-up agreements; and receipt by us of certain agreements, documents and legal opinions.

       The seller parties’ and the other Target Media selling shareholders’ obligations to close are subject to, among other things: the accuracy of our representations and warranties as of the closing date subject to specified materiality qualifications; the performance by us of our obligations and agreements in the share purchase agreement; the absence of any material adverse change to our business; our delivery of an officer’s certificate; the absence of any injunctions preventing completion of the transaction; and the completion of an amendment to shareholders agreement of Focus Media, granting the Target Media selling shareholders registration rights with respect to shares to be received by them.

       Indemnification. The seller parties have agreed to indemnify us for damages resulting from inaccuracies of their representations and warranties or failure to perform their obligations under the share purchase agreement; losses arising out of indebtedness of Target Media not reflected in its financial statements; losses arising out of or pursuant to terms of the contracts of Target Media that were not disclosed to us prior to the closing date due to their commercially sensitive nature and those terms are not in the ordinary course of business of Target Media; and certain tax liabilities.

       Two Target Media selling shareholders that hold an approximately 49.7% equity interest in Target Media, or collectively, the Controlling Target Media Selling Shareholders, have agreed to indemnify us for damages resulting from inaccuracies of representations and warranties in relation to Target Media and the Controlling Target Media Selling Shareholders, respectively, or failure of Target Media or the Controlling Target Media Selling Shareholders to perform their respective obligations under the share purchase agreement. The Target Media selling shareholders other than the Controlling Target Media Selling Shareholders and The Carlyle Group, or collectively, the Non-Controlling Target Media Selling Shareholders, have agreed to indemnify us for damages resulting from inaccuracies of representations and warranties in relation to Target Media and the Non-Controlling Target Media Selling Shareholders, respectively, or failure of the Non-Controlling Target Media Selling Shareholders to perform their obligations under the share purchase agreement. The Carlyle Group has agreed to indemnify us for damages resulting from inaccuracies of representations and warranties in relation to The Carlyle Group, or failure of The Carlyle Group to perform its obligations under the share purchase agreement.

       The indemnification obligations of all Target Media selling shareholders (excluding The Carlyle Group) are limited to US$80 million, provided that the Controlling Target Media Selling Shareholders shall be responsible for indemnifying us up to $325 million for additional losses arising out of several specified claims, including such contracts not disclosed to us prior to the closing of the acquisition, which contracts contain clauses that are out of ordinary course of Target Media’s business. The indemnification obligation of The Carlyle Group is limited to $16.3 million, except for a breach with respect to their ownership of the shares they are selling to us.

       For so long as the shares received by Target Media selling shareholders in this acquisition are restricted from sales in the open market by either the lock-up, or securities laws, the Target Media selling shareholders have the right to settle any indemnification obligation by paying us in kind with our ordinary shares, valued at the closing price on the business day prior to the payment of such shares.

       We have agreed to indemnify the seller shareholders for damages resulting from inaccuracies of our representations and warranties or failure to perform our obligations under the share purchase agreement. Certain of our indemnification obligations are capped at $39 million, while several specified indemnification obligations of our company are capped at the total consideration to be paid to the selling shareholders.

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REGULATION OF OUR INDUSTRY

       We operate our business in China under a legal regime consisting of the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its authority including the State Administration for Industry and Commerce, or SAIC.

       China’s Advertising Law was promulgated in 1994. In addition, the State Council, SAIC and other ministries and agencies have issued regulations that regulate our business, which are discussed below.

Limitations on Foreign Ownership in the Advertising Industry

       The principal regulations governing foreign ownership in the advertising industry in China include:

•  The Catalogue for Guiding Foreign Investment in Industry (2004); and

•  The Administrative Regulations on Foreign-invested Advertising Enterprises (2004).

       These regulations require foreign entities that directly invest in the advertising industry to have at least two years of direct operations in the advertising industry outside of China. Since December 10, 2005, foreign investors have been permitted to own directly a 100% interest in advertising companies in China, but such foreign investors are also required to have at least three years of direct operations in the advertising industry outside of China. PRC laws and regulations do not permit the transfer of any approvals, licenses or permits, including business licenses containing a scope of business that permits engaging in the advertising business. In the event we are able to qualify to acquire the equity interest of Focus Media Advertisement under the rules allowing complete foreign ownership, Focus Media Advertisement would continue to exist as the holder of the required advertising license consistent with current regulatory requirements.

       Since we have not been involved in advertising outside of China for the required number of years, our domestic PRC subsidiaries, Focus Media Technology and Focus Media Digital, which are considered foreign invested, are currently ineligible to apply for the required advertising services licenses in China. Our advertising business is currently mainly provided through our contractual arrangements with our consolidated affiliated entities in China, including Focus Media Advertisement and its subsidiaries and, following the recent establishment of our indirect subsidiary, New Focus Media Advertisement, which is 90%-owned by Focus Media Digital and 10%-owned by Focus Media Advertisement. Focus Media Advertisement is currently owned by Jason Nanchun Jiang and Jimmy Wei Yu, both of whom are PRC citizens. Focus Media Advertisement and several of its subsidiaries hold the requisite licenses to provide advertising services in China. We, Focus Media Technology and Focus Media Digital have entered into a series of contractual arrangements with Focus Media Advertisement and its subsidiaries and shareholders under which:

•  we are able to exert effective control over Focus Media Advertisement and its subsidiaries;

•  a substantial portion of the economic benefits of Focus Media Advertisement and its subsidiaries will be transferred to us; and

•  we have an exclusive option to purchase all or part of the equity interests in Focus Media Advertisement 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 Focus Media Advertisement, in each case when and to the extent permitted by PRC law.

       See “Our Corporate Structure” and “Related Party Transactions”.

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       In the opinion of Fangda Partners, our PRC legal counsel,

•  the respective ownership structures of (i) Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Focus Media Advertisement and their respective subsidiaries and (ii) except as already disclosed under “Risk Factors — Risks Relating to Our Recent Acquisitions — Historical deficiencies in Framedia’s compliance with relevant corporate law requirements could result in fines, revocation of its business license or the invalidation of agreements to which it is a party”, Framedia Investment, Framedia Advertising, Guangdong Framedia and New Structure Advertisement, are in compliance with existing PRC laws and regulations;

•  the contractual arrangements (i) among us, Focus Media Technology, Focus Media Digital, Focus Media Advertisement and its shareholders and subsidiaries and (ii) except as already disclosed under “Risk Factors — Risks Relating to Our Recent Acquisitions — Historical deficiencies in Framedia’s compliance with relevant corporate law requirements could result in fines, revocation of its business license or the invalidation of agreements to which it is a party”, among Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment, Framedia Advertisement, Guangdong Framedia, New Structure Advertisement, Liu Lei and Shi Yong, in each case governed by PRC law, are or, with respect to Framedia, will be after completion of legal formalities for those newly-signed agreements, valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect; and

•  the business operations of (i) Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Focus Media Advertisement and their respective subsidiaries and (ii) Framedia Investment, Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, as described in this prospectus, are in compliance with existing PRC laws and regulations in all material respects.

       We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities, in particular the SAIC which regulates advertising companies, will not in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC counsel that if the PRC government determines that the agreements establishing the structure for operating our PRC advertising business do not comply with PRC government restrictions on foreign investment in the advertising industry, we could be subject to severe penalties. See “Risk Factors — 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”.

Regulation of Advertising Services

Business License for Advertising Companies

       The principal regulations governing advertising businesses in China include:

•  The Advertising Law (1994);

•  The Advertising Administrative Regulations (1987); and

•  The Implementing Rules for the Advertising Administrative Regulations (2004).

       These regulations stipulate that companies that engage in advertising activities must obtain from the SAIC or its local branches a business license which specifically includes operating an advertising business within its business scope. Companies conducting advertising activities without such a license may be subject to penalties, including fines, confiscation of advertising income and

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orders to cease advertising operations. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation. We do not expect to encounter any difficulties in maintaining our business licenses. Each of Focus Media Advertisement, its subsidiaries and New Focus Media Advertisement has obtained, or in the case of some of our new directly-operated cities, are in the process of obtaining such a business license from the local branches of the SAIC as required by the existing PRC regulations. Some of our regional distributors may not possess all the licenses required to operate an advertising business, or may fail to maintain the licenses they currently hold. We periodically monitor our regional distributors to ensure they have obtained all required licenses and are complying with regulations relating to advertising content, although it is possible that one or more of our regional distributors may not be in compliance with all PRC regulations at all times. To our knowledge, all of our regional distributors have received, or are in the process of obtaining, the licenses required to operate an advertising business. If we learn that any of our regional distributors are not in compliance with applicable terms and regulations we notify such regional distributors of the need to complete any necessary procedures and to report any developments to us. If a regional distributor fails to complete the steps necessary to receive the required licenses, we will take steps to terminate the contract with such regional distributor. See “Risk Factors — Risks Relating to Our Business and Industry — One or more of our regional distributors could engage in activities that are harmful to our reputation in the industry and to our business”.

Advertising Content

       PRC advertising laws and regulations set forth certain content requirements for advertisements in China, which include prohibitions on, among other things, misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisements for anesthetic, psychotropic, toxic or radioactive drugs are prohibited. It is prohibited to disseminate tobacco advertisements via broadcast or print media. It is also prohibited to display tobacco advertisements in any waiting lounge, theater, cinema, conference hall, stadium or other public area. There are also specific restrictions and requirements regarding advertisements that relate to matters such as patented products or processes, pharmaceuticals, medical instruments, agrochemicals, foodstuff, alcohol and cosmetics. In addition, all advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals advertised through radio, film, television, newspaper, magazine, out-of-home and other forms of media, together with any other advertisements which are subject to censorship by administrative authorities according to relevant laws and administrative regulations, must be submitted to the relevant administrative authorities for content approval prior to dissemination. We do not believe that advertisements containing content subject to restriction or censorship comprise a material portion of the advertisements shown on our network.

       Advertisers, advertising operators and advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute are true and in full compliance with applicable law. In providing advertising services, advertising operators and advertising distributors must review the prescribed supporting documents provided by advertisers for advertisements and verify that the content of the advertisements comply with applicable PRC laws and regulations. In addition, prior to distributing advertisements for certain commodities which are subject to government censorship and approval, advertising distributors are obligated to ensure that such censorship has been performed and approval has been obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the SAIC or its local branches may revoke violators’ licenses or permits for advertising business operations. Furthermore, advertisers, advertising operators or advertising distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties in the course of their advertising business.

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       We employ qualified advertising inspectors who are trained to review advertising content for compliance with relevant laws and regulations. However, we cannot assure you that each advertisement an advertising client or agency provides to us and which we include in our weekly advertising cycle is in compliance with relevant PRC advertising laws and regulations, nor can we assure you that the advertisements that our regional distributors have procured for broadcasting on our network have received required approval from the relevant local supervisory bodies or are content compliant. See “Risk Factors  — We may be subject to, and may expend significant resources in defending against, government actions and civil suits based on the content and services we provide through our out-of-home advertising network”.

Outdoor Advertising

       The Advertising Law stipulates that the exhibition and display of outdoor advertisements must not:

•  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.

       In additional to the Advertising Law, the SAIC promulgated the Outdoor Advertising Registration Administrative Regulations on December 8, 1995, as amended on December 3, 1998, which governs the outdoor advertising industry in China.

       Outdoor advertisements in China must be registered with the local SAIC before dissemination. The advertising distributors are required to submit a registration application form and other supporting documents for registration. After review and examination, if an application complies with the requirements, the local SAIC will issue an Outdoor Advertising Registration Certificate for such advertisement. The content of the outdoor advertisement must be submitted for filing with the local SAIC.

Print Advertising

       Following our acquisition of Framedia on January 1, 2006, we will also operate a network of advertising poster frames placed primarily in the elevators and public areas of residential complexes. The advertisements shown on our poster frame network are defined as “normal print advertisements” under the Print Advertisements Administrative Regulations promulgated by the SAIC on January 13, 2000, as amended on November 30, 2004, or the Print Advertisements Regulations. Under these regulations, print advertisements must not be placed in areas prohibited by laws or regulations from posting print advertisements.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions

       In January and April 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued two rules that require PRC residents to register with and receive approvals from SAFE in connection with their offshore investment activities. SAFE has announced that the purpose of these regulations is to achieve the proper balance of foreign exchange and the standardization of the cross-border flow of funds.

       On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of

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November 1, 2005. Notice 75 replaced the two rules issued by SAFE in January and April 2005 mentioned above.

       According to Notice 75:

•  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.

       Moreover, Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in the PRC in the past are required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

       As a Cayman Islands company, and therefore a foreign entity, if Focus Media Holding purchases the assets or equity interest of a PRC company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures described in Notice 75. Moreover, PRC residents who are beneficial holders of our shares are required to register with SAFE in connection with their investment in us.

       As a result of the lack of implementing rules and other uncertainties relating to the interpretation and implementation of Notice 75, we cannot predict how these regulations will affect our business operations or strategies. For example, our present or future PRC subsidiaries’ ability to conduct foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, may be subject to compliance with such SAFE registration requirements by relevant PRC residents, over whom we have no control. In addition, we cannot assure you that any such PRC residents will be able to complete the necessary approval and registration procedures required by the SAFE regulations. We require all the shareholders in Focus Media Holding who are PRC residents to comply with any SAFE registration requirements, but we have no control over either our shareholders or the outcome of such registration procedures. Such uncertainties may restrict our ability to implement our acquisition strategy and adversely affect our business and prospects.

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MANAGEMENT

       The following table sets forth certain information relating to our directors and executive officers. The business address of each of our directors and executive officers is 28-30/F, Zhao Feng World Trade Building, 369 Jiangsu Road, Shanghai 200050, People’s Republic of China.

Name	Age		Position
Jason Nanchun Jiang		32	Chairman of the Board of Directors and Chief Executive Officer
Jimmy Wei Yu		32	Director
Fumin Zhuo(1)		53	Director
Neil Nanpeng Shen(1)		37	Director
Charles Chao(1)		40	Director
Daniel Mingdong Wu		38	Chief Financial Officer
Diana Congrong Chen		37	Chief Marketing Officer
July Lilin Wang		33	Chief Accounting Officer
Cindy Yan Chan		39	Chief Strategy Officer
Ergo Xueyuan Liu		34	Vice President — Commercial Network
Acer Jiawei Zhang		28	Vice President — In-store Network

(1)  Independent director and a member of our audit committee, compensation committee and nomination committee.

       Jason Nanchun Jiang, our founder, has served as the chairman of our board of directors and our chief executive officer since May 2003. From 1994 to 2003, Mr. Jiang was the chief executive officer of Everease Advertising Corporation, which is one of the top 50 advertising agencies in China. Starting in 2003, Mr. Jiang was general manager of Aiqi Advertising, an advertising company founded by his immediate family members in 1997 which was renamed Focus Media Advertising in May 2003 in connection with the establishment of our current business operations. In December 2003, Mr. Jiang was selected by China News Publisher’s Media magazine as one of the “Media People of the Year”. In September 2003, Mr. Jiang was selected by the Television and Newspaper Committees of the China Advertising Commission as one of its “contemporary outstanding advertising media personalities”. Mr. Jiang received a Bachelor of Arts degree in Chinese language and literature from Huadong Normal University in 1995.

       Jimmy Wei Yu has served as our director since May 2003. Mr. Yu is the chairman and chief executive officer of United Capital Investment (China) limited, which is one of our principal shareholders and the management company of United China Investment Limited and KTB/UCI China Ventures I Limited and UCI China Venture II Limited. Mr. Yu is also the Chairman of Shanghai Multimedia Park Venture Capital, a position he has held since 2003. From 1995 to 1999, Mr. Yu served in various capacities in several telecommunications companies, including as Chief Representative of UTStarcom (Hong Kong) Ltd. He also has been the Chief Representative of Softbank China Venture Capital, which is the management company of SB China Holdings Pte. Ltd., one of our shareholders, since its incorporation in 1999.

       Fumin Zhuo has served as our director since December 2004 and has more than 27 years of experience in investment and corporate management. His powers as a director, including voting rights, will take effect immediately following this offering. Mr. Zhuo has served as chairman and chief executive officer of Vertex China Investment Company (VCI), a company concentrating in investments in the Greater China region, since he joined the fund in July 2002. From 1995 to July 2002, Mr. Zhuo was chief executive officer of Shanghai Industrial Holding Ltd. and chairman of SIIC Medical Science & Technology (Group). Prior to this, starting in 1987, Mr. Zhuo served as chief assistant officer of the Shanghai Economic System Reform Committee. Mr. Zhuo has extensive experience in venture capital fund formation, mergers and acquisitions, and investment management.

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Mr. Zhuo graduated from Shanghai Jiaotong University with a degree in enterprise management and also holds a Master’s degree in economics from Fudan University.

       Neil Nanpeng Shen has served as our director since December 2004. Mr. Shen is the founding managing partner of Sequoia Capital China, or Sequoia China, a China-focused venture capital fund which was established in August 2005. Prior to founding Sequoia China, Mr. Shen was president and chief financial officer of Ctrip.com International Limited, or Ctrip, a Nasdaq-listed on-line travel services company he co-founded and for which he continues to serve as a director. Prior to founding Ctrip, Mr. Shen worked for more than eight years in the investment banking industry in New York and Hong Kong. He was a director at Deutsche Bank Hong Kong where he worked from 1996 to 1999. Prior to 1996, he worked at Chemical Bank, Lehman Brothers and Citibank in various investment banking positions. Mr. Shen is also co-founder and deputy chairman of Home Inns & Hotels Management (Hong Kong) Limited. Mr. Shen received his Master’s degree from the School of Management at Yale University and his Bachelor’s degree from Shanghai Jiaotong University.

       Charles Chao was appointed as our director in November 2005 to replace Ted Tak Dee Sun who passed away in September 2005. Mr. Chao is president and chief financial officer of SINA Corporation, an online media company listed on the Nasdaq National Market. Before he joined SINA Corporation in September 1999, Mr. Chao served as an experienced audit manager with PricewaterhouseCoopers LLP, providing auditing and business consulting services for high tech companies in Silicon Valley, California. Mr. Chao received his master of professional accounting from University of Texas at Austin. He also holds an MA degree in journalism from University of Oklahoma and a BA degree in Journalism from Fudan University in Shanghai, China. Mr. Chao is a certified public accountant and a member of the American Institute of Certified Public Accountants.

       Daniel Mingdong Wu has served as our chief financial officer since February 2005. Mr. Wu was chief financial officer and a director of Harbour Networks Ltd. from January 2004 until January 2005. Prior to that, Mr. Wu was a partner of Bridgecross Ltd. from 2001 until 2003 and acting chief financial officer of Wi-Comm United Communications Inc. from May 2003 until January 2004. From 2000 until 2001, Mr. Wu was a vice president for technology investment banking at Merrill Lynch (Asia Pacific) Ltd. From 1996 to 2000, Mr. Wu worked in the global communications group of Lehman Brothers Inc. Mr. Wu holds a B.A. degree from the State University of New York at Buffalo and an MBA degree from Columbia Business School.

       Diana Congrong Chen joined Focus Media as chief marketing officer in May 2005. Before joining Focus Media, Ms. Chen worked for Phoenix Satellite TV from 1998 to 2004, serving as general manager, director of international advertising and president of East China region. While at Phoenix Satellite TV, Ms. Chen successfully developed business in Zhejiang and East China region and was awarded Best Sales Team for several years. In 2004, Ms. Chen was honored with a Most Outstanding Employee Award by Phoenix Satellite TV. Prior to that, Ms. Chen was the vice president of sales for Tucano Clothing China and office manager for China Animal By-product Import and Export Co. Ms. Chen holds a B.A. degree in journalism from Zhejiang University.

       July Lilin Wang joined Focus Media as chief accounting officer in April 2005. Prior to joining Focus Media, Ms. Wang worked as a senior manager at Ernst & Young’s Shanghai office from April 2004 to April 2005. From November 2002 to April 2004, Ms. Wang was a senior supervisor at Ernst & Young’s San Jose, California office. From 1994 to 2002, Ms. Wang worked as a senior manager at Ernst & Young’s Shanghai office. Ms. Wang received a B.A. degree in economics from Shanghai University of Economics and Finance.

       Cindy Yan Chan joined Focus Media in August 2005 as chief strategy officer. Ms. Chan has over 10 years of experience in the advertising industry in China. Before joining Focus Media, Ms. Chan was deputy general manger for iMPACT, ZenithOptimedia’s outdoor media department, an outdoor media buyer in China, from 2000 to 2005. Ms. Chan is also among the most reputable media researchers in China, and has published articles on the theory of outdoor media and China’s

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outdoor media market, which has been quoted in prominent publications such as Forbes magazine and Media magazine. Ms. Chan holds a master’s degree in economics from Nankai University.

       Ergo Xueyuan Liu joined Focus Media as Vice President — Commercial Network in June 2004. Prior to joining Focus Media, Mr. Liu worked for Everease as an account manager from March 2003 until June 2004. From June 2002 until February 2003, Mr. Liu was general manager and a director of Beijing Fanenchangmei Advertising Co., Ltd., prior to which he was general manager of Manager magazine from January 2001 until May 2002. In 1999 and 2000, Mr. Liu worked in the enterprise department of the Shenzhen Special Economic Zone Group Company and was assistant manager of Yigao Electronics Co., Ltd. Mr. Liu received a B.A. degree in Chinese literature from Huazhong College of Engineering (now Huazhong Science and Technology University) in 1992.

       Acer Jiawei Zhang joined Focus Media as Vice President — In-store Network in March 2005. Prior to joining Focus Media, Mr. Zhang worked for Media Partners International Holdings Inc. from 2001 to 2004, serving as account director, business director of the Beijing branch office and director of agency relations. While at Media Partners International, Mr. Zhang established a national “key account” service system, improved consulting and client services, and managed the development of its digital outdoor media project. From 1998 to 2001, Mr. Zhang was a sales director for Media Century Holdings Inc. in the Wuhan, Chengdu and Beijing offices. At Media Century, Mr. Zhang assisted with developing new markets and preparing for its domestic initial public offering and assisted in the acquisition of one of its key competitors. Mr. Zhang received a B.A. degree in arts design from Hubei Polytechnic Institute.

       We have agreed to increase our board of directors from five to seven members when we complete our acquisition of Target Media, and we have agreed to assist in the nomination and appointment of David Feng Yu, the founder, chairman and chief executive officer of Target Media, and a nominee of David Feng Yu to fill the additional seats at the first annual meeting of our shareholders following the closing.

Duties of Directors

       Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. A company has the right to seek damages if a duty owed by our directors is breached.

       The functions and powers of our board of directors include, among others:

•  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.

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Terms of Directors and Executive Officers

       Each of our directors holds office until a successor has been duly elected and qualified unless the director was appointed by our board of directors, in which case such director holds office until the next following annual meeting of shareholders at which time such director is eligible for reelection. All of our executive officers are appointed by and serve at the discretion of our board of directors.

Board Practices

Board Committees

       Our board of directors has established an audit committee, a compensation committee and a nominations committee.

       Audit Committee. Our audit committee currently consists of Neil Nanpeng Shen, Charles Chao and Fumin Zhuo. Mr. Shen is the chairman of our audit committee. Our board of directors has determined that all of our audit committee members are “independent directors” within the meaning of Nasdaq Marketplace Rule 4200(a)(15) and meet the criteria for independence set forth in Section 10A(m)(3) of the U.S. Securities Exchange Act of 1934, or the Exchange Act.

       Our audit committee is responsible for, among other things:

•  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;

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•  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. Our current compensation committee consists of Neil Nanpeng Shen, Charles Chao and Fumin Zhuo. Mr. Chao is the chairman of our compensation committee. Our board of directors has determined that all of our compensation committee members are “independent directors” within the meaning of Nasdaq Marketplace Rule 4200(a)(15).

       Our compensation committee is responsible for:

•  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. Our current nominations committee consists of Neil Nanpeng Shen, Charles Chao and Fumin Zhuo. Mr. Zhuo is the chairman of our nominations committee. Our board of directors has determined that all of our nominations committee members are “independent directors” within the meaning of Nasdaq Marketplace Rule 4200(a)(15).

       Our nominations committee is responsible for, among other things, selecting and recommending the appointment of new directors to our board of directors.

Corporate Governance

       Our board of directors has adopted a code of ethics, which is applicable to our senior executive and financial officers. In addition, our board of directors has adopted a code of conduct, which is applicable to all of our directors, officers and employees. We will make our code of ethics and our code of conduct publicly available on our website.

       In addition, our board of directors has adopted a set of corporate governance guidelines. The guidelines reflect certain guiding principles with respect to our board’s structure, procedures and committees. The guidelines are not intended to change or interpret any law, or our amended and restated memorandum and articles of association.

Compensation of Directors and Executive Officers

       In 2004, we paid aggregate cash compensation of approximately $100,000 to our directors and executive officers as a group. In 2004 and for the nine months ended September 30, 2005, we granted to selected directors, officers and employees options to acquire an aggregate 20,643,400

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and 17,703,630 ordinary shares, respectively. We have no service contracts with any of our directors or executive officers that provide benefits to them upon termination. We do not pay or set aside any amounts for pension, retirement or other benefits for our officers and directors.

Share Option Plans

       Our 2003 Employee Share Option Scheme, or our 2003 Option Plan, was adopted by our board of directors at a meeting on June 1, 2003. Our members and board of directors adopted our 2005 Share Option Plan, or our 2005 Option Plan, in May 2005. Both of our option plans are intended to promote our success and to increase shareholder value by providing an additional means to attract, motivate, retain and reward selected directors, officers, employees and third-party consultants and advisors.

       Originally, under our 2003 Option Plan, not more than 30% of our share capital was reserved for grants of options. Prior to the adoption of our 2005 Option Plan, we issued options equivalent to 10.87% of our issued share capital under our 2003 Option Plan. Under our 2005 Option Plan, the amount of options we may issue has been reduced to an aggregate of 20% of our share capital, including the 10.87% already granted under our 2003 Option Plan. In addition, during the three years from the adoption of our 2005 Option Plan, we may issue no more than 5% of our share capital for grants of options.

       Under our 2003 Option Plan:

•  In July and August 2004, we granted:

•  options to purchase 12,181,600 shares, representing 3.7% of our pre-offering diluted share capital, to certain members of our board of directors and our management group. Each of these options has an exercise price of $0.24 per share. 8,460,800 of these options vest over three years while the remaining 3,720,800 options vest over one year.

•  options to purchase 8,461,800 shares, representing 2.5% of our pre-offering diluted share capital, to members of our staff. Each of these options has an exercise price of $0.24 per share. 2,159,800 of these options vest over three years while the remaining 6,302,000 options vest over one year.

•  options to purchase 4,564,800 shares, representing 1.4% of our pre-offering diluted share capital, to third-party consultants and advisors. Each of these options have an

•  exercise price of $0.24 per share. 1,310,400 of these options vest over three years while the remaining 3,254,400 options vest over one year.

       We recognized share-based compensation expense of $488,711 in 2004 in connection with these options.

       Under our 2005 Option Plan:

•  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.

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•  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.

       For the nine months ended September 30, 2005, we recognized share-based compensation expense of $646,400 in connection with the options we granted in January, February and July 2005.

       Options generally do not vest unless the grantee remains under our employment or in service with us on the given vesting date. However, in circumstances where there is a death or disability of the grantee, or, for certain option holders, a change in the control of our company, the vesting of options will be accelerated to permit immediate exercise of all options granted to a grantee.

       Our compensation committee, which administers our option plans, has wide discretion to award options. Subject to the provisions of our option plans and the above allocation targets, our committee that administers our option plans determines who will be granted options, the type and timing of options to be granted, vesting schedules and other terms and conditions of options, including the exercise price. Any of our employees may be granted options. The number of options awarded to a person, if any, is based on the person’s potential ability to contribute to our success, the person’s position with us and other factors chosen by our board of directors.

       Generally, to the extent an outstanding option granted under our option plans has not become vested on the date the grantee’s employment by or service with us terminates, the option will terminate and become unexercisable.

       Our board of directors may amend, alter, suspend, or terminate each of our option plan at any time, provided, however, that in order to increase the limit of 20% of our share capital that may be granted as options, our board of directors must first seek the approval of our shareholders and, if such amendment, alteration, suspension or termination would adversely affect the rights of an optionee under any option granted prior to that date, the approval of such optionee. Without further action by our board of directors, our 2003 Option Plan and our 2005 Option Plan will terminate in June 2013 and May 2015, respectively.

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       The table below sets forth the option grants made to our directors and executive officers pursuant to our 2003 and 2005 Option Plan as of December 31, 2005.

	Number of
	ordinary shares
	to be issued		Exercise price
	upon exercise		per ordinary
Name	of options		share		Date of grant		Date of expiration
			(in U.S. dollars)
Jason Nanchun Jiang		5,882,000	$	0.24		August 25, 2004		August 24, 2014
Jimmy Wei Yu		2,376,200	$	0.24		July 5, 2004		July 4, 2014
Jimmy Wei Yu		3,923,400	$	0.24		August 25, 2004		August 24, 2014
Jimmy Wei Yu		200,000	$	1.70		July 13, 2005		July 13, 2015
Fuming Zhuo		*	$	0.24		August 10, 2004		August 9, 2014
Neil Nanpeng Shen		*	$	0.58		January 1, 2005		December 31, 2014
Daniel Mingdong Wu		*	$	0.58		February 2, 2005		February 1, 2015
Daniel Mingdong Wu		*	$	0.75		February 2, 2005		February 1, 2015
Daniel Mingdong Wu		*	$	1.70		July 13, 2005		July 13, 2015
July Lilin Wang		*	$	0.75		February 2, 2005		February 1, 2015
Ergo Xueyuan Liu		*	$	0.24		July 5, 2004		July 4, 2014
Acer Jiawei Zhang		*	$	0.75		February 2, 2005		February 1, 2015
Diana Congrong Chen		*	$	1.70		July 13, 2005		July 13, 2015
Cindy Yan Chan		*	$	1.70		July 13, 2005		July 13, 2015

*  Upon exercise of all options granted, would beneficially own less than 1% of our outstanding ordinary shares, assuming all of our outstanding preference shares are converted into our ordinary shares.

Manager Non-Competition Agreement

       Pursuant to the manager non-competition agreement entered into by and between us and Jason Nanchun Jiang in December 2004, Jason Nanchun Jiang agrees not to engage in activities that compete with our business operations during the term of his employment with us and for a period of two years after any termination of his employment with us. Jason Nanchun Jiang also agrees not to disclose to any third party any confidential information regarding us or any of our subsidiaries and affiliated companies or to accept or invest in any opportunity that is in line with our business operations, came to him as a result of his employment with us or involves any of our assets, unless approved by our board of directors.

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PRINCIPAL AND SELLING SHAREHOLDERS

       The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our ordinary shares, as of September 30, 2005 and as adjusted to reflect the sale of the ADSs offered in this offering for:

•  each person known to us to own beneficially more than 5% of our ordinary shares;

•  each of our directors and executive officers who beneficially own our ordinary shares; and

•  each selling shareholder participating in this offering.

       Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. The number of our ordinary shares outstanding used in calculating the percentage for each listed person includes our ordinary shares underlying options held by such person that are exercisable within 60 days of January 17, 2006, but excludes ordinary shares underlying options held by any other person. Percentage of beneficial ownership is based on 400,463,003 ordinary shares outstanding prior to this offering and 415,463,003 ordinary shares outstanding after completion of this offering, whether or not the underwriters exercise their over-allotment options as we will not participate in the over-allotment and no new shares will be issued by us in connection with the exercise by the underwriters of their over-allotment option. The underwriters may choose to exercise the over-allotment options in full, in part or not at all.

	Shares beneficially					Shares to be sold by					Shares beneficially
	owned prior					selling shareholders					owned after
	to this offering					in this offering					this offering
Name	Number		Percent			Number		Percent			Number		Percent
Principal Shareholders
JJ Media Investment Holding Ltd./ Jason Nanchun Jiang(1)		114,033,716		28.29	%		10,000,030		2.48	%		104,033,686		24.89%
GS Focus Holding Limited(2)		38,918,200		9.72	%		16,284,920		4.07	%		22,633,280		5.45%
Directors and Executive Officers(3)
JJ Media Investment Holding Ltd./ Jason Nanchun Jiang(4)		114,033,716		28.29	%		10,000,030		2.48	%		104,033,686		24.89%
Jimmy Wei Yu(5)		17,257,952		4.26	%		3,859,610		0.95	%		13,398,342		3.19%
Neil Nanpeng Shen(6)		760,207		0.19	%		160,200		0.04	%		600,007		0.14%
Charles Chao		—		—			—		—			—		—
Fumin Zhuo		—		*			—		—			—		*
Daniel Mingdong Wu		—		*			—		—			—		*
Diana Congrong Chen		—		—			—		—			—		—
July Lilin Wang		—		*			—		—			—		*
Cindy Yan Chan		—		—			—		—			—		—
Ergo Xueyuan Liu		—		*			—		—			—		*
Acer Jiawei Zhang		—		*			—		—			—		*
Other Selling Shareholders
CDH FM Limited(7)		17,840,241		4.45	%		5,340,240		1.33	%		12,500,001		3.01%
UCI Entities(8)		17,257,952		4.26	%		3,859,610		0.95	%		13,398,342		3.19%
3i Group(9)		15,567,200		3.89	%		6,513,940		1.63	%		9,053,260		2.18%
Draper Fisher Jurvetson ePlanet(10)		14,992,800		3.74	%		6,273,590		1.57	%		8,719,210		2.10%
Victory Venture Capital Limited(11)		6,942,995		1.73	%		2,078,290		0.52	%		4,864,705		1.17%
SB China Holdings Pte. Ltd(12)		6,422,486		1.60	%		1,922,480		0.48	%		4,500,006		1.08%
Snow Hill Developments Limited(13)		1,486,592		0.37	%		444,990		0.11	%		1,041,602		0.25%
Smart Create Group Limited(14)		760,207		0.19	%		160,200		0.04	%		600,007		0.14%

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* Upon exercise of all options currently exercisable or vesting within 60 days of the date of this prospectus, would beneficially own less than 1% of our ordinary shares.

(1)	Includes 111,460,341 ordinary shares owned by JJ Media Investment Holding Ltd. and 2,205,700 and 367,675 options to purchase our ordinary shares owned by Target Sales International Limited and Target Management Group Limited. All of these entities are 100% owned by Jason Nanchun Jiang, our founder, chairman and chief executive officer.
(2)	GS Focus Holding Limited is a Cayman Islands company whose shareholders are investment funds, or the GS Funds, affiliated with or managed by Goldman, Sachs & Co., a wholly owned subsidiary of The Goldman Sachs Group, Inc. One of the joint bookrunners of this offering, Goldman Sachs (Asia) L.L.C., is also a wholly owned subsidiary of The Goldman Sachs Group, Inc. Each of The Goldman Sachs Group, Inc., Goldman, Sachs & Co. and Goldman Sachs (Asia) L.L.C. disclaims beneficial ownership of the shares owned by GS Focus Holding Limited, except to the extent of their pecuniary interest in the GS Funds. The address of GS Focus Holding Limited is c/o Goldman, Sachs & Co., 10th floor, 85 Broad Street, New York, NY 10004, U.S.A.
(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.
(5)	Represents 7,196,753, 142,722, 3,471,568 and 2,082,884 ordinary shares, owned by United China Investment Limited, Multimedia Park Venture Capital Ltd., United Capital Investment China Venture II Limited and KTB/UCI China Ventures I Limited, respectively, and 1,200,000, 378,100, 55,125, 2,520,800 and 210,000 options to purchase our ordinary shares owned by Pacific Advance Capital Limited, United Capital Investment Group Limited, Media Investment Consulting Limited, Universal Media Consulting Limited and Union Enterprises Group Limited, respectively. These entities are collectively referred to in this prospectus as the UCI Entities.
	Jimmy Wei Yu, one of our directors, has the sole investment and voting power over the shares owned by the UCI Entities, except with respect to the shares owned by KTB/UCI, for which Jimmy Wei Yu shares the investment and voting power with Wonho Hong. The address of the UCI Entities is TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands. Jimmy Wei Yu disclaims beneficial ownership of the shares owned by the UCI Entities except to the extent of his pecuniary interest therein.
(6)	Includes 535,207 ordinary shares owned by Smart Create Group Limited, or Smart Create, and 225,000 options to purchase our ordinary shares owned by Neil Nanpeng Shen, one of our directors. Mr. Shen is the controlling shareholder of Smart Create and exercises investment and voting power over the shares owned by Smart Create. Smart Create is a British Virgin Islands company and its address is Room 2001, 60 Wyndham Street, Central, Hong Kong.
(7)	All of the issued and outstanding shares of CDH FM Limited, or CDH FM., are legally and beneficially owned by CDH China Fund, L.P., or the CDH Fund, a Cayman Islands exempted limited partnership. CDH China Holdings Company Limited, or CDH China Holdings, a Cayman Islands exempted limited liability company, is the general partner of the CDH Fund and has the power to direct the CDH Fund as to the voting and disposition of shares held by the CDH Fund. The investment committee of the general partner consists of nominees appointed by its principal shareholders, an affiliate of Capital Z Partners, an affiliate of the Government of Singapore Investment Corporation, and China Diamond Holdings, L.P., a British Virgin Islands limited partnership controlled by senior members of the CDH Fund investment team. CDH China Holdings expressly disclaims beneficial ownership of the shares owned by the CDH Fund, except to the extent of the China Holdings’ pecuniary interest therein. The address of CDH FM Limited is c/o Trident Trust Company (BVI) Limited, Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands.
(8)	See note 5.
(9)	Includes 4,864,800, 3,891,800 and 6,810,800 ordinary shares owned by 3i Group plc, 3i Asia Pacific Technology LP through a nominee arrangement with 3i APTech Nominees Limited and 3i Asia Pacific 2004-06 LP through a nominee arrangement with 3i Nominees Limited, respectively. These entities are collectively referred to in this prospectus as 3i Group. 3i Investments plc is a 100% indirect subsidiary of 3i Group plc, a public company listed on the London Stock Exchange, and acting as the manager of 3i Group, has the discretionary power to control the exercise of the investment and voting power to the shares owned by 3i Group. 3i Group plc disclaims beneficial ownership of the shares owned by 3i Group, except to the extent of its pecuniary interest therein. The address of 3i Group is 91 Waterloo Road, London SE1 8XP, United Kingdom.

(10)  Includes 14,438,000, 254,800 and 300,000 ordinary shares owned by Draper Fisher Jurvetson ePlanet Ventures L.P., Draper Fisher Jurvetson ePlanet Ventures GmbH & Co. KG, and Draper Fisher Jurvetson ePlanet Partners Fund, LLC respectively. These entities are collectively referred to in this prospectus as Draper Fisher Jurvetson ePlanet. Timothy C. Draper, John H. N. Fisher, Steve T. Jurvetson and Asad Jamal, acting as managing directors and members of these entities, hold the investment and voting power over the shares owned thereby. They disclaim beneficial ownership of such shares except to the extent of their respective pecuniary interests. The address of Draper Fisher Jurvetson ePlanet is Suite 150, 2882 Sand Hill Road, Menlo Park, CA 94025, U.S.A.

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(11)	Feng Ren and Defu Zhang are the directors of Victory Venture Capital Limited, or Victory Venture, a British Virgin Islands company, and exercise the investment and voting power over the shares owned thereby. The address of Victory Venture is TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands.
(12)	Represents 6,422,486 ordinary shares owned by SB China Holdings Pte Ltd., or SB China. SB China is owned by SOFTBANK CORP., a public company listed on the Tokyo Stock Exchange, and UTStarcom Inc., a public company listed on the NASDAQ National Market. The address of SB China is 20 Raffles Place, #09-01, Ocean Towers, Singapore 048620.
(13)	Snow Hill Developments Limited, or Snow Hill, is a British Virgin Islands Company 100% owned by China Merchants Technology Holdings Company Limited, which is in turn 100% owned by China Merchants Shekou Industrial Zone Co., Ltd., a wholly-owned subsidiary of China Merchants Group. The address of Snow Hill is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
(14)	See note 6.

Founders and Initial Investors

       The following share and par value information is presented as if all share splits discussed below had already occurred.

       Our holding company, Focus Media Holding Company, was established in April 2003 when we commenced our current business operations. In April 2003, we issued: (i) 140,000,000 ordinary shares, par value US$0.00005 per share, to JJ Media Investment Holding Ltd., a company controlled by Jason Nanchun Jiang, our chairman and chief executive officer, (ii) 5,000,000 ordinary shares to Yibing Zhou, (iii) 45,000,000 ordinary shares to China Alliance Investment Ltd., or China Alliance, and (iv) 10,000,000 ordinary shares to SB China Holdings Pte. Ltd., an affiliate of SOFTBANK Corp. that we refer to as Softbank.

       In May 2003, we executed a 100-to-1 share split of our ordinary shares.

       Immediately following this, our shareholders’ holdings were as follows:

	Ordinary Shares
	Beneficially
Shareholder	Owned		Percentage
JJ Media/ Jason Nanchun Jiang		140,000,000		70.0	%
China Alliance		45,000,000		22.5
Softbank		10,000,000		5.0
Yibing Zhou		5,000,000		2.5
Total		200,000,000		100.0	%

Issuance of Series A Convertible Redeemable Preference Shares and Subsequent Transfers

       In February 2004, China Alliance entered into sale and purchase agreements with Softbank, Shanghai Venture Capital (HK) Co., Ltd., or SVC, Multimedia Park Venture Capital Limited, or Multimedia, and United China Investment Limited, or UCI, pursuant to which China Alliance transferred 4,000,000 ordinary shares to Softbank, 10,000,000 ordinary shares to SVC, 5,000,000 ordinary shares to Multimedia and 10,000,000 ordinary shares to UCI.

       In March 2004, Jason Nanchun Jiang, through JJ Media, Yibing Zhou and Softbank transferred 6,000,000, 1,400,000 and 2,800,000 shares, respectively, to UCI.

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       In March 2004, each of China Alliance, Softbank, SVC, Multimedia and UCI, or collectively the Series A shareholders, entered into a shareholders agreement with us pursuant to which each Series A shareholder exchanged its ordinary shares for an equal number of Series A convertible redeemable preference shares. Following these transactions and as of March 2004, our shareholders’ holdings were as follows:

	Shares
	Beneficially
Shareholder	Owned		Percentage
JJ Media/ Jason Nanchun Jiang(1)		134,000,000		67.0	%
UCI(2)		20,200,000		10.1
China Alliance(2)		16,000,000		8.0
Softbank(2)		11,200,000		5.6
SVC(2)		10,000,000		5.0
Multimedia(2)		5,000,000		2.5
Yibing Zhou(1)		3,600,000		1.8
Total		200,000,000		100.0	%

(1)	Holder of ordinary shares.
(2)	Holder of Series A convertible redeemable preference shares convertible into ordinary shares.

Issuance of Series B Convertible Redeemable Preference Shares and Subsequent Transfers

       In April 2004, we entered into a sale and purchase agreement with the Series B investors, which consisted of CDH FM Limited, or CDH, International Network Capital Global, Venture TDF Technology Fund III L.P., or Venture TDF, Milestone Digital Media Holding Ltd., or Milestone, Draper Fisher Jurvetson ePlanet, Elite Select Group Ltd., or Elite Select, Farmac Holdings Ltd., or Farmac, and Powerful Team Energy Investment Limited, or Powerful Team with their transferees, pursuant to which we issued 52,083,400 Series B convertible redeemable preference shares convertible into ordinary shares to the Series B investors at a price of $0.24 per preference share.

       In April 2004, China Alliance and SVC transferred a total of 13,202,800 Series A convertible redeemable preference shares to Pacific Advance Capital Limited, or Pacific Advance Capital, and UCI at a price of $0.20 per share. Also in April 2004 Softbank, Multimedia and Pacific Advance. Capital transferred a total of 17,076,000 Series A convertible redeemable preference shares to Draper Fisher Jurvetson ePlanet, CMF Technology Fund, or CMF, and Snow Hill Developments Limited, or Snow Hill, in each case at a price of $0.24 per share.

       In September 2004, we issued 14,458,200 ordinary shares to Victory Venture Capital Limited as partial consideration for our acquisition of Perfect Media.

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       Following these transactions and as of September 2004, our shareholders’ holdings were as follows:

	Shares
	Beneficially
Shareholder	Owned		Percentage
JJ Media/ Jason Nanchun Jiang(1)		134,000,000		50.25	%
UCI(2)		25,410,000		9.53
CDH(3)		25,000,000		9.37
Draper Fisher Jurvetson ePlanet(2)(3)		14,992,800		5.62
Victory Venture(1)		14,594,200		5.47
Softbank(2)		9,000,000		3.37
China Alliance(2)		8,706,800		3.26
International Network Capital Global(3)		8,333,400		3.13
Milestone(3)		8,333,400		3.13
Venture TDF(3)		4,166,600		1.56
CMF(2)		4,166,600		1.56
Yibing Zhou(1)		3,600,000		1.35
Other shareholders of less than 1%(2)(3)		6,373,800		2.40
Total		266,677,600		100.00	%

(1)	Holder of ordinary shares.
(2)	Holder of Series A convertible redeemable preference shares convertible into ordinary shares.
(3)	Holder of Series B convertible redeemable preference shares convertible into ordinary shares.

Issuance of Series C Convertible Redeemable Preference Shares and Subsequent Transfers

       In November 2004, we, UCI, Milestone and China Alliance entered into a sale and purchase agreement with the Series C investors, which consisted of GS Focus Holding Limited, 3i Group, KTB/UCI China Ventures I Limited and Max Wealth Enterprises Limited, pursuant to which we issued a total of 58,377,200 Series C convertible redeemable preference shares to the Series C investors at a price of $0.51 per preference share.

       In December 2004, Jason Nanchun Jiang sold 9,729,600 ordinary shares to Capital International Private Equity at a price of $0.51 per ordinary share, which shares were simultaneously exchanged for Series C convertible redeemable preference shares. At the same time, Yibing Zhou and Victory Venture sold a total of 8,464,800 ordinary shares to UCI, Smart Create Group Ltd., East Concord Ltd., Meridian Pacific Angel Capital Co., Ltd., Li Lai Holding Ltd., Elufar Ltd. and Tong An Investment Co. Ltd. at a price of $0.51 per share.

       In May 2005, we executed a 200-to-1 share split of our ordinary shares and each series of convertible redeemable preference shares.

Our Initial Public Offering

       In July 2005, we and certain of our shareholders sold an aggregate of 11,615,000 ADSs, representing 116,150,000 ordinary shares in our initial public offering. Since July 13, 2005, our ADSs have been quoted on the Nasdaq National Market Inc. under the symbol “FMCN”.

       Upon the completion of our initial public offering, pursuant to the terms of our Series A, Series B and Series C convertible redeemable preference shares, all of the outstanding convertible

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redeemable preference shares were mandatorily converted into our ordinary shares and none of our existing shareholders have voting rights that differ from the voting rights of other shareholders:

       Other than an aggregate 15.10% of our outstanding shares held by GS Focus Holding Limited, Draper Fisher Jurvetson ePlanet and Capital International Private Equity, each of which is a United States corporation or limited partnership, in each case as set forth in the table above, none of our outstanding ordinary shares is held in the United States. Since the completion of our initial public offering in July 2005, all ordinary shares underlying the ADSs quoted on the Nasdaq National Market, Inc., have been held in Hong Kong by the custodian, Citibank Hong Kong, on behalf of Citibank, N.A., the depositary.

       We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

Our Recent Acquisition of Framedia

       In connection with our recent acquisition of Framedia, we issued 22,157,003 new ordinary shares to the seller parties (excluding Framedia) in that transaction on January 3, 2006. Subject to Framedia’s attainment of an earnings target in 2006, we may issue an additional number of shares with a value of up to $88.0 million in 2007, at a fixed per ordinary share price of $2.456 per ordinary share.

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RELATED PARTY TRANSACTIONS

Agreements Among Us, Focus Media Technology, Focus Media Digital, New Focus Media Advertisement, Focus Media Advertisement and Its Subsidiaries

       We have entered into a series of contractual arrangements with Focus Media Advertisement and its shareholders and subsidiaries, including contracts relating to the provision of services and certain shareholder rights and corporate governance matters. Each of our contractual arrangements with Focus Media Advertisement and its shareholders and subsidiaries may only be amended with the approval of our audit committee or another independent body of our board of directors.

       The following is a summary of the material provisions of these agreements. For more complete information you should read these agreements in their entirety. Directions on how to obtain copies of these agreements are provided in this prospectus under “Where You Can Find Additional Information”.

Transfer of Ownership When Permitted by Law

       Pursuant to the call option agreement, dated as of March 28, 2005, and subsequent participation letters by new subsidiaries of Focus Media Advertisement, by and among Focus Media Technology, Focus Media Advertisement and its subsidiaries, Jason Nanchun Jiang and Jimmy Wei Yu, each of Jason Nanchun Jiang, as a shareholder of Focus Media Advertisement, Jimmy Wei Yu, as a shareholder of Focus Media Advertisement and certain of its subsidiaries, and Focus Media Advertisement, as a shareholder of its subsidiaries, has granted Focus Media Technology or its designee an exclusive option to purchase all or part of their equity interests in Focus Media Advertisement, and its subsidiaries, or all or part of the assets of Focus Media Advertisement, in each case, at any time determined by Focus Media Technology and to the extent permitted by PRC law. Pursuant to a separate letter of undertaking entered into by and among us, Focus Media Technology, Jason Nanchun Jiang and Jimmy Wei Yu, dated as of March 28, 2005, each of Jason Nanchun Jiang and Jimmy Wei Yu agrees to pay to Focus Media Technology or us any excess of the purchase price paid for the equity interests in, or assets of, Focus Media Advertisement or its subsidiaries over the respective registered capital of Focus Media Advertisement or its subsidiaries in the event that Focus Media Technology or its designee exercises such option.

Voting Arrangement

       Pursuant to the voting rights proxy agreement, dated as of March 28, 2005, and subsequent participation letters by new subsidiaries of Focus Media Advertisement, by and among Focus Media Technology, Focus Media Advertisement and its subsidiaries, Jason Nanchun Jiang and Jimmy Wei Yu, Jason Nanchun Jiang, Jimmy Wei Yu and Focus Media Advertisement have granted a PRC individual designated by Focus Media Technology the right to appoint all of the directors and senior management of Focus Media Advertisement and those subsidiaries that it jointly owns with Jimmy Wei Yu and all of their other voting rights as shareholders of Focus Media Advertisement and its subsidiaries, as the case may be, as provided under the articles of association of each such entity. Under the voting rights proxy agreement, there are no restrictions on the number, to the extent allowed under the respective articles of association of Focus Media Advertisement and its subsidiaries, or identity of those persons we can appoint as directors and officers.

Equity Pledge Agreement

       Pursuant to the equity pledge agreement dated as of March 28, 2005, and subsequent participation letters by new subsidiaries of Focus Media Advertisement, by and among Focus Media Technology, Focus Media Digital, Focus Media Advertisement and its subsidiaries, Jason Nanchun Jiang and Jimmy Wei Yu, each of Jason Nanchun Jiang, Jimmy Wei Yu and Focus Media Advertisement has pledged his or its equity interest in Focus Media Advertisement and its

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subsidiaries, as the case may be, to Focus Media Technology and Focus Media Digital to secure their obligations under the relevant contractual control agreements to which each is a party, including but not limited to, the obligations of Focus Media Advertisement and its subsidiaries under the technical services agreement and the trademark licence agreement and the obligation of each of Jason Nanchun Jiang and Jimmy Wei Yu under the respective loan agreement dated March 28, 2005, entered into by Focus Media Technology and Jason Nanchun Jiang and Jimmy Wei Yu, pursuant to which Jason Nanchun Jiang obtained a loan in the amount of RMB35.5 million ($4.4 million) from Focus Media Technology for the sole purpose of increasing the registered capital of Focus Media Advertisement and Jimmy Wei Yu received a series of loans from Focus Media Technology for purposes of increasing the registered capital of Focus Media Advertisement, and acquiring certain of our regional distributors, respectively. See “— Loans to Jason Nanchun Jiang and Jimmy Wei Yu”. Under this equity pledge agreement, Jason Nanchun Jiang, Jimmy Wei Yu and Focus Media Advertisement have agreed not to transfer, assign, pledge or otherwise dispose of their interest in Focus Media Advertisement or its subsidiaries, as the case may be, without the prior written consent of Focus Media Technology and Focus Media Digital.

Equity Trust Agreement

       Pursuant to the equity trust agreement by and among Focus Media Advertisement and Focus Media Technology dated as of March 28, 2005, Focus Media Advertisement holds a 9% equity interest in Focus Media Digital in trust for the benefit of Focus Media Technology. Under the equity trust agreement, Focus Media Technology provides trust funds to Focus Media Advertisement to be used for the purchase of a 9% equity interest in Focus Media Digital and Focus Media Technology agrees to be the beneficiary of any profits or other benefit generated that is attributable to the management, use or disposal of the trust funds. Through these arrangements, we have enabled our indirect subsidiary, Focus Media Technology, to beneficially hold an additional 9% of the interest in Focus Media Digital in addition to the 90% equity interest it holds in its own name.

Trademark License Agreement

       Pursuant to the trademark license agreement by and among Focus Media Technology, Focus Media Advertisement and its subsidiaries dated as of March 28, 2005, Focus Media Technology has agreed to license the use of its trademarks to be registered in China to Focus Media Advertisement and its subsidiaries in exchange for a monthly licensing fee of RMB10,000 ($1,209) for each affiliated company using such trademarks.

Technical Services Agreement

       Pursuant to the technical services agreement by and among Focus Media Digital, Focus Media Advertisement, and its subsidiaries, dated March 28, 2005, Focus Media Digital has agreed to provide technical licenses and exclusive services in respect of the installment, upgrading and maintenance of CF cards used in the business operations of Focus Media Advertisement and its subsidiaries. Focus Media Advertisement and its subsidiaries have agreed to pay a monthly service fee totalling RMB1.5 million ($181,000) to Focus Media Digital based on the respective revenues of Focus Media Advertisement and its subsidiaries from November 2004 through December 2005. The amount of the service fee for the years after 2005 is subject to mutual agreement by and among Focus Media Digital, Focus Media Advertisement and its subsidiaries.

Cooperation Agreements

       Pursuant to the cooperation agreements to be entered into by and among New Focus Media Advertisement, Focus Media Advertisement and its subsidiaries in 2006, New Focus Media Advertisement expects to have the right to place flat-panel displays in all locations rented by Focus Media Advertisement and its subsidiaries and to sell advertising time slots for those locations, and each of Focus Media Advertisement and its subsidiaries expects to ensure the allocation of

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advertising time slots on its respective portion of the advertising network adequate for the dissemination of advertising content as agreed upon between New Focus Media Advertisement and its advertising clients. New Focus Media Advertisement will pay a dissemination fee to Focus Media Advertisement and its relevant subsidiaries for dissemination services on a cost-plus basis.

       In addition, New Focus Media Advertisement expects to provide technical licenses and exclusive services in respect of the installment, upgrading and maintenance of CF cards used in the business operations of Focus Media Advertisement and its subsidiaries. In exchange, New Focus Media Advertisement is entitled to receive a fee determined on cost plus basis.

Shared Services Agreement

       Pursuant to the shared services agreement to be entered into by and among Focus Media Technology, Focus Media Advertisement, Focus Media Advertising Agency, New Focus Media Advertisement and the subsidiaries of Focus Media Advertisement in 2006, Focus Media Technology agrees to provide consulting services and office space to these companies. Focus Media Advertisement, Focus Media Advertising Agency, New Focus Media Advertisement and the subsidiaries of Focus Media Advertisement agree to pay a fixed monthly service fee for the services and use of office space.

Asset Transfer Agreement

       Pursuant to the asset transfer agreement entered into by and between Focus Media Digital and New Focus Media Advertisement, dated as of December 31, 2005, Focus Media Digital transferred to New Focus Media Advertisement all of its assets relating to its out-of-home LCD television advertising business at fair market value.

Technology Transfer Agreement

       Pursuant to the technology and assets transfer agreement to be entered into by and between Focus Media Digital and New Focus Media Advertisement in 2006, Focus Media Digital expects to transfer to New Focus Media Advertisement all of its technology at a fixed fee.

Agreements Among Focus Media Advertisement, Focus Media Advertising Agency, Framedia Investment, Framedia Advertisement, Guangdong Framedia and New Structure Advertisement

       In connection with our acquisition of Framedia, we intend to enter into a series of contractual arrangements with Focus Media Advertisement’s subsidiaries relating to our poster frame network, Framedia Advertisement, New Structure Advertisement, and Guangdong Framedia, each of which we expect to become a subsidiary of Focus Media Advertisement by the time of this offering, including contracts relating to the provision of services and certain shareholder rights and corporate governance matters. Each of our contractual arrangements with Framedia Advertisement, Guangdong Framedia, New Structure Advertisement and their shareholders may only be amended in writing by all of its parties unless the provisions being amended only involve certain parties’ interests in which case the amendment shall be made in writing by such parties. Each of Framedia Advertising, New Structure Advertisement are and Guangdong Framedia will be 90%-owned by Focus Media Advertisement and 10%-owned by Focus Media Advertising Agency, respectively.

       The following is a summary of the material provisions of these agreements. For more complete information you should read these agreements in their entirety. Directions on how to obtain copies of these agreements are provided in this prospectus under “Where You Can Find Additional Information”.

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Transfer of Ownership When Permitted by Law

       Pursuant to the call option agreement by and among Framedia Investment, Framedia Advertisement, Guangdong Framedia, New Structure Advertisement and Focus Media Advertisement, Focus Media Advertising Agency, Liu Lei and Shi Yong dated as of January 13, 2006, each of Focus Media Advertisement and Focus Media Advertising Agency, Liu Lei and Shi Yong as the shareholders of Framedia Advertisement, New Structure Advertisement and Guangdong Framedia, have granted Framedia Investment or its designee an exclusive option to purchase all or part of their equity interests in Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, in each case, at any time determined by Framedia Investment and to the extent permitted by PRC law.

Voting Arrangement

       Pursuant to the voting rights proxy agreement by and among Framedia Investment, Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, Focus Media Advertisement, Focus Media Advertising Agency, Liu Lei and Shi Yong, dated as of January 13, 2006, Focus Media Advertisement, Focus Media Advertising Agency, Liu Lei and Shi Yong have granted a PRC individual designated by Framedia Investment the right to appoint all of the directors and senior management of Framedia Advertisement, Guangdong Framedia and New Structure Advertisement and all of their other voting rights as shareholders of Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, as the case may be, as provided under the articles of association of each such entity. Under the voting rights proxy agreement, there are no restrictions on the number, to the extent allowed under the respective articles of association of Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, or identity of those persons we can appoint as directors and officers.

Equity Pledge Agreement

       Pursuant to the equity pledge agreement by and among Framedia Investment, Focus Media Advertisement, Focus Media Advertising Agency, Framedia Advertisement, Guangdong Framedia, New Structure Advertisement, Liu Lei and Shi Yong, dated as of January 13, 2006, each of Focus Media Advertisement, Focus Media Advertising Agency, Liu Lei and Shi Yong has pledged his or its equity interest in Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, as the case may be, to Framedia Investment to secure their obligations under the relevant contractual control agreements to which each is a party, including the obligations of each of Focus Media Advertisement, Focus Media Advertising Agency, Liu Lei and Shi Yong under the call option agreement and the voting rights proxy agreement with Framedia Investment. Under this equity pledge agreement, Focus Media Advertisement , Focus Media Advertising Agency, Liu Lei and Shi Yong have agreed not to transfer, assign, pledge or otherwise dispose of their interest in Framedia Advertisement, Guangdong Framedia and New Structure Advertisement, as the case may be, without the prior written consent of Framedia Investment.

Technical and Consulting Services Agreement

       Pursuant to the technical services agreement by and between Framedia Investment and New Structure Advertisement, to be entered into in January 2006, Framedia Investment expect to agree to provide technical and consulting services in respect of the installment, upgrading and maintenance of poster frames used in the business operations of New Structure Advertisement. New Structure Advertisement expects to agree to pay a fixed monthly service fee to Framedia Investment based on revenues of New Structure Advertisement. The amount of the service fee for the years after 2006 is expected to be subject to mutual agreement by and between Framedia Investment and New Structure Advertisement.

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Cooperation Agreements

       Pursuant to the cooperation agreements by and among Framedia Advertisement and Guangdong Framedia and New Structure Advertisement, to be entered into in January 2006, New Structure Advertisement expects to agree to promote the sales of advertising frame space on the portion of our advertising poster frame network operated by Framedia Advertisement and Guangdong Framedia, and each of Framedia Advertisement and Guangdong Framedia expects to agreed to ensure the allocation of advertising space on its portion of the poster frame advertising network adequate for the dissemination of advertising content to be agreed upon between New Structure Advertisement and its advertising clients. New Structure Advertisement expects to pay a dissemination fee to Framedia Advertisement and Guangdong Framedia for dissemination services on a cost-plus basis. The cooperation agreement is expected to have a term of one year starting from January 2006.

Other Related Party Transactions

Shareholders Agreement

       Pursuant to the terms of the shareholders agreement with all of our existing shareholders, and, upon the closing of our acquisition of Target Media, with the current shareholders of Target Media, such shareholders are entitled to demand registration rights and piggyback registration rights. At any time after six months following the closing of our initial public offering,

•  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; or

•  following the closing of our acquisition of Target Media, any of the current 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;

may require us to effect the registration, on a form other than Form F-3, of at least 25% of the registrable securities then outstanding. We are not obligated to take any action to effect any such registration on more than two occasions each on behalf of each group of shareholders described above or more than once in any six month period or within six months of any other public offering we conduct in which they had the opportunity to participate without the exclusion of any shares eligible for registration under the shareholders agreement.

       In addition, holders of any of our registrable securities may require us to effect a registration statement on Form F-3 (or any successor form or any comparable form for a registration in a jurisdiction other than the United States) for a public offering of registrable securities so long as the reasonably anticipated aggregate price to the public (net of selling expenses) would be at least $1,000,000 and we are entitled to use Form F-3 (or a comparable form) for such offering. Holders of registrable securities may demand a registration on Form F-3 on unlimited occasions, although we are not obligated to effect more than once in any six month period if within six months of any other public offering we conduct in which they had the opportunity to participate without the exclusion of any shares eligible for registration under the shareholders agreement.

       Registrable securities are ordinary shares not previously sold to the public and issued or issuable to holders of our preference shares, including (i) ordinary shares issued upon conversion of our preference shares, (ii) ordinary shares issued or issuable upon exercise of their options or warrants to purchase ordinary shares, and (iii) ordinary shares issued pursuant to share splits, share

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dividends and similar distributions to holders of our preference shares. Under certain circumstances, such demand registration may also include ordinary shares other than registrable securities.

       Holders of registrable securities also have “piggyback” registration rights, which may require us to register all or any part of the registrable securities then held by such holders when we register any of our ordinary shares.

       If any of the offerings involves an underwriting, the managing underwriter of any such offering has certain rights to limit the number of shares included in such registration. However, the number of registrable securities included in an underwritten public offering subsequent to our initial public offering pursuant to “piggyback” registration rights may not be reduced to less than 30% of the aggregate securities included in such offering without the consent of a majority of the holders of registrable securities who have requested their shares to be included in the registration and underwriting.

       We are generally required to bear all of the registration expenses incurred in connection with one demand registration on a form other than Form F-3, and unlimited Form F-3 and piggyback registrations.

Loans to Jason Nanchun Jiang and Jimmy Wei Yu

       On June 10, 2003, we, Jason Nanchun Jiang and Jimmy Wei Yu and one of our employees, Yuanzhe Fu, and two of our former employees, Yibing Zhou and Yiqing Hou, executed a loan agreement of indefinite term, under which we agreed to extend to each of Jason Nanchun Jiang, Jimmy Wei Yu, Yuanzhe Fu, Yibing Zhou and Yiqing Hou a loan in the aggregate amount of RMB10.0 million ($1.2 million) for the sole purpose of establishing and operating Focus Media Advertisement. Each of the above individuals also agreed to pledge to us his respective shares in us to secure each of their respective obligations under the loan agreement. In November 2004, Yuanzhe Fu, Yibing Zhou and Yiqing Hou transferred their share in us to Jimmy Wei Yu and as a result, their respective rights and obligations under the loan agreement were assumed by Jimmy Wei Yu. As of September 30, 2005, the full amount of the loan remained outstanding. We granted this loan without interest and it is payable on demand with thirty days’ prior notice to Mr. Jiang and Mr. Yu. Pursuant to the loan agreements entered into by Focus Media Technology and Jason Nanchun Jiang and Jimmy Wei Yu, respectively, Jason Nanchun Jiang obtained a loan in the amount of RMB35.5 million ($4.4 million) from Focus Media Technology for the sole purpose of increasing the registered capital of Focus Media Advertisement and Jimmy Wei Yu received a series of loans totaling RMB5,085,000 ($628,394) from Focus Media Technology for purposes of increasing the registered capital of Focus Media Advertisement and acquiring certain of our regional distributors, respectively. As of March 28, 2005, the full amounts of the loans to Messrs. Jiang and Yu remained outstanding. Focus Media Technology granted these loans without interest. The loans have a term of ten years starting from March 28, 2005 and are payable in full at the end of such ten-year term or, with thirty-days’ written notice from Focus Media Technology to Messrs. Jiang and Yu, on demand. These loan arrangements have been acknowledged and confirmed by the relevant parties in the loan agreement between Focus Media Technology and Jason Nanchun Jiang and in the loan agreement by and among Focus Media Technology, Focus Media Advertisement and Jimmy Wei Yu, both dated March 28, 2005.

Transactions with Everease

       Prior to establishing our business, Jason Nanchun Jiang, our founder, chairman and chief executive officer, served as the chief executive officer of Everease from 1994 to 2003. Everease and our company were considered to be under common control and any transaction we entered into with Everease were treated as related party transactions. These transactions are described below.

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Asset and Business Purchase Agreement

       Pursuant to the asset and business purchase agreement entered into between Everease and Focus Media Advertisement dated July 2003, Focus Media Advertisement purchased equipment and assets from Everease for a consideration of RMB10 million ($1.2 million). The equipment consisted primarily of LCD flat-panel displays and the business and other assets consisted of contracts and other operations in connection with Everease’s operation of the flat-panel displays in commercial locations.

Transfer Agreement

       Pursuant to the transfer arrangements among Everease, Jason Nanchun Jiang and Focus Media in May 2003, Everease and Jason Nanchun Jiang transferred certain know-how in connection with flat-panel display synchronization technology to us for a fee of $750,000. The know-how consisted primarily of technology and engineering concepts used in the synchronization of our network panels that are placed in close proximity to one another as well as other related expertise and knowledge provided by Mr. Jiang in his services to us.

Everease Non-competition Agreement

       Pursuant to the Everease Non-competition Agreement between Everease and us, dated as of November 2004, Everease, its affiliates, or its directors, officers or employees have agreed not to disclose any confidential information regarding Focus Media to any third-party without our written consent. In addition, for so long as Jason Nanchun Jiang continues to hold any equity interest in our company and for two years thereafter, none of Everease, its affiliates, or its directors, officers or employees may (i) engage in, or lend its name to, any business that competes with our business, (ii) deal in a competitive manner with any of our customers, (iii) solicit any of our directors, officers, employees or agents to become directors, officers, employees or agents of others entities, or (iv) engage in any business conducted under a name that is the same as, or similar to, ours or any trade name used by us where the use of such name is reasonably likely be confused for our name. Everease entered into the non-competition agreement in consideration of its business relationship with us at the time, which relationship was subsequently terminated, and received no cash or other monetary compensation.

Cooperation and Transfer Agreements

       Everease and Beijing Suodi Advertising Co., Ltd., or Suodi Advertising, entered into a series of project cooperation agreements in February, April and June 2003 under which Suodi Advertising agreed to develop Everease’s flat-panel television advertising network by entering into display placement agreements, to sell advertising time slots on Everease’s advertising network and to maintain the flat-panel displays on the network. In August 2003, Everease, Suodi Advertising and Focus Media Advertisement entered into a transfer agreement under which Everease transferred to Focus Media Advertisement all of its rights and obligations under its original project cooperation agreements with Suodi Advertising.

Advertising Services Provided to Everease

       We have provided our advertising services to Everease in the aggregate amounts of $1.0 million, $1.2 million and $279,502 in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. As of September 30, 2005, $518,386 remained outstanding. These advertising services were provided in the ordinary course of business on terms substantially similar to those provided to our unrelated advertising clients on an arm’s-length basis.

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Transactions with Entities Affiliated with Jimmy Wei Yu

       We have provided our advertising services to certain companies for which Jimmy Wei Yu, one of our directors, also serves as a director. The advertising service revenue for these services totalled in the aggregate $120,821, $2.1 million and $3.0 million in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. As of September 30, 2005, $1.2 million remained outstanding.

       These advertising services were provided in the ordinary course of business on terms substantially similar to those provided to our unrelated advertising clients on an arm’s-length basis.

Transactions with Ctrip.com International

       We have provided our advertising services to Ctrip.com International, Limited, which is affiliated with Neil Nanpeng Shen, one of our directors, in the aggregate amount of $43,662 and $111,895 in 2004 and $267,914 for the nine months ended September 30, 2005, respectively. Amounts due from Ctrip International in connection with these advertising services totalled $nil as of September 30, 2005. These advertising services were provided in the ordinary course of business on terms substantially similar to those provided to our unrelated advertising clients on an arm’s-length basis.

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DESCRIPTION OF SHARE CAPITAL

       As of the date hereof, our authorized share capital is $990,000 divided into 19,800,000,000 shares, par value $0.00005 per share, and the issued share capital is $20,023 divided into 400,463,003 ordinary shares fully paid or credited as fully paid.

       We were incorporated as Focus Media Holding Limited in the British Virgin Islands on April 11, 2003 as an international business company. On April 1, 2005, we changed our corporate domicile to the Cayman Islands, becoming an exempted company with limited liability under the Companies Law (2004 Revision) Cap. 22 of the Cayman Islands, or the Companies Law. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares. A Cayman Islands exempted company:

•  is a company that conducts its business outside of the Cayman Islands;

•  is exempted from certain requirements of the Companies Law, including a filing of an annual return of its shareholders with the Registrar of Companies or the Immigration Board;

•  does not have to make its register of shareholders open to inspection; and

•  may obtain an undertaking against the imposition of any future taxation.

       Our amended and restated memorandum and articles of association authorize the issuance of up to 19,800,000,000 shares, par value $0.00005 per share. The following summarizes the terms and provisions of our share capital upon the completion of this offering, as well as the material applicable laws of the Cayman Islands. This summary is not complete, and you should read the form of our amended and restated memorandum and articles of association, which are filed as exhibits to the registration statement of which this prospectus is a part.

       The following discussion primarily concerns ordinary shares and the rights of holders of ordinary shares. The holders of ADSs will not be treated as our shareholders and will be required to surrender their ADSs for cancellation and withdrawal from the depositary facility in which the ordinary shares are held in order to exercise shareholders’ rights in respect of the ordinary shares. The depositary will agree, so far as it is practical, to vote or cause to be voted the amount of ordinary shares represented by ADSs in accordance with the non-discretionary written instructions of the holders of such ADSs.

Meetings

       Subject to our regulatory requirements, an annual general meeting and any extraordinary general meeting shall be called by not less than 10 days’ notice in writing. Notice of every general meeting will be given to all of our shareholders other than those that, under the provisions of our amended and restated articles of association or the terms of issue of the ordinary shares they hold, are not entitled to receive such notices from us, and also to our principal external auditors. Extraordinary general meetings may be called only by the chairman of our board of directors or a majority of our board of directors, and may not be called by any other person. All business shall be deemed extraordinary that is transacted at an extraordinary general meeting, and also all business that is transacted at an annual general meeting other than with respect to (1) declarations of dividends, (2) the adoption of our financial statements and reports of directors and auditors thereon, (3) our authority to grant options not in excess of 20% of the nominal value of our existing issued share capital, (4) our ability to repurchase our securities, (5) the election of directors, (6) the appointment of auditors and other officers, and (7) the fixing of the remuneration of the auditors and the voting of remuneration or extra remuneration to the directors.

       Notwithstanding that a meeting is called by shorter notice than that mentioned above, but, subject to applicable regulatory requirements, it will be deemed to have been duly called, if it is so agreed (1) in the case of a meeting called as an annual general meeting by all of our shareholders entitled to attend and vote at the meeting; or (2) in the case of any other meeting, by a majority in

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number of our shareholders having a right to attend and vote at the meeting, being a majority together holding not less than 75% in nominal value of the ordinary shares giving that right.

       At any general meeting, two shareholders entitled to vote and present in person or by proxy that represent not less than one-third of our issued and outstanding voting shares will constitute a quorum. No business other than the appointment of a chairman may be transacted at any general meeting unless a quorum is present at the commencement of business. However, the absence of a quorum will not preclude the appointment of a chairman. If present, the chairman of our board of directors shall be the chairman presiding at any shareholders meetings.

       A corporation being a shareholder shall be deemed for the purpose of our amended and restated articles of association to be present in person if represented by its duly authorized representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting or at any relevant general meeting of any class of our shareholders. Such duly authorized representative shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were our individual shareholder.

       The quorum for a separate general meeting of the holders of a separate class of shares is described in “— Modification of Rights” below.

Voting Rights Attaching to the Shares

       Subject to any special rights or restrictions as to voting for the time being attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) shall have one vote, and on a poll every shareholder present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly appointed representative) shall have one vote for each fully paid share which such shareholder is the holder.

       No shareholder shall be entitled to vote or be reckoned in a quorum, in respect of any share, unless such shareholder is registered as our shareholder at the applicable record date for that meeting and all calls or installments due by such shareholder to us have been paid.

       If a clearing house or depositary (or its nominee(s)) is our shareholder, it may authorize such person or persons as it thinks fit to act as its representative(s) at any meeting or at any meeting of any class of shareholders, provided that, if more than one person is so authorized, the authorization shall specify the number and class of shares in respect of which each such person is so authorized. A person authorized pursuant to this provision is entitled to exercise the same powers on behalf of the recognized clearing house or depositary (or its nominee(s)) as if such person was the registered holder of our shares held by that clearing house or depositary (or its nominee(s)) including the right to vote individually on a show of hands.

       While there is nothing under the laws of the Cayman Islands which specifically prohibits or restricts the creation of cumulative voting rights for the election of our directors, unlike the requirement under Delaware law that cumulative voting for the election of directors is permitted only if expressly authorized in the certificate of incorporation, it is not a concept that is accepted as a common practice in the Cayman Islands, and we have made no provisions in our amended and restated memorandum and articles of association to allow cumulative voting for such elections.

Protection of Minority Shareholders

       The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of our shares in issue, appoint an inspector to examine our affairs and report thereon in a manner as the Grand Court shall direct.

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       Any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that it is just and equitable that we should be wound up.

       Claims against us by our shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by our amended and restated memorandum and articles of association.

       The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against, or derivative actions in our name to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of us, and (3) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

Pre-emption Rights

       There are no pre-emption rights applicable to the issue of new shares under either Cayman Islands law or our amended and restated memorandum and articles of association.

Liquidation Rights

       Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares (1) if we are wound up and the assets available for distribution among our shareholders are more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu among those shareholders in proportion to the amount paid up at the commencement of the winding up on the shares held by them, respectively, and (2) if we are wound up and the assets available for distribution among the shareholders as such are insufficient to repay the whole of the paid-up capital, those assets shall be distributed so that, as nearly as may be, the losses shall be borne by the shareholders in proportion to the capital paid up at the commencement of the winding up on the shares held by them, respectively.

       If we are wound up, the liquidator may with the sanction of our special resolution and any other sanction required by the Companies Law, divide among our shareholders in specie or kind the whole or any part of our assets (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as the liquidator deems fair upon any property to be divided and may determine how such division shall be carried out as between the shareholders or different classes of shareholders. The liquidator may also vest any part of these assets in trustees upon such trusts for the benefit of the shareholders as the liquidator shall think fit, but so that no shareholder will be compelled to accept any assets, shares or other securities upon which there is a liability.

Modification of Rights

       Except with respect to share capital (as described below) alterations to our amended and restated memorandum and articles of association may only be made by special resolution of no less than two-thirds of votes cast at a meeting of the shareholders.

       Subject to the Companies Law of the Cayman Islands, all or any of the special rights attached to shares of any class (unless otherwise provided for by the terms of issue of the shares of that class) may be varied, modified or abrogated with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. The provisions of our articles of association relating to general meetings shall apply similarly to every such separate general meeting, but so that the quorum for the purposes of any such separate general meeting or at its adjourned meeting shall be a person or persons together holding (or represented by proxy) not less than one-third in nominal value of the issued shares of that class, every holder of shares of the class shall be

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entitled on a poll to one vote for every such share held by such holder and that any holder of shares of that class present in person or by proxy may demand a poll.

       The special rights conferred upon the holders of any class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

Alteration of Capital

       We may from time to time by ordinary resolution:

•  increase our capital by such sum, to be divided into shares of such amounts, as the resolution shall prescribe;

•  consolidate and divide all or any of our share capital into shares of larger amount than our existing shares;

•  cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of our share capital by the amount of the shares so cancelled subject to the provisions of the Companies Law;

•  sub-divide our shares or any of them into shares of smaller amount than is fixed by our amended and restated memorandum and articles of association, subject nevertheless to the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the share resulting from such subdivision, one or more of the shares may have any such preference or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as we have power to attach to unissued or new shares; and

•  divide shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares, attach to the shares respectively as preferential, deferred, qualified or special rights, privileges, conditions or such restrictions which in the absence of any such determination in general meeting may be determined by our directors.

       We may, by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or any capital redemption reserve in any manner authorized by law.

Transfer of Shares

       Subject to any applicable restrictions set forth in our amended and restated memorandum and articles of association, any of our shareholders may transfer all or any of his or her shares by an instrument of transfer in the usual or common form or in a form prescribed by the Nasdaq National Market or in any other form which our directors may approve.

       Our directors may decline to register any transfer of any share which is not paid up or on which we have a lien. Our directors may also decline to register any transfer of any share unless:

•  the instrument of transfer is lodged with us accompanied by the certificate for the shares to which it relates and such other evidence as our directors may reasonably require to show the right of the transferor to make the transfer;

•  the instrument of transfer is in respect of only one class of share;

•  the instrument of transfer is properly stamped (in circumstances where stamping is required);

•  in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; and

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•  a fee of such maximum sum as the Nasdaq National Market may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

       If our directors refuse to register a transfer, they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

       The registration of transfers may, on notice being given by advertisement in such one or more newspapers or by any other means in accordance with the requirements of the Nasdaq National Market, be suspended and the register closed at such times and for such periods as our directors may from time to time determine; provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our directors may determine.

Share Repurchase

       We are empowered by the Companies Law and our amended and restated memorandum and articles of association to purchase our own shares, subject to certain restrictions. Our directors may only exercise this power on our behalf, subject to the Companies Law, our amended and restated memorandum and articles of association and to any applicable requirements imposed from time to time by the U.S. Securities and Exchange Commission, the Nasdaq National Market, or by any recognized stock exchange on which our securities are listed.

Dividends

       Subject to the Companies Law, we may declare dividends in any currency to be paid to our shareholders but no dividend shall be declared in excess of the amount recommended by our directors. Dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our directors determine is no longer needed. Our board of directors may also declare and pay dividends out of the share premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Law.

       Except in so far as the rights attaching to, or the terms of issue of, any share otherwise provides (1) all dividends shall be declared and paid according to the amounts paid up on the shares in respect of which the dividend is paid, but no amount paid up on a share in advance of calls shall be treated for this purpose as paid up on that share and (2) all dividends shall be apportioned and paid pro rata according to the amounts paid upon the shares during any portion or portions of the period in respect of which the dividend is paid.

       Our directors may also pay any dividend that is payable on any shares semi-annually or on any other dates, whenever our financial position, in the opinion of our directors, justifies such payment.

       Our directors may deduct from any dividend or other moneys payable to any shareholder all sums of money (if any) presently payable by such shareholder to us on account of calls, installments or otherwise.

       No dividend or other money payable by us on or in respect of any share shall bear interest against us.

       In respect of any dividend proposed to be paid or declared on our share capital, our directors may resolve and direct that (1) such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that our members entitled thereto will be entitled to elect to receive such dividend (or part thereof if our directors so determine) in cash in lieu of such allotment or (2) the shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as our directors may think fit. We may also, on the recommendation of our directors, resolve in respect

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of any particular dividend that, notwithstanding the foregoing, it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right of shareholders to elect to receive such dividend in cash in lieu of such allotment.

       Any dividend, interest or other sum payable in cash to the holder of shares may be paid by check or warrant sent by mail addressed to the holder at his registered address, or addressed to such person and at such addresses as the holder may direct. Every check or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the check or warrant by the bank on which it is drawn shall constitute a good discharge to us.

       All dividends unclaimed for one year after having been declared may be invested or otherwise made use of by our board of directors for the benefit of our company until claimed. Any dividend unclaimed after a period of six years from the date of declaration of such dividend may be forfeited and, if so forfeited, shall revert to us.

       Whenever our directors or our members in general meeting have resolved that a dividend be paid or declared, our directors may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and in particular of paid up shares, debentures or warrants to subscribe for our securities or securities of any other company. Where any difficulty arises with regard to such distribution, our directors may settle it as they think expedient. In particular, our directors may issue fractional certificates, ignore fractions altogether or round the same up or down, fix the value for distribution purposes of any such specific assets, determine that cash payments shall be made to any of our shareholders upon the footing of the value so fixed in order to adjust the rights of the parties, vest any such specific assets in trustees as may seem expedient to our directors, and appoint any person to sign any requisite instruments of transfer and other documents on behalf of a person entitled to the dividend, which appointment shall be effective and binding on our shareholders.

Untraceable Shareholders

       We are entitled to sell any shares of a shareholder who is untraceable, provided that:

       1. all checks or warrants in respect of dividends of such shares, not being less than three in number, for any sums payable in cash to the holder of such shares have remained uncashed for a period of twelve years prior to the publication of the advertisement and during the three months referred to in paragraph (3) below;

       2. we have not during that time received any indication of the whereabouts or existence of the shareholder or person entitled to such shares by death, bankruptcy or operation of law; and

       3. we have caused an advertisement to be published in newspapers in the manner stipulated by our amended and restated memorandum and articles of association, giving notice of our intention to sell these shares, and a period of three months has elapsed since such advertisement and the Nasdaq National Market has been notified of such intention.

       The net proceeds of any such sale shall belong to us, and when we receive these net proceeds we shall become indebted to the former shareholder for an amount equal to such net proceeds.

Differences in Corporate Law

       The Companies Law is modeled after similar laws in the United Kingdom but does not follow recent changes in United Kingdom laws. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant

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differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the United States.

       Mergers and Similar Arrangements. Cayman Islands law does not provide for mergers as that expression is understood under United States corporate law. However, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:

•  the company is not proposing to act illegally or ultra vires and the statutory provisions as to majority vote have been complied with;

•  the shareholders have been fairly represented at the meeting in question;

•  the arrangement is such as a businessman would reasonably approve; and

•  the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law or that would amount to a “fraud on the minority”.

       When a takeover offer is made and accepted by holders of 90.0% of the shares within four months, the offerer may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

       If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

       Shareholders’ Suits. We are not aware of any reported class action or derivative action having been brought in a Cayman Islands court. In principle, we will normally be the proper plaintiff and a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:

•  a company is acting or proposing to act illegally or beyond the scope of its authority;

•  the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote which has not been obtained; and

•  those who control the company are perpetrating a “fraud on the minority”.

       Corporate Governance. Cayman Islands laws do not restrict transactions with directors, requiring only that directors exercise a duty of care and owe a fiduciary duty to the companies for which they serve. Under our amended and restated memorandum and articles of association, subject to any separate requirement for audit committee approval under the applicable rules of The Nasdaq Stock Market, Inc. or unless disqualified by the chairman of the relevant board meeting, so long as a director discloses the nature of his interest in any contract or arrangement which he is interested in, such a director may vote in respect of any contract or proposed contract or arrangement in which such director is interested and may be counted in the quorum at such meeting.

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Board of Directors

       We are managed by our board of directors. Our amended and restated memorandum and articles of association provide that the number of our directors will be fixed from time to time exclusively pursuant to an ordinary resolution adopted by our members, but must consist of not less than three directors. Initially we have set our board of directors to have not less than three directors and not more than seven directors. Any director on our board may be removed by way of an ordinary resolution of shareholders. Any vacancies on our board of directors or additions to the existing board of directors can be filled by way of an ordinary resolution of shareholders or by the affirmative vote of a simple majority of the remaining directors, although this may be less than a quorum where the number of remaining directors falls below the minimum number fixed by our board of directors. Any director so appointed by the board of directors shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Our directors shall serve a 3 year term from their appointment date and shall retire from office (unless he vacates his office sooner) at the expiry of such term provided their successors are elected or appointed. Such directors who retire at the expiry of their term are eligible for re-election. Our directors are not required to hold any of our shares to be qualified to serve on our board of directors.

       Meetings of our board of directors may be convened at any time deemed necessary by our secretary on request of a director or by any director. Advance notice of a meeting is not required if each director entitled to attend consents to the holding of such meeting.

       A meeting of our board of directors shall be competent to make lawful and binding decisions if at least three of the members of our board of directors are present or represented unless the board has fixed any other number. At any meeting of our directors, each director is entitled to one vote.

       Questions arising at a meeting of our board of directors are required to be decided by simple majority votes of the members of our board of directors present or represented at the meeting. In the case of a tie vote, the chairman of the meeting shall have a second or deciding vote. Our board of directors may also pass resolutions without a meeting by unanimous written consent.

       Certain actions require the approval of a supermajority of at least two-thirds of our board of directors, including:

•  the appointment or removal of our chief executive officer, chief financial officer and other executive officers of the Company;

•  any anti-takeover action in response to a takeover attempt;

•  the establishment of any joint venture requiring a capital contribution from us in excess of $1,000,000;

•  our acquisition of any company for aggregate consideration in excess of the equivalent of $10,000,000;

•  any material change to our business scope;

•  any merger resulting in our shareholders immediately prior to such merger holding less than a majority of the voting power of the outstanding share capital of the surviving business entity;

•  the sale or transfer of all or substantially all of our assets;

•  any change in our dividend policy or the declaration or payment of a dividend or other distribution by us other than a distribution or dividend to us, our subsidiaries or our consolidated affiliated entities; or

•  the settlement by us of any litigation in excess of $250,000.

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Committees of Board of Directors

       Pursuant to our amended and restated articles of association, our board of directors has established an audit committee, a compensation committee and a nominations committee.

Issuance of Additional Ordinary Shares or Preference Shares

       Our amended and restated memorandum of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

       Our amended and restated memorandum of association authorizes our board of directors to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:

•  the designation of the series;

•  the number of shares of the series;

•  the dividend rights, dividend rates, conversion rights, voting rights; and

•  the rights and terms of redemption and liquidation preferences.

       Our board of directors may issue series of preference shares without action by our shareholders to the extent authorized but unissued. Accordingly, the issuance of preference shares may adversely affect the rights of the holders of the ordinary shares. In addition, the issuance of preference shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of preference shares may dilute the voting power of holders of ordinary shares.

       Subject to applicable regulatory requirements, our board of directors may issue additional ordinary shares without action by our shareholders to the extent of available authorized but unissued shares. The issuance of additional ordinary shares may be used as an anti-takeover device without further action on the part of the shareholders. Such issuance may dilute the voting power of existing holders of ordinary shares.

Registration Rights

       Pursuant to the terms of the shareholders agreement with all of our existing shareholders, and, upon the closing of our acquisition of Target Media, with the current shareholders of Target Media, such shareholders are entitled to demand registration rights and piggyback registration rights. At any time after six months following the closing of our initial public offering,

•  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; or

•  following the closing of our acquisition of Target Media, any of the current 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;

may require us to effect the registration, on a form other than Form F-3, of at least 25% of the registrable securities then outstanding. We are not obligated to take any action to effect any such registration on more than two occasions each on behalf of each group of shareholders described above or more than once in any six month period or within six months of any other public offering

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we conduct in which they had the opportunity to participate without the exclusion of any shares eligible for registration under the shareholders agreement.

       In addition, holders of any of our registrable securities may require us to effect a registration statement on Form F-3 (or any successor form or any comparable form for a registration in a jurisdiction other than the United States) for a public offering of registrable securities so long as the reasonably anticipated aggregate price to the public (net of selling expenses) would be at least $1,000,000 and we are entitled to use Form F-3 (or a comparable form) for such offering. Holders of registrable securities may demand a registration on Form F-3 on unlimited occasions, although we are not obligated to effect more than once in any six month period if within six months of any other public offering we conduct in which they had the opportunity to participate without the exclusion of any shares eligible for registration under the shareholders agreement.

securities may demand a registration on Form F-3 on unlimited occasions, although we are not obligated to effect more than one such registration in any six month period.

       Registrable securities are ordinary shares issued or issuable to the holders of our preference shares, including: (1) ordinary shares issued upon conversion of any of our preference shares, (2) ordinary shares issued or issuable upon exercise of any options to purchase ordinary shares or series A convertible redeemable preference shares, and (3) ordinary shares issued pursuant to share splits, share dividends and similar distributions to the holders of our preference shares. Upon completion of this offering, GS Focus Holding Limited, the holder of 27,643,880 ordinary shares, or approximately 6.33% of our then-outstanding shares (assuming the underwriters do not exercise their option to purchase additional ADSs), together with its transferees (if any) will be entitled to request that we register their ordinary shares under the Securities Act, following the expiration of the lockup agreements described below, under “Shares Eligible for Future Sale”, to the extent that such requesting shareholders hold at least 50% of the registrable securities held by GS Focus Holding Limited and its transferees. Under certain circumstances, such demand registration may also include ordinary shares other than registrable securities.

       We are not, however, obligated to effect any such demand registration:

•  in any particular jurisdiction in which we would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless we are already subject to service in that jurisdiction and except as may be required by the Securities Actor other applicable law in a jurisdiction other than the United States in which the registration is being effected;

•  if we, within ten days of receipt of a request for such registration, give notice of our bona fide intention to effect the filing of a registration statement with the SEC (or any comparable regulatory agency for a registration in a jurisdiction other than the United States) within 60 days of receipt of such request (other than a registration of securities in a business combination transaction pursuant to Rule 145 under the Securities Act or an offering solely to employees);

•  within six months immediately following the effective date of any registration statement pertaining to our securities (other than a registration of securities in a transaction pursuant to Rule 145 under the Securities Act or with respect to an employee benefit plan); or

•  if we furnish to the holders of registrable securities a certificate signed by our chief executive officer stating that in the good faith judgment of our board of directors, it would be seriously detrimental to us or our shareholders for a registration statement to be filed in the near future, in which event we have the right to defer the filing of the registration statement, no more than once during any 12 month period, for a period not to exceed 60 days from the receipt of the request to file such registration statement so long as we do not file a registration statement with respect to the public offering of our securities during such 60 day period.

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       Holders of registrable securities also have “piggyback” registration rights, which may require us to register all or any part of the registrable securities then held by such holders when we register any of our ordinary shares other than a registration:

•  relating solely to the sale of securities to participants in our share option plan;

•  relating to a corporate reorganization or other transaction pursuant to Rule 145 under the Securities Act;

•  on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the registrable securities; and

•  in which the only ordinary shares being registered are ordinary shares issuable upon conversion of debt securities that are also being registered.

       If any of the offerings involves an underwriting, the managing underwriter of any such offering has certain rights to limit the number of shares included in such registration. However, the number of registrable securities included in an underwritten public offering subsequent to our initial public offering pursuant to “piggyback” registration rights may not be reduced to less than 25% of the aggregate securities included in such offering.

       We are generally required to bear all of the registration expenses incurred in connection with one demand registration on a form other than Form F-3, unlimited Form F-3 and piggyback registrations, except underwriting discounts and selling commissions, as well as the registration expenses incurred in connection with any registration of ordinary shares owned by holders of our ordinary shares that were issued upon conversion of our Series A, Series B or Series C convertible redeemable preference shares.

       We are not obligated to register any registrable securities if:

•  we obtain from the SEC (or a comparable regulatory agency in a jurisdiction other than the United States) a “no-action” letter in which the SEC (or such comparable regulatory agency) has indicated that it will take no action under the Securities Act (or comparable law) if any holder of registrable securities disposes of such securities and that the securities may be sold to the public without registration in accordance with any established procedure or “safe harbor” without unreasonable legal risk or uncertainty; or

•  in the opinion of counsel retained by us concurred in by counsel for the holder of registrable securities, no registration under the Securities Act (or comparable law) is required in connection with the sale of the registrable securities to the public.

Inspection of Books and Records

       Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records except that under the shareholders agreement with our existing shareholders, the holders of our preference shares will continue to be entitled to customary information and inspection rights relating to our facilities, books and records. However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information”.

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

       Citibank, N.A. is the depositary bank for the American Depositary Shares. Citibank’s depositary offices are located at 388 Greenwich Street, New York, New York 10013. American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on deposit with the depositary bank. ADSs may be represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs”. The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank Hong Kong, located at 10/F, Harbour Front (II), 22,Tak Funh Street, Hunh Hom, Kowloon, Hong Kong.

       We appointed Citibank as depositary bank pursuant to a deposit agreement dated as of July 18, 2005. A copy of the deposit agreement is on file with the SEC under cover of a Registration Statement on Form F-6 (File No. 333-126011). You may obtain a copy of the deposit agreement from the SEC’s Public Reference Room at Headquarters Office, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 and from the SEC’s website (http://www.sec.gov). Please refer to Registration Number 333-126011 when retrieving such copy.

       We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please remember that summaries by their nature lack the precision of the information summarized and that a holder’s rights and obligations as an owner of ADSs will be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety.

       Each ADS represents the right to receive ten ordinary shares on deposit with the custodian. An ADS will also represent the right to receive any other property received by the depositary bank or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations.

       If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of the ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as owner of ADSs and those of the depositary bank. As an ADS holder you appoint the depositary bank to act on your behalf in certain circumstances. The deposit agreement and the ADRs are governed by New York law. However, our obligations to the holders of ordinary shares will continue to be governed by the laws of the Cayman Islands which may be different from the laws in the United States.

       As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or safekeeping account, or through an account established by the depositary bank in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary bank (commonly referred to as the “direct registration system” or “DRS”). The direct registration system reflects the uncertificated (book-entry) registration of ownership of ADSs by the depositary bank. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary bank to the holders of the ADSs. The direct registration system includes automated transfers between the depositary bank and The Depository Trust Company (“DTC”), the central book-entry clearing and settlement system for equity securities in the United States. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as ADS owner. Banks and brokers typically hold securities such as the ADSs through clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit your ability to exercise your rights as an owner of ADSs. Please consult with your broker or bank if you have any questions concerning these limitations and procedures. This summary description assumes you have opted to own the ADSs directly by means of an ADS registered in your name and, as such, we will refer to

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you as the “holder”. When we refer to “you,” we assume the reader owns ADSs and will own ADSs at the relevant time.

Dividends and Distributions

       As a holder, you generally have the right to receive the distributions we make on the securities deposited with the custodian bank. Your receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders will receive such distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of a specified record date.

Distributions of Cash

       Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon receipt of confirmation of the deposit of the requisite funds, the depositary bank will arrange for the funds to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws of the Cayman Islands and regulations.

       The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The amounts distributed to holders will be net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. The depositary will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of securities on deposit.

       The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement.

Distributions of Shares

       Whenever we make a free distribution of ordinary shares for the securities on deposit with the custodian, we will deposit the applicable number of shares with the custodian. Upon receipt of confirmation of such deposit, the depositary bank will either distribute to holders new ADSs representing the ordinary shares deposited or modify the ADS-to-ordinary shares ratio, in which case each ADS you hold will represent rights and interests in the additional shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.

       The distribution of new ADSs or the modification of the ADS-to-shares ratio upon a distribution of shares will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or governmental charges, the depositary bank may sell all or a portion of the new shares so distributed.

       No such distribution of new ADSs will be made if it would violate a law (i.e., the U.S. securities laws) or if it is not operationally practicable. If the depositary bank does not distribute new ADSs as described above, it may sell the ordinary shares received upon the terms described in the deposit agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.

Distributions of Rights

       Whenever we intend to distribute rights to purchase additional ordinary shares, we will give prior notice to the depositary bank and we will assist the depositary bank in determining whether it is lawful and reasonably practicable to distribute rights to purchase additional ADSs to holders.

       The depositary bank will establish procedures to distribute rights to purchase additional ADSs to holders and to enable such holders to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated in the deposit agreement (such as opinions to address the lawfulness

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of the transaction). You may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary bank is not obligated to establish procedures to facilitate the distribution and exercise by holders of rights to purchase new ordinary shares other than in the form of ADSs.

       The depositary bank will not distribute the rights to you if:

•  We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or

•  We fail to deliver satisfactory documents to the depositary bank; or

•  It is not reasonably practicable to distribute the rights.

       The depositary bank will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a cash distribution. If the depositary bank is unable to sell the rights, it will allow the rights to lapse.

Elective Distributions

       Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary bank and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the depositary bank in determining whether such distribution is lawful and reasonably practicable.

       The depositary bank will make the election available to you only if it is reasonably practical and if we have provided all of the documentation contemplated in the deposit agreement. In such case, the depositary bank will establish procedures to enable you to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement.

       If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in the Cayman Islands would receive upon failing to make an election, as more fully described in the deposit agreement.

Other Distributions

       Whenever we intend to distribute property other than cash, ordinary shares or rights to purchase additional ordinary shares, we will notify the depositary bank in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary bank in determining whether such distribution to holders is lawful and reasonably practicable.

       If it is reasonably practicable to distribute such property to you and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will distribute the property to the holders in a manner it deems practicable.

       The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary bank may sell all or a portion of the property received.

       The depositary bank will not distribute the property to you and will sell the property if:

•  We do not request that the property be distributed to you or if we ask that the property not be distributed to you; or

•  We do not deliver satisfactory documents to the depositary bank; or

•  The depositary bank determines that all or a portion of the distribution to you is not reasonably practicable.

       The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.

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Redemption

       Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary bank. If it is reasonably practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will mail notice of the redemption to the holders.

       The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary bank will convert the redemption funds received into U.S. dollars upon the terms of the deposit agreement and will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary bank. You may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary bank may determine.

Changes Affecting Shares

       The ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, a split-up, cancellation, consolidation or reclassification of such shares or a recapitalization, reorganization, merger, consolidation or sale of assets.

       If any such change were to occur, your ADSs would, to the extent permitted by law, represent the right to receive the property received or exchanged in respect of the ordinary shares held on deposit. The depositary bank may in such circumstances deliver new ADSs to you or call for the exchange of your existing ADSs for new ADSs. If the depositary bank may not lawfully distribute such property to you, the depositary bank may sell such property and distribute the net proceeds to you as in the case of a cash distribution.

Issuance of ADSs upon Deposit of Ordinary Shares

       The depositary bank may create ADSs on your behalf if you or your broker deposit ordinary shares with the custodian. The depositary bank will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any charges and taxes payable for the transfer of the ordinary shares to the custodian. Your ability to deposit ordinary shares and receive ADSs may be limited by U.S. and legal considerations in the Cayman Islands applicable at the time of deposit.

       The issuance of ADSs may be delayed until the depositary bank or the custodian receives confirmation that all required approvals have been given and that the ordinary shares have been duly transferred to the custodian. The depositary bank will only issue ADSs in whole numbers.

       When you make a deposit of ordinary shares, you will be responsible for transferring good and valid title to the depositary bank. As such, you will be deemed to represent and warrant that:

•  The ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained.

•  All preemptive (and similar) rights, if any, with respect to such ordinary shares have been validly waived or exercised.

•  You are duly authorized to deposit the ordinary shares.

•  The ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit agreement).

•  The shares presented for deposit have not been stripped of any rights or entitlements.

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       If any of the representations or warranties are incorrect in any way, we and the depositary bank may, at your cost and expense, take any and all actions necessary to correct the consequences of the misrepresentations.

Transfer, Combination and Split Up of ADRs

       As an ADR holder, you will be entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you will have to surrender the ADRs to be transferred to the depositary bank and also must:

•  Ensure that the surrendered ADR certificate is properly endorsed or otherwise in proper form for transfer;

•  Provide such proof of identity and genuineness of signatures as the depositary bank deems appropriate;

•  Provide any transfer stamps required by the State of New York or the United States; and

•  Pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit agreement, upon the transfer of ADRs.

       To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary bank with your request to have them combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement, upon a combination or split up of ADRs.

Withdrawal of Shares Upon Cancellation of ADSs

       As a holder, you will be entitled to present your ADSs to the depositary bank for cancellation and then receive the corresponding number of underlying ordinary shares at the custodian’s offices. Your ability to withdraw the ordinary shares may be limited by U.S. and legal considerations applicable at the time of withdrawal. In order to withdraw the ordinary shares represented by your ADSs, you will be required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the ordinary shares being withdrawn. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement.

       If you hold ADSs registered in your name, the depositary bank may ask you to provide proof of identity and genuineness of any signature and such other documents as the depositary bank may deem appropriate before it will cancel your ADSs. The withdrawal of the shares represented by your ADSs may be delayed until the depositary bank receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in mind that the depositary bank will only accept ADSs for cancellation that represent a whole number of securities on deposit.

       You will have the right to withdraw the securities represented by your ADSs at any time except for:

•  Temporary delays that may arise because (i) the transfer books for the ordinary shares or ADSs are closed, or (ii) ordinary shares are immobilized on account of a shareholders’ meeting or a payment of dividends.

•  Obligations to pay fees, taxes and similar charges.

•  Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.

       The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law.

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Voting Rights

       As a holder, you generally have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the ordinary shares represented by your ADSs. The voting rights of holders of ordinary shares are described in “Description of Share Capital — Voting Rights Attaching to the Shares” above.

       At our request, the depositary bank will distribute to you any notice of shareholders’ meeting received from us together with information explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs.

       If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities represented by the holder’s ADSs in accordance with such voting instructions.

       In the event of voting by a show of hands, each shareholder has one vote irrespective of the number of shares held by such person and the depositary shall vote or cause the custodian to vote all the shares then on deposit in accordance with instructions received from a majority of holders giving voting instructions. In the event of poll voting, each shareholder has an amount of votes equal to the number of shares held as of record date for the meeting and the depositary shall vote or cause the custodian to vote the shares on deposit in respect of ADSs for which holder of ADSs have timely given voting instructions to the depositary.

       If the depositary timely receives voting instructions from a holder of ADSs that fail to specify the manner in which the depositary is to vote the shares represented by that holder’s ADSs, the depositary will deem the holder to have voted in favor of the items set forth in the voting instructions. If the depositary does not timely receive voting instructions from a holder of ADSs and we have timely provided the depositary with our notice of meeting and related materials, that holder will be deemed, and the depositary will deem that holder to have instructed the depositary to give a discretionary proxy to a person designated by us to vote the shares represented by the ADSs at our discretion, unless:

•  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.

       Please note that the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary bank in a timely manner. Securities for which no voting instructions have been received will not be voted.

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Fees and Charges

       As an ADS holder, you will be required to pay the following service fees to the depositary bank:

Service	Fees
Issuance of ADSs	Up to U.S. 5¢ per ADS issued
Cancellation of ADSs	Up to U.S. 5¢ per ADS canceled
Distribution of cash dividends or other cash distributions	Up to U.S. 2¢ per ADS held
Distribution of ADSs pursuant to share dividends, free share distributions or exercise of rights	Up to U.S. 5¢ per ADS issued
Distribution of securities other than ADSs or rights to purchase additional ADSs	Up to U.S. 5¢ per share (or share equivalent) distributed
Annual Depositary Services Fee	Annually up to U.S. 2¢ per ADS held at the end of each calendar year, except to the extent of any cash dividend fee(s) charged during such calendar year
Transfer of ADRs	U.S. $1.50 per certificate presented for transfer

       As an ADS holder you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges such as:

•  Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares).

•  Expenses incurred for converting foreign currency into U.S. dollars.

•  Expenses for cable, telex and fax transmissions and for delivery of securities.

•  Taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn from deposit).

•  Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.

       We have agreed to pay certain other charges and expenses of the depositary bank. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such changes.

Amendments and Termination

       We may agree with the depositary bank to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with applicable provisions of law.

       You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the ordinary shares represented by your ADSs (except as permitted by law).

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       We have the right to direct the depositary bank to terminate the deposit agreement. Similarly, the depositary bank may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary bank must give notice to the holders at least 30 days before termination.

       Upon termination, the following will occur under the deposit agreement:

•  for a period of six months after termination, you will be able to request the cancellation of your ADSs and the withdrawal of the ordinary shares represented by your ADSs and the delivery of all other property held by the depositary bank in respect of those ordinary shares on the same terms as prior to the termination. During such six-months period, the depositary bank will continue to collect all distributions received on the ordinary shares on deposit (i.e., dividends) but will not distribute any such property to you until you request the cancellation of your ADSs.

•  After the expiration of such six-months period, the depositary bank may sell the securities held on deposit. The depositary bank will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary bank will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding.

Books of Depositary

       The depositary bank will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement.

       The depositary bank will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADRs. These facilities may be closed from time to time, to the extent not prohibited by law.

Limitations on Obligations and Liabilities

       The deposit agreement limits our obligations and the depositary bank’s obligations to you. Please note the following:

•  We and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith.

•  The depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided that it acts in good faith and in accordance with the terms of the deposit agreement.

•  The depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in ordinary shares, for the validity or worth of the ordinary shares, for any tax consequences that result from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice.

•  We and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement.

•  We and the depositary bank disclaim any liability if we are prevented or forbidden from acting on account of any law or regulation, any provision of our amended and restated

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•  memorandum and articles of association, any provision of any securities on deposit or by reason of any act of God or war or other circumstances beyond our control.

•  We and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for the deposit agreement or in our amended and restated memorandum and articles of association or in any provisions of securities on deposit.

•  We and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information.

•  We and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit which is made available to holders of ordinary shares but is not, under the terms of the deposit agreement, made available to you.

•  We and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties.

•  We and the depositary bank also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement.

Pre-Release Transactions

       The depositary bank may, in certain circumstances, issue ADSs before receiving a deposit of ordinary shares or release ordinary shares before receiving ADSs for cancellation. These transactions are commonly referred to as “pre-release transactions”. The deposit agreement limits the aggregate size of pre-release transactions and imposes a number of conditions on such transactions (i.e., the need to fully collateralize, the type of collateral required, the representations required from brokers, etc.). The depositary bank may retain the compensation received from the pre-release transactions.

Taxes

       You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the depositary bank and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due.

       The depositary bank may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by the applicable holder. The depositary bank and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary bank and to the custodian proof of taxpayer status and residence and such other information as the depositary bank and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary bank and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.

Foreign Currency Conversion

       The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting

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foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.

       If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary bank may take the following actions in its discretion:

•  Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical.

•  Distribute the foreign currency to holders for whom the distribution is lawful and practical.

•  Hold the foreign currency (without liability for interest) for the applicable holders.

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SHARES ELIGIBLE FOR FUTURE SALE

       Upon completion of this offering, we will have outstanding 18,402,829 ADSs representing approximately 44.29% of our ordinary shares. All of the ADSs sold in this offering and the ordinary shares they represent will be freely transferable by persons other than our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs.

Lock-up Agreements

       We have agreed with the underwriters that we will not, without the prior consent of Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC, for a period of 90 days following the date of this prospectus:

•  offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file a registration statement with respect to any of the ADSs or our ordinary shares or any securities that are convertible into or exercisable or exchangeable for the ADSs or our ordinary shares; or

•  enter into any swap or other agreement that transfers to any other entity, in whole or in part, any of the economic consequences of ownership of our ADSs or ordinary shares;

whether any transaction described above is to be settled by the delivery of ADSs, our ordinary shares or such other securities, in cash or otherwise. The restrictions above do not apply to (1) the ADSs to be sold in this offering and the ordinary shares underlying such ADSs, (2) the filing of a Form S-8 by us with the Commission, (3) the issuance of our ordinary shares in connection with (i) our acquisition of Infoachieve, (ii) our acquisition of Target Media, or (iii) bona fide strategic acquisitions by us not to exceed to 2 million ordinary shares of our company in the aggregate, (4) grants of options pursuant to our employee stock option plans or in connection with our acquisition of Target Media, (5) any ordinary shares of our company to be issued by us upon the exercise of any options described in clause (4) above granted as of December 31, 2005.

       In addition, the selling shareholders and our directors and executive officers have entered into a similar lock-up agreement with respect to our ordinary shares and ADSs for a period of 90 days from the date of this prospectus. The restrictions applicable to the selling shareholders do not apply to the ADSs to be sold in this offering and the ordinary shares underlying such ADSs and the restrictions applicable to our directors and executive officers who are not selling shareholders in this offering do not apply to our ordinary shares issued to any director or executive officer upon the exercise of that director’s or executive officer’s options granted under our 2003 Option Plan or our 2005 Option Plan prior to December 31, 2005.

       In connection with our initial public offering in July 2005, we, our directors, officers and shareholders entered into similar lock-up agreements with respect to our ordinary shares and ADSs. Under the terms of the lock-up signed at our initial public offering, without the prior consent of Goldman Sachs (Asia) L.L.C., we agreed not to sell or otherwise dispose of any of our ADSs or our ordinary shares until January 11, 2006, subject to extension upon the occurrence of specified events This date was automatically extended to January 26, 2006 upon the announcement of our signing of a definitive share purchase agreement with Target Media. The underwriters may release these securities from any of the restrictions described above at any time, subject to applicable NASD regulations. The underwriters have no pre-established conditions to waiving the terms of the lock-up agreements, and any decision by them to waive those conditions would depend on a number of factors, which may include market conditions, the performance of our ADSs in the market and our financial condition at that time.

       In connection with our acquisition of Framedia, the seller parties entered into lock-up agreements with us in which they agreed not to sell or otherwise dispose of any of our ordinary

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shares received as part of the initial share consideration payment to them until March 31, 2007, provided that each of them who is a PRC resident has complied with all applicable SAFE registration requirements. In addition, any of our ordinary shares that may be issuable to them as part of an earn-out payment in the first quarter of 2007 will be subject to further lock-up until June 30, 2007, provided that each of them who is a PRC resident has complied with all applicable SAFE registration requirements.

       In connection with our acquisition of Target Media, the Target Media selling shareholders entered into lock-up agreements with us in which they agreed not to sell or otherwise dispose of any of our ordinary shares received as part of the initial share consideration payment to them until 180 days after completion of the acquisition, at which time each will be able to sell up to 50% of the shares received as part of the initial share consideration payment. The remaining 50% of the shares will be locked-up until the anniversary of the completion of the acquisition.

       We will not grant any waiver of the lock-up terms applicable to the Framedia shareholders or Target Media shareholders without the written consent of Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC during the 90-day period following the date of this prospectus.

Rule 144

       In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus a person who owns our restricted ordinary shares and who has beneficially owned those shares for at least one year is entitled to sell within any three-month period a number of shares, including ADSs representing such number of shares, that does not exceed the greater of the following:

•  1% of the number of our ordinary shares then outstanding, in the form of ADSs or otherwise, which will equal approximately 4 million shares immediately after this offering; and

•  the average weekly trading volume of our ADSs on the Nasdaq National Market during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.

       Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. Persons who are not our affiliates may be exempt from these restrictions under Rule 144(k) discussed below.

Rule 144(k)

       Under Rule 144(k), a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares, in the form of ADSs or otherwise, proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, “144(k) shares” may be sold at any time.

Registration Rights

       Upon completion of this offering, the holders of 125,861,414 of our ordinary shares or their transferees will be entitled to request that we register their ordinary shares under the Securities Act, following the expiration of the lockup agreements described above. In addition, after we complete our acquisition of Target Media, the current shareholders of Target Media will hold an aggregate 77,000,000 of our ordinary shares that they or their transferees will be entitled to request that we register under the Securities Act, following the expiration of the lockup agreements to which their shareholders will be subject. See “Description of Share Capital — Registration Rights” and “Recent Developments — Our Proposed Acquisition of Target Media — Share Purchase Agreement”.

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Share Option Plan

       As of December 31, 2005, options to purchase 44,251,830 of our ordinary shares were granted and outstanding. All of these ordinary shares will be eligible for sale in the public market from time to time, subject to vesting and exercise provisions of the options, Rule 144 volume limitations applicable to our affiliates and other holders of restricted shares and the lock-up agreements.

       We intend to file a registration statement under the Securities Act covering a total of 18,536,550 ordinary shares reserved for issuance under our 2003 Plan and 2005 Plan. Such registration statement is expected to be filed within 90 days after the date of this prospectus and will automatically become effective upon filing. Following such filing, ordinary shares registered under such registration statement, subject to the lockup agreements and Rule 144 volume limitations applicable to affiliates, are available for sale in the open market upon the exercise of vested options 90 days after our initial public offering.

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TAXATION

Cayman Islands Taxation

       The following discussion of the material Cayman Islands federal income tax consequences of an investment in our ADSs is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change, possibly with retroactive effect. This discussion does not deal with all possible tax consequences relating to an investment in our ADSs, such as the tax consequences under state, local and other tax laws. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Conyers, Dill & Pearman, our special Cayman Islands counsel.

       The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of ADS, or ordinary shares. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double taxation treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

       Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council:

       (1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and

       (2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other obligations of the Company.

       The undertaking for us is for a period of twenty years from May 3, 2005.

United States Federal Income Taxation

       The following discussion, to the extent that it states matters of law or legal conclusions and subject to the qualifications herein, represents the opinion of Simpson Thacher & Bartlett LLP, our United States counsel, on the material United States federal income tax consequences of the ownership of our ADSs as of the date hereof. Except where noted, it deals only with ADSs held as capital assets. This discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:

•  a bank;

•  a dealer in securities or currencies;

•  a financial institution;

•  a regulated investment company;

•  a real estate investment trust;

•  an insurance company;

•  a tax-exempt organization;

•  a person holding our ADSs as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;

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•  a trader in securities that has elected the mark-to-market method of accounting for your securities;

•  a person liable for alternative minimum tax;

•  a person who owns 10% or more of our voting stock;

•  a partnership or other pass through entity for United States federal income tax purposes; or

•  a person whose “functional currency” is not the United States dollar.

       Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. In addition, this summary is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms. If you are considering the purchase, ownership or disposition of our ADSs, you should consult your own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.

       As used herein, the term “United States Holder” means a beneficial holder of an ADS that is:

•  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.

       If a partnership holds ADSs, the tax treatment of a partner will depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our ADSs, you should consult your tax advisors.

ADSs

       If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying Shares that are represented by such ADSs. Accordingly, deposits or withdrawals of Shares for ADSs will not be subject to United States federal income tax.

       The United States Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming, by United States Holders of ADSs, of foreign tax credits for United States federal income tax purposes. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate United States Holders, as described below. Accordingly, the availability of the reduced tax rate for dividends received by certain non-corporate United States Holders could be affected by future actions that may be taken by the United States Treasury.

Taxation of Dividends

       Subject to the discussion below under “Passive Foreign Investment Companies”, the gross amount of distributions on the ADSs will be taxable as dividends, to the extent paid out of our

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current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income will be includable in your gross income as ordinary income on the day actually or constructively received by the depositary. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. With respect to non-corporate United States investors, certain dividends received before January 1, 2009 from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs, which are listed on the Nasdaq National Market, will be readily tradable on an established securities market in the United States. Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of this legislation to your particular circumstances.

       To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of the ADSs), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange.

       Distributions of ADSs, ordinary shares or rights to subscribe for ordinary shares that are received as part of a pro rata distribution to all of our shareholders generally will not be subject to United States federal income tax. The basis of the new ADSs, ordinary shares or rights so received will be determined by allocating the your basis in the old ADSs between the old ADSs and the new ADSs, ordinary shares or rights received, based on their relative fair market values on the date of distribution. However, the basis of the rights will be zero if:

•  the fair market value of the rights is less than 15 percent of the fair market value of the old ADSs at the time of distribution, unless you elect to determine the basis of the old ADSs and of the rights by allocating the adjusted basis of the old ADSs between the old ADSs and the rights, or

•  the rights are not exercised and thus expire.

Passive Foreign Investment Companies

       We operate an active advertising business in China and based on the past and projected composition of our income and valuation of our assets, including goodwill, after the completion of the offering and the receipt of net proceeds of approximately $60.6 million, we believe we were not a passive foreign investment company for 2005, we do not expect to be a passive foreign investment company (“PFIC”), for 2006, and we do not expect to become one in the future, although there can be no assurance in this regard. Because PFIC status is a factual determination, our United States counsel expresses no opinion with respect to our PFIC status and also expresses no opinion with respect to our expectations contained in this paragraph.

       We will be a PFIC for any taxable year in which:

•  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.

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       For this purpose, passive income includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.

       The determination of whether we are a PFIC is made annually for each taxable year of the Company. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. We could become a PFIC, for example though a combination of factors, such as a failure to spend a sufficient amount of the net proceeds of the offering (resulting in our holding cash, a passive asset) coupled with a decrease in the price of our Shares (resulting in a decrease in the value of our goodwill, an active asset). Because of the fact specific nature of the inquiry, we cannot predict at this time what portion of the net proceeds we would need to spend in order to avoid PFIC status. If we are a PFIC for any taxable year during which you hold our ADSs, you will be subject to special tax rules discussed below.

       If we are a PFIC for any taxable year during which you hold our ADSs, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of ADSs. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the ADSs will be treated as excess distributions. Under these special tax rules:

•  the excess distribution or gain will be allocated ratably over your holding period for the ADSs,

•  the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and

•  the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

       In addition, non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us prior to January 1, 2009, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. You will be required to file Internal Revenue Service Form 8621 if you hold our ADSs in any year in which we are classified as a PFIC.

       In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, you may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market election may be available because the ADSs will be listed on the Nasdaq National Market, which constitutes a qualified exchange as designated in the Internal Revenue Code, although there can be no assurance that the ADSs will be “regularly traded”.

       If you make an effective mark-to-market election, you will include in each year as ordinary income the excess of the fair market value of your ADSs at the end of the year over your adjusted tax basis in the ADSs. You will be entitled to deduct as an ordinary loss each year the excess of your adjusted tax basis in the ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.

       Your adjusted tax basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. You are urged to consult

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your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.

       Alternatively, you can sometimes avoid the rules described above by electing to treat us as a “qualified electing fund” under section 1295 of the Code. This option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.

       You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding ADSs if we are considered a PFIC in any taxable year.

Taxation of Capital Gains

       Subject to the discussion above under “Passive Foreign Investment Companies”, for United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of ADSs in an amount equal to the difference between the amount realized for the ADSs and your tax basis in the ADSs. Such gain or loss will generally be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss.

Information reporting and backup withholding

       Information reporting will apply to dividends in respect of our ADSs and the proceeds from the sale, exchange or redemption of our ADSs that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient such as a corporation. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.

       Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished to the Internal Revenue Service.

       PROSPECTIVE PURCHASERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY ADDITIONAL TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF ADSs, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION, INCLUDING ESTATE, GIFT, AND INHERITANCE LAWS.

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UNDERWRITING

       Focus Media, the selling shareholders and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of ADSs indicated in the following table. Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC are the representatives of the underwriters. Goldman Sachs (Asia) L.L.C.’s address is 68th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong. Credit Suisse Securities (USA) LLC’s address is Eleven Madison Avenue, New York, New York 10010-3629. Goldman Sachs (Asia) L.L.C. is acting in this offering as the global coordinator, and, with Credit Suisse Securities (USA) LLC, as joint bookrunners.

Underwriters		Number of ADSs
Goldman Sachs (Asia) L.L.C.			2,443,619
Credit Suisse Securities (USA) LLC			2,443,619
Citigroup Global Markets Inc.			814,539
Morgan Stanley & Co. International Limited			814,539
Piper Jaffray & Co.			271,513
	Total		6,787,829

       The underwriters are committed to take and pay for all of the ADSs being offered, if any are taken, other than the ADSs covered by the option described below unless and until this option is exercised.

       If the underwriters sell more ADSs than the total number set forth in the table above, the underwriters have an option to buy up to an additional 627,560 ADSs from the selling shareholders to cover such sales. They may exercise that option for 30 days. If any ADSs are purchased pursuant to this option, the underwriters will severally purchase ADSs in approximately the same proportion as set forth in the table above.

       The following tables show the per ADS and total underwriting discounts and commissions to be paid to the underwriters by Focus Media and the selling shareholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase a total of 627,560 additional ADSs.

Paid by Focus Media

	No Exercise		Full Exercise
Per ADS	$	1.89	$	1.89
Total	$	2,830,983.78	$	2,830,983.78

Paid by Selling Shareholders

	No Exercise		Full Exercise
Per ADS	$	1.89	$	1.88
Total	$	9,979,838.68	$	11,156,422.50

       Total underwriting discounts and commissions to be paid to the underwriters represent 4.34% of the total amount of the offering.

       ADSs sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover of this prospectus. Any ADSs sold by the underwriters to securities dealers may be sold at a discount of up to $1.130 per ADS from the public offering price. Any such securities dealers may resell any ADSs purchased from the underwriters to certain other brokers or dealers at a discount of up to $0.10 per ADS from the public offering price. If all the ADSs are not

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sold at the public offering price, the representatives may change the offering price and the other selling terms.

       Total expenses for this offering are estimated to be approximately $1.8 million, including SEC registration fees of $37,653, NASD filing fees of $33,681, printing fees of approximately $500,000, legal fees of approximately $800,000, accounting fees of approximately $250,000, roadshow costs and expenses of approximately $100,000, and travel and other out-of-pocket expenses of approximately $50,000. All amounts are estimated except for the fees relating to the SEC registration, the NASD filing and the Nasdaq National Market.

       Some of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers or sales in the United States will be conducted by broker-dealers registered with the SEC. Goldman Sachs (Asia) L.L.C. is expected to make offers and sales in the United States through its selling agent, Goldman, Sachs & Co.

       The underwriters have entered into an agreement in which they agree to restrictions on where and to whom they and any dealer purchasing from them may offer ADSs, as a part of the distribution of the ADSs. The underwriters also have agreed that they may sell ADSs among themselves.

       Focus Media has agreed with the underwriters that it will not, without the prior consent of Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC, for a period of 90 days following the date of this prospectus:

•  offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file a registration statement with respect to any of the ADSs or its ordinary shares or any securities that are convertible into or exercisable or exchangeable for the ADSs or our ordinary shares; or

•  enter into any swap or other agreement that transfers to any other entity, in whole or in part, any of the economic consequences of ownership of its ADSs or ordinary shares;

whether any transaction described above is to be settled by the delivery of ADSs, its ordinary shares or such other securities, in cash or otherwise.

       The 90-day restricted period described in the preceding paragraph will be automatically extended if (1) during the last 17 days of the 90-day restricted period the company issues an earnings release or announces material news or a material event; or (2) prior to the expiration of the 90-day restricted period, the company announces, or if the representatives of the underwriters determine, that the company will release earnings results during the 15-day period following the last day of the 90-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release of the announcement of the material news or material event. The restrictions applicable to Focus Media do not apply to (1) the ADSs to be sold in this offering, and the ordinary shares underlying such ADSs, (2) the filing of a Form S-8 by us with the Commission, (3) the issuance of our ordinary shares in connection with (i) our acquisition of Infoachieve, (ii) our acquisition of Target Media, or (iii) bona fide strategic acquisitions by us not to exceed 2 million ordinary shares of our company in the aggregate, (4) grants of options pursuant to our employee stock option plans or in connection with our acquisition of Target Media, (5) any ordinary shares of our company to be issued by us upon the exercise of any options described in clause (4) above granted as of December 31, 2005.

       In addition, the selling shareholders and our directors and executive officers have entered into similar lock-up agreements with respect to Focus Media’s ordinary shares and ADSs for a period of 90 days from the date of this prospectus. The restrictions applicable to the selling shareholders do not apply to the ADSs to be sold in this offering, nor do they apply to the ordinary shares underlying such ADSs and the restrictions applicable to our directors and executive officers who are not selling

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shareholders in this offering do not apply to our ordinary shares issued to any director or executive officer upon the exercise of that director’s or executive officer’s options granted under our 2003 Option Plan or our 2005 Option Plan prior to December 31, 2005.

       In connection with Focus Media’s initial public offering in July 2005, Focus Media and Focus Media’s directors, officers and pre-IPO shareholders entered into lock-up agreements. The lock-up agreement entered into by Focus Media is substantially the same as the lock-up agreement it entered into in connection with this offering as described above, except that the restricted period under the prior lock-up agreement extended for 180 days from the date of the prospectus used in the initial public offering, instead of 90 days for this offering. Focus Media’s directors, officers and pre-IPO shareholders also entered into lock-up agreements with respect to Focus Media’s ordinary shares and ADSs for a period of 180 days following the July 13, 2005 date of the prospectus used in the initial public offering and, thereafter until July 13, 2006, such persons are not permitted to sell or otherwise dispose of more than half of their ordinary shares or ADSs owned immediately prior to Focus Media’s initial public offering, which amount includes ordinary shares or ADSs sold in the initial public offering, the public offering of additional ADSs pursuant to the underwriters’ exercise of their over-allotment option in August 2005, and in this offering. In connection with the announcement of our proposed acquisition of Target Media, the initial lock-up period was automatically extended through January 26, 2006. In addition, in each case, the lock-up period will be extended if, (i) during the final 17 days of the lock-up period, any earnings release or announcement of a material event or news or, (ii) prior to the expiry of a lock-up period, the Company announces that it will release earnings results during the 15-day period following the last day of the lock-up period. In each case the applicable lock-up period will be automatically extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the announcement of the material news or material event, as applicable unless the representatives waive, in writing, such extension.

       In connection with our acquisition of Framedia, the seller parties entered into lock-up agreements with us in which they agreed not to sell or otherwise dispose of any of our ordinary shares received as part of the initial share consideration payment to them until March 31, 2007, provided that each of them who is a PRC resident has complied with all applicable SAFE registration requirements. In addition, any of our ordinary shares that may be issuable to them as part of an earn-out payment in the first quarter of 2007 will be subject to further lock-up until June 30, 2007, provided that each of them who is a PRC resident has complied with all applicable SAFE registration requirements.

       In connection with our acquisition of Target Media, the Target Media selling shareholders entered into lock-up agreements with us in which they agreed not to sell or otherwise dispose of any of our ordinary shares received as part of the initial share consideration payment to them until 180 days after completion of the acquisition, at which time each will be able to sell up to 50% of the shares received as part of the initial share consideration payment. The remaining 50% of the shares will be locked-up until the anniversary of the completion of the acquisition.

       We will not grant any waiver of the lock-up terms applicable to the Framedia shareholders or Target Media shareholders without the written consent of Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC during the 90-day period following the date of this prospectus.

       The representatives of the underwriters may release the securities subject to the above restrictions at any time, subject to applicable NASD regulations. The representatives of the underwriters have no pre-established conditions to waiving the terms of the lock-up agreements, and any decision by them to waive those conditions would depend on a number of factors, which may include market conditions, the performance of Focus Media’s ADSs in the market and Focus Media’s financial condition at that time.

       Our ADSs are listed for quotation on the Nasdaq National Market under the symbol “FMCN”.

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       In connection with the offering, the underwriters may purchase and sell ADSs in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of ADSs than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional ADSs from Focus Media and the selling shareholders. The underwriters may close out any covered short position by either exercising their option to purchase additional ADSs or purchasing ADSs in the open market. In determining the source of ADSs to close out the covered short position, the underwriters will consider, among other things, the price of ADSs available for purchase in the open market as compared to the price at which they may purchase additional ADSs pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for, or purchases of, ADSs made by the underwriters in the open market prior to the completion of the offering.

       The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased ADSs sold by, or for the account of, such underwriter in stabilizing or short covering transactions.

       Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of the ADSs, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the ADSs. As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they are required to be conducted in accordance with applicable laws and regulations, and may be discontinued at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise.

       Each of the underwriters has represented and agreed that: (a) it has not made or will not make an offer of ADSs to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (as amended) (FSMA) except to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by the company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (FSA); (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to the company; and (c) it has complied with, and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the ADSs in, from or otherwise involving the United Kingdom.

       In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each Underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of ADSs to the public in that Relevant Member State prior to the publication of a prospectus in relation to the ADSs which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of ADSs to the public in that Relevant Member State at any time: (a) to legal

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entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or (c) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an “offer of ADSs to the public” in relation to any ADSs in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the ADSs to be offered so as to enable an investor to decide to purchase or subscribe the ADSs, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/ EC and includes any relevant implementing measure in each Relevant Member State.

       The ADSs have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any ADSs, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines in Japan.

       The ADSs may not be offered or sold by means of any document other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the ADSs may be issued, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to ”professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.

       This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs may not be circulated or distributed, nor may the ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

       Where the ADSs are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the Notes under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

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       No action may be taken in any jurisdiction other than the United States that would permit a public offering of the ADSs or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither the prospectus nor any other offering material or advertisements in connection with the ADSs may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.

       A prospectus in electronic format will be made available on the websites maintained by the global coordinator or one or more securities dealers. The global coordinator may agree to allocate a number of ADSs for sale to their online brokerage account holders. ADSs to be sold pursuant to an Internet distribution will be allocated on the same basis as other allocations. In addition, ADSs may be sold by the underwriters to securities dealers who resell ADSs to online brokerage account holders.

       Focus Media has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.

       This prospectus may be used by the underwriters and other dealers in connection with offers and sales of the ADSs, including the ADSs initially sold by the underwriters in the offering being made outside of the United States, to persons located in the United States.

       Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking and other services for Focus Media or its officers and directors for which they have received customary fees and commissions.

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ENFORCEMENT OF CIVIL LIABILITIES

       We are registered under the laws of the Cayman Islands as an exempted company with limited liability. We are registered in the Cayman Islands because of certain benefits associated with being a Cayman Islands corporation, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.

       Substantially all of our assets are located outside the United States. In addition, a majority of our directors and officers and our special PRC counsel, Fangda Partners are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us, our officers and directors and Fangda Partners.

       We have appointed CT Corporation System as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

       Conyers Dill & Pearman, our counsel as to Cayman Islands law, and Fangda Partners, our counsel as to PRC law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or the PRC would, respectively, (1) recognize or enforce judgments of United States courts obtained against us or our directors or officers or Fangda Partners predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (2) entertain original actions brought in the Cayman Islands or the PRC against us or our directors or officers or Fangda Partners predicated upon the securities laws of the United States or any state in the United States.

       Conyers Dill & Pearman have informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities law will be determined by the courts of the Cayman Islands as penal or punitive in nature. The courts of the Cayman Islands will not recognize or enforce such judgments against a Cayman company, and because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands. Conyers Dill & Pearman, has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.

       Fangda Partners has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. Fangda Partners has advised us further that under PRC law, a foreign judgment, which does not otherwise violate basic legal principles, state sovereignty, safety or social public interest, may be recognized and enforced by a PRC court, based either on treaties between China and the

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country where the judgment is made or on reciprocity between jurisdictions. As there currently exists no treaty or other form of reciprocity between China and the United States governing the recognition of judgments, including those predicated upon the liability provisions of the U.S. federal securities laws, there is uncertainty whether and on what basis a PRC court would enforce judgments rendered by U.S. courts.

LEGAL MATTERS

       We are being represented by Simpson Thacher & Bartlett LLP with respect to legal matters of United States federal securities and New York State law. Certain legal matters in connection with this offering will be passed upon for the underwriters by O’Melveny & Myers LLP. The validity of the ordinary shares represented by the ADSs offered in this offering and legal matters as to Cayman Islands law will be passed upon for us by Conyers, Dill & Pearman. Legal matters as to PRC law will be passed upon for us by Fangda Partners and for the underwriters by Richard Wang & Co. Conyers, Dill & Pearman and Simpson Thacher & Bartlett LLP may rely upon Fangda Partners with respect to matters governed by PRC law. O’Melveny & Myers LLP may rely upon Richard Wang & Co. with respect to matters governed by PRC law.

EXPERTS

       The consolidated financial statements as of and for the years ended December 31, 2002, 2003 and 2004 for Focus Media Holding Limited included in this prospectus have been audited by Deloitte Touche Tohmatsu CPA Ltd., independent registered public accounting firm, as stated in their reports appearing herein, and are included in reliance upon the reports of such firm, given on their authority as experts in accounting and auditing.

       The consolidated financial statements as of December 31, 2003 and September 30, 2004 and for the year ended December 31, 2003 and the nine months ended September 30, 2004 for Perfect Media Holding included in this prospectus have been audited by Deloitte Touche Tohmatsu CPA Ltd., independent registered public accounting firm, as stated in their reports appearing herein and are included in reliance upon the reports of such firm, given on their authority as experts in accounting and auditing.

       The consolidated financial statements as of October 31, 2004 and for the period from March 11, 2004 to October 31, 2004 for Focus Media Changsha Holding Ltd. included in this prospectus have been audited by Deloitte Touche Tohmatsu CPA Ltd., independent registered public accounting firm, as stated in their reports appearing herein and are included in reliance upon the reports of such firm, given on their authority as experts in accounting and auditing.

       The consolidated financial statements as of October 31, 2004 and for the period from March 22, 2004 to October 31, 2004 for Focus Media Qingdao Holding Ltd. included in this prospectus have been audited by Deloitte Touche Tohmatsu CPA Ltd., independent registered public accounting firm, as stated in their reports appearing herein and are included in reliance upon the reports of such firm, given on their authority as experts in accounting and auditing.

       The consolidated financial statements as of October 31, 2004 and for the period from March 24, 2004 to October 31, 2004 for Focus Media Dalian Holding Ltd. included in this prospectus have been audited by Deloitte Touche Tohmatsu CPA Ltd., independent registered public accounting firm, as stated in their reports appearing herein and are included in reliance upon the reports of such firm, given on their authority as experts in accounting and auditing.

       The consolidated financial statements as of December 31, 2004 and for the year ended December 31, 2004 for Capital Beyond Limited included in this prospectus have been audited by Deloitte Touche Tohmatsu CPA Ltd., independent registered public accounting firm, as stated in their reports appearing herein and are included in reliance upon the reports of such firm, given on their authority as experts in accounting and auditing.

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       The consolidated financial statements as of December 31, 2003 and 2004 and September 30, 2005 and for the years ended December 31, 2003 and 2004 and the nine months ended September 30, 2005 for Infoachieve Limited included in this prospectus have been audited by Deloitte Touche Tohmatsu CPA Ltd., independent registered public accounting firm, as stated in their reports appearing herein and are included in reliance upon the reports of such firm, given on their authority as experts in accounting and auditing.

       The consolidated financial statements of Target Media Holdings Limited as of December 31, 2003 and 2004 and for each of the years in the two-year period ended December 31, 2004 have been included in this registration statement in reliance upon the report of KPMG, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of such firm as experts in accounting and auditing.

       The statements included in this prospectus under the caption “Prospectus Summary”, “Risk Factors”, “Our Corporate Structure”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Our Industry”, “Business”, “Regulation of Our Industry”, “Management”, “Related Party Transactions”, “Taxation” and “Enforcement of Civil Liabilities”, to the extent they constitute matters of PRC law, have been reviewed and confirmed by Fangda Partners, special PRC counsel to us, as experts in such matters, and are included herein in reliance upon such review and confirmation.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

       We have filed with the SEC a registration statement on Form F-1 (Registration Number 333-131065), a registration statement on Form F-1MEF under Rule 462(b) of the Securities Act (Registration Number 333-131312) and a registration statement on Form F-6 (Registration Number 333-126011), including relevant exhibits and schedules under the Securities Act, covering the ordinary shares represented by the ADSs offered by this prospectus, as well as the ADSs. You should refer to our registration statements and their exhibits and schedules if you would like to find out more about us and about the ADSs and the ordinary shares represented by the ADSs. This prospectus summarizes material provisions of contracts and other documents that we refer you to. Since the prospectus may not contain all the information that you may find important, you should review a full text of these documents.

       The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this prospectus.

       We will furnish to Citibank, N.A., as depositary of our ADSs, our annual reports. When the depositary receives these reports, it will upon our request promptly provide them to all holders of record of ADSs. We will also furnish the depositary with all notices of shareholders’ meetings and other reports and communications in English that we make available to our shareholders. The depositary will make these notices, reports and communications available to holders of ADSs and will upon our request mail to all holders of record of ADSs the information contained in any notice of a shareholders’ meeting it receives.

       We are subject to periodic reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders under the federal proxy rules contained in Sections 14(a), (b) and (c) of the Exchange Act, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. The registration statements, reports and other information so filed can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

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FOCUS MEDIA HOLDING LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated balance sheets as of December 31, 2002, 2003 and 2004 and as of September 30, 2005 (Unaudited)		F-3
Consolidated statements of operations for the years ended December 31, 2002, 2003 and 2004 and for the nine months ended September 30, 2004 (Unaudited) and 2005 (Unaudited)		F-4
Consolidated statements of shareholders’ equity (deficiency) and comprehensive (loss) income for the years ended December 31, 2002, 2003 and 2004 and for the nine months ended September 30, 2005 (Unaudited)		F-5
Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004 and for the nine months ended September 30, 2004 (Unaudited) and 2005 (Unaudited)		F-6
Notes to the consolidated financial statements		F-8
Schedule 1		F-44

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

FOCUS MEDIA HOLDING LIMITED

       We have audited the accompanying consolidated balance sheets of Focus Media Holding Limited and its subsidiaries (the “Group”) as of December 31, 2002 and 2003 and 2004 and the related consolidated statements of operations, shareholders’ equity (deficiency) and comprehensive (loss) income, and cash flows for the years ended December 31, 2002 and 2003 and 2004, and related financial schedule included in Schedule 1. These financial statements and related financial statement schedule are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements and related financial statement schedule based on our audits.

       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Focus Media Holding Limited and its subsidiaries as of December 31, 2002 and 2003 and 2004 and the results of its operations and its cash flows for the above stated periods in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

May 25, 2005

F-2

FOCUS MEDIA HOLDING LIMITED

CONSOLIDATED BALANCE SHEETS

			December 31,
												September 30,
			2002			2003			2004			2005
												(Unaudited)
			(In U.S. dollars, except share data)
Assets
Current assets:
	Cash and cash equivalents		$	14,894		$	716,388		$	22,669,106		$	83,974,044
	Investment in available-for-sale securities			—			—			—			34,950,969
	Accounts receivable, net of allowance for doubtful accounts of $nil, $nil, $173,837 and $430,124 in 2002, 2003, 2004 and as of September 30, 2005 (unaudited)			78,354			1,409,461			6,619,949			20,306,899
	Inventory			—			90,950			1,243,140			370,691
	Prepaid expenses and other current assets			27,602			148,906			2,109,468			3,717,071
	Amounts due from related parties			—			252,576			2,740,032			1,243,800
	Total current assets			120,850			2,618,281			35,381,695			144,563,474
Rental deposits				—			570,904			1,606,378			9,293,819
Equipment, net				7,834			1,978,399			9,197,143			32,909,902
Acquired intangible assets, net				—			—			708,306			1,231,902
Goodwill				—			—			9,058,086			12,823,348
Long-term investment				—			12,082			12,088			—
Deferred tax assets				—			126,769			450,963			914,922
		Total assets	$	128,684		$	5,306,435		$	56,414,659		$	201,737,367
Liabilities and shareholders’ equity (deficiency)
Current liabilities:
	Short-term bank loan		$	—		$	—		$	—		$	3,089,089
	Accounts payable			7,100			436,244			607,091			4,787,461
	Accrued expenses and other current liabilities			210			561,234			6,591,435			9,596,839
	Amounts due to related parties			—			2,013,898			—			—
	Short-term loan from a shareholder			—			500,000			—			—
	Income taxes payable			40			608,275			1,435,486			2,192,123
	Total current liabilities			7,350			4,119,651			8,634,012			19,665,512
Commitments (Note 20)
Minority interest				—			3,722			80,692			193,143
Mezzanine equity
Series A convertible redeemable preference shares ($0.00005 par value; 41,967,400 shares authorized and nil, nil, 41,967,400 and nil shares issued and outstanding in 2002, 2003, 2004 and 2005 (unaudited), respectively (liquidation value $2,471,880)				—			—			6,295,110			—
Series B convertible redeemable preference shares ($0.00005 par value; 48,191,600 shares authorized and nil, nil, 48,191,600 and nil shares issued and outstanding in 2002, 2003, 2004 and 2005 (unaudited), respectively) (liquidation value $11,565,984)				—			—			12,062,696			—
Series C-1 convertible redeemable preference shares ($0.00005 par value; 34,054,000 shares authorized and nil, nil, 34,054,000 and nil shares issued and outstanding in 2002, 2003, 2004 and 2005 (unaudited), respectively) (liquidation value $17,500,350)				—			—			17,500,350			—
Series C-2 convertible redeemable preference shares ($0.00005 par value; 34,053,400 shares authorized and nil, nil, 34,053,400 and nil shares issued and outstanding in 2002, 2003, 2004 and 2005 (unaudited), respectively) (liquidation value $17,500,042)				—			—			17,415,000			—
Shareholders equity (deficiency)
Ordinary shares ($0.00005 par value; nil, 1,000,000,000 and 885,516,600 shares authorized in 2002, 2003, 2004 and 2005 (unaudited), respectively; nil, 200,000,000, 142,464,600 and 378,306,000 issued and outstanding in 2002, 2003, 2004 and 2005 (unaudited), respectively)				—			10,000			7,124			18,916
Additional paid-in capital				125,000			1,188,817			5,981,154			177,428,363
Deferred share based compensation				—			—			(969,959	)		(215,074	)
Retained earnings (accumulated deficit)				517			26,000			(10,550,414	)		3,572,045
Accumulated other comprehensive (loss) income				(4,183	)		(41,755	)		(41,106	)		1,074,462
Total shareholders’ equity (deficiency)			$	121,334		$	1,183,062		$	(5,573,201	)	$	181,878,712
Total liabilities and shareholders’ equity (deficiency)			$	128,684		$	5,306,435		$	56,414,659		$	201,737,367

The accompanying notes are an integral part of these consolidated financial statements.

F-3

FOCUS MEDIA HOLDING LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

												Nine Months
			For the Year Ended December 31,									Ended September 30,
			2002			2003			2004			2004			2005
			(In U.S. dollars, except share data)
												(Unaudited)			(Unaudited)
Revenues:
	Advertising Service Revenue:
		— Unrelated parties	$	23,895		$	2,269,678		$	22,896,194		$	15,001,703		$	39,336,775
		— Related parties		—			1,098,879			3,424,985			236,843			3,514,521
	Advertising equipment revenue			—			389,282			2,888,720			2,205,672			772,414
	Total revenues			23,895			3,757,839			29,209,899			17,444,218			43,623,710
Cost of revenues:
	Net advertising service cost			—			1,565,887			6,822,965			4,080,256			16,478,969
	Net advertising equipment cost			—			275,360			1,934,331			1,693,279			544,145
	Total cost of revenues			—			1,841,247			8,757,296			5,773,535			17,023,114
Gross profit				23,895			1,916,592			20,452,603			11,670,683			26,600,596
Operating expenses:
	General and administrative (including share-based compensation of $488,711 for 2004, $182,559 and $646,400 for the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited), respectively)			20,670			984,848			4,015,024			2,009,373			6,577,974
	Selling and marketing			3,040			406,634			3,426,005			1,928,058			6,134,849
	Goodwill impairment loss			—			—			58,397			—			—
	Total operating expenses			23,710			1,391,482			7,499,426			3,937,431			12,712,823
Income from operations				185			525,110			12,953,177			7,733,252			13,887,773
	Interest income			213			1,005			9,739			5,210			849,263
	Interest expense			—			—			—			—			(27,100	)
	Other income (expenses) net			(175	)		(9,364	)		(3,843	)		(2,759	)		9,894
	Change in fair value of derivative liability associated with Series B convertible redeemable preference shares			—			—			(11,692,287	)		(3,166,671	)		—
Income before income taxes and minority interest				223			516,751			1,266,786			4,569,032			14,719,830
Income taxes:
	Current			40			608,274			828,962			2,830,161			758,594
	Deferred			—			(126,769	)		78,588			—			(267,527	)
	Total income taxes			40			481,505			907,550			2,830,161			491,067
Net income after income taxes before minority interest and equity loss of affiliates				183			35,246			359,236			1,738,871			14,228,763
Minority interest				—			8,360			13,516			(40,616	)		(106,304	)
Equity loss of affiliates				—			(18,123	)		—			—			—
Net income				183			25,483			372,752			1,698,255			14,122,459
Deemed dividend on Series A convertible redeemable preference shares				—			—			(8,308,411	)		(8,308,411	)		—
Deemed dividend on Series B convertible redeemable preference shares				—			—			(2,191,442	)		(2,191,442	)		—
Deemed dividend on Series C-1 convertible redeemable preference shares				—			—			(13,356,087	)		—			—
Premium of Series B convertible redeemable preference shares				—			—			12,906,774			—			—
Income (loss) attributable to holders of ordinary shares			$	183		$	25,483		$	(10,576,414	)	$	(8,801,598	)	$	14,122,459
Income (loss) per share — basic			$	—		$	0.00		$	(0.07	)	$	(0.06	)	$	0.07
Income (loss) per share — diluted			$	—		$	0.00		$	(0.07	)	$	(0.06	)	$	0.06
Shares used in calculating basic income (loss) per share				—			144,657,600			160,998,600			138,027,670			210,377,820
Shares used in calculating diluted income (loss) per share				—			144,657,600			160,998,600			138,027,670			238,206,610

The accompanying notes are an integral part of these consolidated financial statements.

F-4

FOCUS MEDIA HOLDING LIMITED

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

													Retained			Accumulated			Total
	Ordinary						Additional			Deferred			earnings			other			shareholders’
							paid-in			share based			(accumulated			comprehensive			equity			Comprehensive
	Shares			Amount			capital			compensation			deficit)			(loss) income			(deficiency)			(loss) income
	(In U.S. dollars, except share data)
Balance at January 1, 2002		—		$	—		$	125,000		$	—		$	334		$	—		$	125,334
Cumulative translation adjustment		—			—			—			—			—			(4,183	)		(4,183	)	$	(4,183	)
Net income		—			—			—			—			183			—			183			183
Balance at December 31, 2002		—		$	—		$	125,000		$	—		$	517		$	(4,183	)	$	121,334		$	(4,000	)
Issuance of ordinary shares		200,000,000			10,000			1,615,000			—			—			—			1,625,000			—
Capital distribution relating to Everease		—			—			(551,183	)		—			—			—			(551,183	)		—
Cumulative translation adjustment		—			—			—			—			—			(37,572	)		(37,572	)	$	(37,572	)
Net income		—			—			—			—			25,483			—			25,483			25,483
Balance at December 31, 2003		200,000,000		$	10,000		$	1,188,817		$	—		$	26,000		$	(41,755	)	$	1,183,062		$	(12,089	)
Issuance of ordinary shares		14,594,200			730			4,484,068			—			—			—			4,484,798			—
Reclassification of ordinary shares to Series A convertible redeemable preference shares		(62,400,000	)		(3,120	)		(1,048,469	)		—			—			—			(1,051,589	)		—
Reclassification of ordinary shares to Series C-1 convertible redeemable preference shares		(9,729,600	)		(486	)		(101,932	)		—			—			—			(102,418	)
Deferred share based compensation		—			—			1,334,835			(1,334,835	)		—			—			—			—
Amortization of deferred share based compensation		—			—			123,835			364,876			—			—			488,711
Deemed dividend on Series A convertible redeemable preference shares		—			—			—			—			(8,308,411	)		—			(8,308,411	)		—
Deemed dividend on Series B convertible redeemable preference shares		—			—			—			—			(2,191,442	)		—			(2,191,442	)		—
Deemed dividend on Series C-1 convertible redeemable preference shares		—			—			—			—			(13,356,087	)		—			(13,356,087	)		—
Premium of Series B convertible redeemable preference shares		—			—			—			—			12,906,774			—			12,906,774			—
Cumulative translation adjustment		—			—			—			—			—			649			649		$	649
Net income		—			—			—			—			372,752			—			372,752			372,752
Balance at December 31, 2004		142,464,600		$	7,124		$	5,981,154		$	(969,959	)	$	(10,550,414	)	$	(41,106	)	$	(5,573,201	)	$	373,401
Series A convertible redeemable preference shares converted into ordinary shares upon initial public offering		41,967,400			2,098			6,293,012			—			—			—			6,295,110			—
Series B convertible redeemable preference shares converted into ordinary shares upon initial public offering		48,191,600			2,409			12,060,287			—			—			—			12,062,696			—
Series C-1 convertible redeemable preference shares converted into ordinary shares upon initial public offering		34,054,000			1,703			17,498,647			—			—			—			17,500,350			—
Series C-2 convertible redeemable preference shares converted into ordinary shares upon initial public offering		34,053,400			1,703			17,413,297			—			—			—			17,415,000			—
Issuance of ordinary shares upon initial public offering, net of issuance cost of $13,583,170		77,575,000			3,879			118,290,451			—			—			—			118,294,330			—
Deferred share based compensation		—			—			(343,951	)		343,951			—			—			—			—
Amortization of deferred share based compensation		—			—			235,466			410,934			—			—			646,400			—
Cumulative translation adjustment		—			—			—			—			—			875,639			875,639		$	875,639
Unrealized gain on available-for-sale securities		—			—			—			—			—			239,929			239,929			239,929
Net income		—			—			—			—			14,122,459			—			14,122,459			14,122,459
Balance at September 30, 2005 (unaudited)		378,306,000		$	18,916		$	177,428,363		$	(215,074	)	$	3,572,045		$	1,074,462		$	181,878,712		$	15,238,027

The accompanying notes are an integral part of these consolidated financial statements.

F-5

FOCUS MEDIA HOLDING LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

												For the nine months ended
			For the year ended December 31,									September 30,
			2002			2003			2004			2004			2005
			(In U.S. dollars)
												(Unaudited)			(Unaudited)
Operating activities:
	Income (loss) attributable to holders of ordinary shares		$	183		$	25,483		$	(10,576,414	)	$	(8,801,598	)	$	14,122,459
	Deemed dividend on Series A convertible redeemable preference shares			—			—			8,308,411			8,308,411			—
	Deemed dividend on Series B convertible redeemable preference shares			—			—			2,191,442			2,191,442			—
	Deemed dividend on Series C-1 convertible redeemable preference shares			—			—			13,356,087			—			—
	Premium relating to Series B convertible redeemable preference shares			—			—			(12,906,774	)		—			—
	Net income			183			25,483			372,752			1,698,255			14,122,459
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Minority interest		—			(8,360	)		(13,516	)		(40,616	)		106,304
		Bad debt provision		—			—			173,837			15,773			256,287
		Share based compensation		—			—			488,711			182,559			646,400
		Depreciation and amortization		4,291			143,876			923,163			498,102			3,045,895
		Loss on disposal of equipment		175			—			22,470			—			—
		Investment loss on equity investment		—			18,123			—			—			—
		Change in fair value of derivative liability		—			—			11,692,287			3,166,671			—
		Goodwill impairment		—			—			58,397			—			—
	Changes in assets and liabilities, net of effects of acquisitions:
		Accounts receivable		41,511			(1,331,107	)		(4,525,148	)		(6,637,219	)		(13,830,736	)
		Inventory		—			(80,660	)		(1,030,529	)		(616,331	)		(299,385	)
		Prepaid expenses and other current assets		(28,569	)		(121,304	)		(1,740,427	)		(1,540,625	)		(1,637,740	)
		Amounts due from related parties		—			(252,576	)		(2,487,456	)		(134,018	)		1,496,232
		Accounts payable		(13,645	)		429,144			(1,609,816	)		(265,450	)		3,902,341
		Amounts due to related parties		—			2,013,898			(2,322,276	)		(1,200,260	)		—
		Income taxes payable		—			608,235			825,100			3,013,471			756,637
		Deferred taxes assets		—			(126,769	)		78,586			(183,304	)		(267,527	)
		Accrued expenses and other current liabilities		(643	)		573,053			4,174,214			1,750,826			1,570,458
Net cash provided by (used in) operating activities			$	3,303		$	1,891,036		$	5,080,349		$	(292,166	)	$	9,867,625
Investing activities:
	Purchase of equipment		$	—		$	(1,467,730	)	$	(6,373,124	)	$	(3,365,504	)	$	(24,307,054	)
	Rental deposits			—			(570,904	)		(1,035,474	)		(946,712	)		(7,651,560	)
	Acquisition of assets from a related party			—			(1,208,131	)		—			—			—
	Purchase of subsidiaries, net of cash acquired			—			—			(4,606,761	)		(363,450	)		(4,437,092	)
	Acquisition of equity investment			—			(30,205	)		(90,617	)		(90,617	)		—
	Investment in available-for-sale securities			—			—			—			—			(34,950,969	)
Cash used in investing activities			$	—		$	(3,276,970	)	$	(12,105,976	)	$	(4,766,283	)	$	(71,346,675	)
Financing activities:
	Proceeds from short-term loan from a shareholder			—			500,000			—			—			—
	Repayment of short-term loan from a shareholder			—			—			(500,000	)		(500,000	)		—
	Proceeds from issuance of ordinary shares			—			1,625,000			—			—			—
	Proceeds from issuance of Series B convertible redeemable preference shares (net of issuance costs of $437,304)			—			—			12,062,696			12,062,696			—
	Proceeds from issuance of Series C-2 convertible redeemable preference shares (net of issuance costs of $85,000)			—			—			17,415,000			—			—
	Proceeds from short-term bank loan			—			—			—			—			3,089,089
	Proceeds from issuance of ordinary shares upon initial public offering, net of issuance cost of $13,030,119			—			—			—			—			118,847,381
	Capital injection from minority shareholders			—			—			—			—			3,089
Net cash provided by financing activities			$	—		$	2,125,000		$	28,977,696		$	11,562,696		$	121,939,559

F-6

									For the nine months ended
		For the year ended December 31,							September 30,
		2002		2003			2004		2004		2005
		(In U.S. dollars)
									(Unaudited)		(Unaudited)
Effect of exchange rate changes		$	—	$	(37,572	)	$	649	$	78	$	844,429
Net increase in cash and cash equivalents		$	3,303	$	701,494		$	21,952,718	$	6,504,325	$	61,304,938
Cash and cash equivalents, beginning of period			11,591		14,894			716,388		716,388		22,669,106
Cash and cash equivalents, end of period		$	14,894	$	716,388		$	22,669,106	$	7,220,713	$	83,974,044
Supplemental disclosure of cash flow information Income taxes paid		$	—	$	—		$	738	$	738	$	—
	Interest paid	$	—	$	—		$	—	$	—	$	1,950
Supplemental disclosures of non-cash investing activity:
Issuance of ordinary shares in exchange for technical know-how		$	—	$	750,000		$	—	$	—	$	—
Acquisition of subsidiaries:
	Value of ordinary shares issued	$	—	$	—		$	4,524,202	$	4,524,202	$	—
	Cash consideration		—		—			5,402,980		1,442,416		4,437,092
	Accounts payable		—		—			538,860		1,200,770		1,159,923
	Assets acquired (including intangible assets of $742,881, 506,940 and $804,536 and goodwill of $8,908,618, 5,762,200 and $3,667,426 in 2004 and the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited), respectively)	$	—	$	—		$	11,786,572	$	7,995,924	$	6,139,274
Non-cash financing activities:
Reclassification of ordinary shares to Series A convertible redeemable preference shares		$	—	$	—		$	9,360,000	$	9,360,000	$	—
Reclassification of Series A convertible redeemable preference shares to Series C-1 convertible redeemable preference shares		$	—	$	—		$	3,064,890	$	—	$	—
Reclassification of Series B convertible redeemable preference shares to Series C-1 convertible redeemable preference shares		$	—	$	—		$	976,955	$	—	$	—
Series A convertible redeemable preference shares converted into ordinary shares		$	—	$	—		$	—	$	—	$	6,295,110
Series B convertible redeemable preference shares converted into ordinary shares		$	—	$	—		$	—	$	—	$	12,062,696
Series C-1 convertible redeemable preference shares converted into ordinary shares		$	—	$	—		$	—	$	—	$	17,500,350
Series C-2 convertible redeemable preference shares converted into ordinary shares		$	—	$	—		$	—	$	—	$	17,415,000

The accompanying notes are an integral part of these consolidated financial statements.

F-7

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

1.     Organization and Principal Activities

       Prior to May 2003, the Group operated through Shanghai Focus Media Advertisement Co. Ltd. (“Focus Media Advertising”) (formerly Shanghai Aiqi Advertising Co., Ltd. (“Aiqi”)) which was established in September 1997. On April 11, 2003, the majority shareholder of Focus Media Advertisement, Jason Nanchun Jiang, incorporated Focus Media Holding Limited (“Focus Media Holding”, or “the Group”) with the same shareholders of Focus Media Advertisement. Through contractual arrangements described below, Focus Media Holding is deemed the primary beneficiary of Focus Media Advertisement resulting in Focus Media Advertisement being deemed a subsidiary of Focus Media Holding under the requirements of FASB Interpretation (“FIN”) No. 46 (Revised) “Consolidation of Variable Interest Entities” (“FIN 46(R)”) in substance, an existing company, Focus Media Advertisement, has been reorganized as a subsidiary of the new company Focus Media Holding. Focus Media Holding has the same controlling shareholder, the same non-controlling shareholders. Accordingly, the Group’s financial statements are prepared by including the financial statements of Focus Media Advertisement through May 2003 and subsequently the Group’s consolidated financial statements which includes Focus Media Holding and its subsidiaries and Focus Media Advertisement and its subsidiaries. As of September 30, 2005, the Group’s subsidiaries and Focus Media Advertisement’s subsidiaries include the following entities:

Focus Media Holding subsidiaries:

			Place of	Percentage
Subsidiary	Date of acquisition	Date of incorporation	incorporation	of ownership
Focus Media (China) Holding Ltd. (“Focus Media Hong Kong”)	N/A	April 23, 2003	Hong Kong (“HK”)		100%
Focus Media Technology (Shanghai) Co., Ltd. (“Focus Media Technology”)	N/A	June 19, 2003	PRC		100%
Perfect Media Holding Ltd. (“Perfect Media”)	September 22, 2004	June 4, 2004	British Virgin Islands (“BVI”)		100%
Focus Media Qingdao Holding Ltd. (“Focus Media Qingdao”)	October 15, 2004	March 22, 2004	BVI		100%
Focus Media Dalian Holding Ltd. (“Focus Media Dalian”)	October 15, 2004	March 24, 2004	BVI		100%
Focus Media Changsha Holding Ltd. (“Focus Media Changsha”)	October 15, 2004	March 11, 2004	BVI		100%
Focus Media Digital Information Technology (Shanghai) Co., Ltd. (“Focus Media Digital”)	N/A	October 27, 2004	PRC		100%
Sorfari Holdings Limited (“Sorfari”)	March 22, 2005	June 7, 2004	BVI		100%
Focus Media Tianjin Limited (“Focus Media Tianjin”)	March 21, 2005	November 19, 2004	BVI		80%
Capital Beyond Limited (“CBL”)	March 21, 2005	November 15, 2004	BVI		100%

F-8

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

Focus Media Advertisement subsidiaries:

			Place of	Percentage
Subsidiary	Date of acquisition	Date of incorporation	incorporation	of ownership
Sichuan Focus Media Advertising Co., Ltd. (“Focus Media Sichuan”)	N/A	October 16, 2003	PRC		90%
Shanghai Focus Media Advertising Agency Co., Ltd. (“Focus Media Advertising Agency”)	N/A	October 15, 2004	PRC		100%
Shanghai On-Target Advertisement Co., Ltd. (“On-Target”)	April 23, 2004	April 15, 2003	PRC		60%
Wuhan Ge Shi Focus Media Advertising Co., Ltd. (“Focus Media Wuhan”)	April 23, 2004	November 13, 2003	PRC		75%
Yunnan Focus Media Advertising Co., Ltd. (“Focus Media Yunnan”)	July 9, 2004 and November 9, 2004	March 3, 2004	PRC		89.5%
Nanjing Focus Media Advertising Co., Ltd. (“Focus Media Nanjing”)	August 10, 2004	September 18, 2003	PRC		90%
Zhejiang Rui Hong Focus Media Advertising Co., Ltd. (“Focus Media Zhejiang”)	September 15, 2004	March 24, 2004	PRC		80%
Shanghai Perfect Media Advertising Co., Ltd. (“Shanghai Perfect Media”)	September 22, 2004	June 4, 2003	PRC		100%
Qingdao Fukesi Advertisement Co. Ltd.(“Qingdao Advertising”)	October 15, 2004	March 22, 2004	PRC		100%
Dalian Focus Media Advertising Co., Ltd. (“Dalian Advertising”)	October 15, 2004	March 24, 2004	PRC		100%
Changsha Focus Media Shiji Advertisement Co., Ltd. (“Changsha Advertising”)	October 15, 2004	March 11, 2004	PRC		100%
Chongqing Geyang Focus Media Culture Advertising & Broadcasting Co. Ltd. (“Chongqing Advertising”)	September 15, 2004	October 10, 1999	PRC		60%
Shanghai Qianjian Advertising Co., Ltd. (“Qianjian Advertising”)	October 15, 2004	July 3, 2003	PRC		100%
Xi’an Focus Media Culture & Information Communication Co., Ltd. (“Xian Focus Media”)	March 21, 2005	September 16, 2003	PRC		70%
Xiamen Guomao Advertising Co., Ltd. (“Xiamen Advertising”)	March 4, 2005	March 23, 1998	PRC		100%
Tianjin Tongsheng Modern Display and Advertisement Co., Ltd. (“Tianjin Advertising”)	March 21, 2005	September 3, 1998	PRC		80%
Zhuhai Focus Media Culture and Communication Co., Ltd. (“Focus Media Zhuhai”)	March 21, 2005	June 21, 2004	PRC		100%
Hebei Tianmaweiye Advertisement Co., (“Hebei Advertising”)	March 22, 2005	December 6, 2004	PRC		100%
Guangdong Framedia Advertisement Co., Ltd. (“Guangdong Framedia”)	March 21, 2005	December 16, 2003	PRC		100%
Shenzhen Bianjie Building Advertising Co., Ltd. (“Shenzhen Bianjie”)	August 15, 2005	March 3, 2005	PRC		100%

       Focus Media Holding and all of its subsidiaries including Focus Media Advertisement and its subsidiaries are collectively referred to as the “Group”.

F-9

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       In May 2003, in connection with the establishment of Focus Media Holding, the Group changed its business model from operating as an advertising agency generating revenue from commissions for selling advertisements to media companies on behalf of advertising clients to selling out-of-home television advertising time slots on its network of flat-panel television advertising displays located in high traffic areas in commercial locations.

       PRC regulations currently limit foreign ownership of companies that provide advertising services, including out-of-home television advertising services. To comply with these regulations, the Group conducts substantially all of its activities through Focus Media Advertisement and its subsidiaries, a variable interest entity which was renamed from Aiqi, and was established in Shanghai China on September 2, 1997. Focus Media Advertisement entered into various agreements with the Group, including a transfer of trademarks and exclusive services agreement. Under these agreements, Focus Media Advertisement has the right to use the trade name of the Group, and the Group, through Focus Media Technology, is the provider of technical and consulting services to Focus Media Advertisement. In return, Focus Media Advertisement is required to pay the Group services fees for the use of trade name and for the technical and consulting services it receives. The technical and consulting service fees are adjusted at the Group’s sole discretion. The Group is entitled to receive service fees in an amount up to all of the net income of Focus Media Advertising. The Group has also provided funds to Focus Media Advertisement in an amount up to $1,208,226 as of December 31, 2004, to finance the development of its business. Subsequently, Focus Media Advertising received additional loans of approximately $5 million.

       In addition, the Group has been assigned all voting rights by the direct and indirect owners of Focus Media Advertisement through an agreement valid indefinitely that cannot be amended or terminated except by written consent of all parties. Finally the Group has the option to acquire the equity interests of Focus Media Advertisement and its subsidiaries for a purchase price equal to the respective registered capital of Focus Media Advertisement and its subsidiaries or a proportionate amount thereof, or such higher price as required under PRC laws at the time of such purchase. Each of the shareholders of Focus Media Advertisement has agreed to pay the Group any excess of the purchase price paid for such equity interests in, or assets of, Focus Media Advertisement or its subsidiaries over the registered capital of Focus Media Advertisement or its subsidiaries in the event that such option is exercised.

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

       In January 2003, the Financial Accounting Standards Board (“FASB”) issued FIN No. 46 “Consolidation of Variable Interest Entities”, which requires certain variable interest entitles to be consolidated by the primary beneficiary of the entity if the ownership interest held by the equity investors in the entity does not have characteristics of a controlling financial interest or does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective for all new variable interest entities created or acquired after January 31, 2003. FASB issued FIN 46 (R) which provides for the deferral of the

F-10

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

implementation date to the end of the first reporting period after March 15, 2004, unless the Group has a special purpose entity, in which case the provisions must be applied for fiscal years ended December 31, 2003. However, the Group has elected to retroactively apply FIN 46 (R) and has consolidated Focus Media Advertisement as its variable interest entity since May 2003.

2.     Summary of Significant Accounting Policies

(a) Basis of Presentation

       The consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements reflect the operations of Focus Media Advertisement through May 2003 and our consolidated operations thereafter.

(b) Basis of Consolidation

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

(c) Cash and Cash Equivalents

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

(d) Use of Estimates

       The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s financial statements include allowance for doubtful accounts, the useful lives of and impairment for equipment and intangible assets, valuation allowance for deferred tax assets and impairment of goodwill.

(e) Significant Risks and Uncertainties

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

F-11

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

(f) Investment in Available-for-sale Securities

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

(g) Inventory

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

(h) Equipment, Net

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

Flat-panel television screens	5 years
Shoes brushing machinery	5 years
Computers and office equipment	5 years
Vehicles	5 years
Leasehold Improvements	lesser of the term of the lease or the estimated useful lives of the assets

       The Group assembles certain of the Flat-panel television screens equipment. In addition to costs under assembly contracts, external costs directly related to the assembly of such equipment, including duty and tariff, equipment installation and shipping costs are capitalized.

(i) Impairment of Long-Lived Assets

       The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets.

(j) Goodwill

       Beginning in 2002, with the adoption of Statement of Financial Accounting Standards (“SFAS”) 142, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized, but instead tested for impairment upon first adoption and annually thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. SFAS No. 142 requires the Group to complete a two-step goodwill impairment test. The first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. SFAS No. 142 requires completion of this first step within the first six months of initial adoption and annually thereafter. If the carrying amount of a reporting unit exceeds its fair value, the second step

F-12

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

       Management performed the annual goodwill impairment test as of December 31, 2004 and an impairment loss of $58,397 was recorded for the Perfect Media reporting unit. The fair value of the Perfect Media reporting unit was estimated using a combination of expected present value of future cash flow and income approach valuation methodologies. The Group recorded an impairment charge because the amount the Group paid for the acquisition of Perfect Media exceeded its fair market value.

       The changes in the carrying amount of goodwill for the year ended December 31 2004 and nine months ended September 30, 2005 are as follows:

				Out-of-home
				television
	Perfect Media			services
Balance as of January 1, 2004	$	—		$	—
Goodwill acquired during the period		4,783,749			4,717,785
Tax benefits arising from acquired subsidiaries		(39,527	)		(345,524	)
Impairment losses		(58,397	)		—
Balance as of December 31, 2004	$	4,685,825			4,372,261
Goodwill acquired during the period (unaudited)					3,457,724
Tax benefits arising from acquired subsidiaries (unaudited)					(181,352	)
Modification of original purchase price allocation					209,702
Translation adjustments (unaudited)					279,187
Balance as of September 30, 2005 (unaudited)				$	8,137,523

       Pursuant to the provision of FAS 141, upon completion of its purchase per allocations in 2005, the Group increased goodwill by $209,702 and decreased net assets by $209,702.

       Commencing in 2005, the Group reorganized the financial information reviewed by the chief operating decision maker, the chief executive officer, whereby all financial information is prepared and presented on a consolidated basis. Accordingly, the Group believes it has only one operating segment which is the out-of-home advertising services. As a result, for the purpose of SFAS No. 142, goodwill will be tested for impairment at the consolidated level as of December 31, 2005.

(k) Revenue Recognition

       The Group’s revenues are primarily derived from advertising services and to a lesser extent, sales from advertising equipment. Revenues from advertising services are recognized ratably over

F-13

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

the period in which the advertisement is displayed. Revenues from advertising equipment are recognized once the advertising equipment is delivered. Accordingly, revenue is recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assured.

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

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

       The Group presents advertising service revenue, net of business tax incurred, which amounts to $1,405, $311,770, $2,788,233, $1,866,080 and $4,399,662 for the years ended December 31, 2002, 2003 and 2004 and the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited), respectively.

(l) Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease periods.

(m) Advertising Costs

       The Group expenses advertising costs as incurred. Total advertising expenses were $nil, $17,919, $45,712, $25,825 and $45,866 for the years ended December 31, 2002 and 2003 and 2004, and the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited) respectively and have been included as part of selling and marketing expenses.

(n) Foreign Currency Translation

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

F-14

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

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

(o) Income Taxes

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

(p) Comprehensive Income (Loss)

       Comprehensive income (loss) includes unrealized gains and losses on investments and foreign currency translation adjustments. Comprehensive income (loss) is reported in the statements of shareholder’s equity (deficiency).

(q) Fair Value of Financial Instruments

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

(r) Share-based Compensation

       The Group grants share options to its employees and certain non-employees. The Group records a compensation charge for the excess of the market value of the share at the grant date or any other measurement date over the amount an employee must pay to acquire the share. The compensation expense is recognized over the applicable service period, which is usually the vesting period. The Group accounts for share-based awards to non-employees by recording a charge for the services rendered by the non-employees using the Black-Scholes option pricing model.

F-15

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       For the purpose of the foregoing pro forma calculation, had compensation cost for options granted to employees under the Group’s share option plan been determined based on fair value at the grant dates, the Group’s pro forma income (loss) would have been:

					Nine months ended
					September 30,
		2004			2004			2005
					(unaudited)			(unaudited)
Net income, as reported		$	372,752		$	1,698,255		$	14,122,459
Add: Share based compensation as reported			488,711			182,559			646,400
Less: Share based compensation determined using the fair value method			(566,819	)		(204,876	)		(2,032,693	)
Pro forma net income		$	294,644		$	1,675,938		$	12,736,166
Deemed dividend on Series A convertible redeemable preference shares			(8,308,411	)		(8,308,411	)		—
Deemed dividend on Series B convertible redeemable preference shares			(2,191,442	)		(2,191,442	)		—
Deemed dividend on Series C-1 convertible redeemable preference shares			(13,356,087	)		—			—
Premium of Series B convertible redeemable preference shares			12,906,774			—			—
Pro forma net (loss) income attributable to holders of ordinary shareholders		$	(10,654,522	)	$	(8,823,915	)	$	12,736,166
Basic (loss) income per share:
	As reported	$	(0.07	)	$	0.01		$	0.07
	Pro forma	$	(0.07	)	$	(0.05	)	$	0.06
Diluted (loss) income per share:
	As reported	$	(0.07	)	$	0.01		$	0.06
	Pro forma	$	(0.07	)	$	(0.05	)	$	0.05

       The fair value of each employee option and share granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants during the applicable period.

			Nine months ended
			September 30,
	2004		2005
			(unaudited)
Option granted to employees:
Average risk-free rate of return		2.97%		3.89%
Weighted average expected option life		1-3  years		3 years
Volatility rate		36.2%		36.2%
Dividend yield		0%		0%

       Prior to 2004 the Group did not grant share options to employees, directors, consultants or advisors or any members of the Group.

F-16

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

(s) Income (loss) per Share

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

(t) Recently Issued Accounting Standards

       In January 2003, the FASB issued Interpretation Number FIN 46, which clarifies the application of Accounting Research Bulletin No. 51. “Consolidated Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (R) to address certain FIN 46 implementation issues. The Group has elected to retroactively apply FIN 46 (R) and has consolidated Focus Media Advertisement as its variable interest entity from its inception.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Group’s financial position, cash flows or results of operations.

       In December 2003, the Security Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on the Group’s consolidated financial statements.

F-17

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       In March 2004 the EITF reached a consensus on Issue No. 03-01. “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. EITF No. 0301 provides guidance on recording other-than-temporary impairments of cost method investments and requires additional disclosures for those investments. The recognition and measurement guidance in EITF No. 03-01 should be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for fiscal years ending after June 15, 2004 and are required only for annual periods. The Group does not believe that the adoption of this standard will have a material impact on its financial positions or results of operations.

       In December 2004, the FASB issued SFAS No. 123 (revised 2004) (“SFAS No. 123(R)”). “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on the grant-date fair values. Pro forma disclosure previously permitted under SFAS 123 is no longer an alternative. The new standard will be effective for us in the first annual reporting period beginning after January 1, 2006. Under SFAS 123(R), we could elect the modified prospective or modified retrospective method for transition on the adoption of this new standard. Under the modified retrospective method, prior periods are adjusted on a basis consistent with the pro forma disclosures previously required for those periods by SFAS 123. Under the modified prospective method, compensation expense for all unvested stock options must be recognized on or after the required effective date based on the grant-date fair value of those stock options. The Group will commence the adoption of SFAS 123(R) on January 1, 2006. Prior to the adoption of SFAS 123(R), the Group has continued to utilize the accounting method prescribed by APB Opinion No. 25 and have adopted the disclosure requirements of SFAS 123, as amended by SFAS No. 148.

3.     Acquisitions

       During 2004 and 2005, in an effort to continue to expand their networks in desirable locations and to establish other stand alone networks that provide effective channels for advertisers the Group made the following acquisitions:

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

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

F-18

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       (b) On April 23, 2004, the Group acquired 75% of the outstanding ordinary shares of Focus Media Wuhan, an advertising service provider, for zero consideration. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

				Amortization
				period
Net tangible liabilities assumed		$	4,667
Intangible assets:
	Lease Agreements		29,269		2.3 years
Total		$	24,602

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

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

       (d) On August 10, 2004, the Group acquired 90% of the outstanding ordinary shares of Focus Media Nanjing, an advertising service provider for zero consideration. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

       (e) On September 15, 2004, the Group acquired 80% of the outstanding ordinary shares of Focus Media Zhejiang, an advertising service provider, in exchange for cash of $821,593 of which $410,797 was paid as of December 31, 2004 and the remainder was paid in 2005. The acquisition

F-19

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

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

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

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

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

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

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

F-20

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       The purchase price was allocated as follows:

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

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

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

       (h) On October 15, 2004, the Group acquired 100% of the outstanding ordinary shares of Focus Media Dalian including its then variable interest entity Dalian Advertising, an advertising services provider, in exchange for cash of $989,584. Immediately following the acquisition Focus Media Dalian became a wholly owned subsidiary of Focus Media Holding and Dalian Advertising became a wholly owned subsidiary of Focus Media Advertisement. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

F-21

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

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

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

       (j) On October 15, 2004, the Group acquired 100% of the outstanding ordinary shares of Qianjian Advertising, an advertising services provider, in exchange for cash of $338,307 of which $265,822 was paid as of December 31, 2004 and the remainder will be paid in 2005. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

Unaudited

       (k) On March 21, 2005, the Group increased its existing ownership of Xian Focus Media Culture & Communication Co., Ltd, an advertising service provider, from 10% to 70% by acquiring an additional 60% of the outstanding ordinary shares, in exchange for cash consideration of $84,577, all of which was paid as of September 30, 2005. The acquisition was recorded using the

F-22

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

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

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

       (l) On March 4, 2005, the Group acquired 100% of the outstanding ordinary shares of Xiamen Advertising, an advertising services provider, in exchange for cash consideration of $327,505, all of which was paid as of September 30, 2005. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

       (m) On March 21, 2005, the Group acquired 80% of the outstanding ordinary shares of Focus Media Tianjin, including its then variable interest entity Tianjin Advertising, an advertising services provider, in exchange for cash consideration of $797,439, of which $647,829 was paid as of September 30, 2005 and the remainder has been paid in November 2005. Immediately following the acquisition, Focus Media Tianjin became an 80% owned subsidiary of Focus Media Holding and Tianjin Advertising became an 80% owned subsidiary of Focus Media Advertisement. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

F-23

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       (n) On March 21, 2005, the Group acquired 100% of the outstanding ordinary shares of Focus Media Zhuhai, an advertising services provider, in exchange for cash consideration of $42,288, all of which was paid as of September 30, 2005. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

       (o) On March 21, 2005, the Group acquired 100% of the outstanding ordinary shares of CBL, including its then variable interest entity Guangdong Framedia, an advertising services provider, in exchange for cash consideration of $2,054,008, of which $1,598,577 was paid as of September 30, 2005 and the remainder has been paid in November 2005. Immediately following the acquisition, CBL became a 100% owned subsidiary of Focus Media Holding and Guangdong Framedia became a 100% owned subsidiary of Focus Media Advertisement. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

       (p) On March 22, 2005, the Group acquired 100% of the outstanding ordinary shares of Sorfari, including its then variable interest entity Hebei Advertising, an advertising services provider, in exchange for cash consideration of $773,274, of which $nil was paid as of September 30, 2005 and the remainder has been paid in 2005. Immediately following the acquisition, Sorfari became a 100% owned subsidiary of Focus Media Holding and Hebei Advertising became a 100% owned subsidiary of Focus Media Advertisement. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

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

F-24

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       (q) On August 15, 2005, the Group acquired 100% of the outstanding ordinary shares of Shenzhen Bianjie, in exchange for cash consideration of $456,485. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

				Amortization
				period
Net tangible liabilities assumed		$	40,788
Intangible assets:
	Lease Agreements		22,141		2.34 years
Goodwill			475,132		N/A
Total		$	456,485

       The purchase price allocation and intangible asset valuations for each of the acquisitions described above were based on a valuation analysis provided by American Appraisal, a third party valuation firm. The valuation analysis utilizes and considers generally accepted valuation methodologies such as the income, market, cost and actual transaction of Group shares approach. The Group has incorporated certain assumptions which include projected cash flows and replacement costs.

Pro forma

       The following summarized unaudited pro forma results of operations for the year ended December 31, 2004 and the period ended September 30, 2005 assuming that all significant acquisitions during the year ended December 31, 2004 the period ended September 30, 2005 occurred as of January 1, 2004 and 2005, respectively. These pro forma results have been prepared for comparative purposes only and do not purport to be indications of the results of operations which actually would have resulted had the significant acquisitions occurred as of January 1, 2004 and 2005.

				Nine months
				ended
	December 31,			September 30,
	2004			2005
	(unaudited)			(unaudited)
Revenues	$	37,799,600		$	43,805,296
Net income (loss) attributable to holders of ordinary shares		(14,944,599	)		13,771,132
Income (loss) per share — basic	$	(0.06	)	$	0.07
Income (loss) per share  — diluted		(0.06	)		0.06

4.     Investment in available-for-sale securities

       The following is a summary of short-term available-for-sale securities:

	September 30, 2005 (unaudited)
			Gross
			unrealized		Translation
	Cost		gain		adjustments			Fair value
Federal home loan	$	35,000,000	$	239,929	$	(288,960	)	$	34,950,969

F-25

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

      All the securities are due within one year.

5.     Accounts Receivable, net

       Accounts receivable, net consist of the following:

	December 31,
							September 30,
	2002		2003		2004		2005
							(unaudited)
Billed receivable	$	78,354	$	858,649	$	4,782,521	$	13,896,688
Unbilled receivables		—		550,812		1,837,428		6,410,211
	$	78,354	$	1,409,461	$	6,619,949	$	20,306,899

       Unbilled receivables represent amounts earned under advertising contracts in progress but not billable at the respective balance sheet dates. These amounts become billable according to the contract term. The Group anticipates that substantially all of such unbilled amounts will be billed and collected within twelve months of balance sheet dates.

6.     Inventory

       Inventory consists of the following:

	December 31,
							September 30,
	2002		2003		2004		2005
							(unaudited)
Finished goods	$	—	$	74,140	$	1,075,210	$	237,981
Spare parts		—		16,810		167,930		132,710
	$	—	$	90,950	$	1,243,140	$	370,691

7.     Prepaid Expenses and Other Current Assets

       Prepaid expenses and other current assets consist of the following:

	December 31,
							September 30,
	2002		2003		2004		2005
							(unaudited)
Other receivables	$	—	$	100,576	$	295,650	$	1,054,610
Advance to supplier		—		—		—		1,000,000
Staff advances		27,602		48,330		239,136		897,606
Prepaid expenses		—		—		162,304		323,894
Interest receivables		—		—		—		259,805
Deposit for acquisitions		—		—		362,472		181,156
Note receivables		—		—		42,288		—
Deferred offering costs		—		—		1,007,618		—
	$	27,602	$	148,906	$	2,109,468	$	3,717,071

F-26

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

8.     Acquired Intangible Assets, Net

       Acquired intangible assets, net consist of the following:

	December 31,
								September 30,
	2002		2003		2004			2005
								(unaudited)
Lease agreements	$	—	$	—	$	529,676		$	1,196,165
Customer bases		—		—		273,820			429,665
Less: accumulated amortization		—		—		(95,190	)		(405,593	)
Translation adjustments		—		—		—			11,665
	$	—	$	—	$	708,306		$	1,231,902

       In 2004 and 2005, the Group acquired certain lease agreements and customer bases through various acquisitions (see Note 3). The Group also recorded amortization expense of $nil, $nil, $95,190, $15,848 and $310,403 for the years ended December 31, 2002, 2003 and 2004 and the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited), respectively. The Group will record amortization expense of $439,019, $499,990, $268,636, $167,403 and $61,381, for 2005, 2006, 2007, 2008 and 2009, respectively.

9.     Long-term investment

       Equity investments consist of the following:

		December 31,
								September 30,
		2002		2003		2004		2005
								(unaudited)
On-Target(a)		$	—	$	—	$	—	$	—
Chongqing Advertising(b)			—		—		—		—
Focus Media Hong Kong Limited(c)			—		—		—		—
	Total	$	—	$	—	$	—	$	—

       Cost Investment consists of the following:

	December 31,
							September 30,
	2002		2003		2004		2005
							(unaudited)
Xian Focus Media Advertising Co. Ltd. (“Xian Focus Media”)(d)	$	—	$	12,082	$	12,088	$	—

a)

In August 2003, the Group acquired 30% of the outstanding ordinary shares of On-Target for $18,123. Subsequently in April 2004 the Group acquired an additional 30% of the outstanding ordinary shares of On-Target. Accordingly, the Group commenced consolidating On-Target upon obtaining control of this subsidiary (see Note 3 (a)).

b)

In September 2004, the Group acquired 60% of the outstanding ordinary shares of Chongqing Advertising for $72,494. The Group has granted certain participating rights to the minority shareholder of Chongqing Advertising which precludes the Group from consolidating the operation of Chongqing Advertising. Accordingly, the Group has accounted for its investment in Chongqing Advertising under the equity method of accounting through November 30, 2004. On December 1, 2004, the minority shareholder of Chongqing Advertising waived its participating rights accordingly, commencing on December 1, 2004 the Group consolidated Chongqing Advertising.

F-27

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

c)

In March 2004, the Group formed Focus Media Hong Kong Limited in conjunction with another unrelated party and obtained 20% of the outstanding ordinary shares of Focus Media Hong Kong Limited. In exchange for the 20% ownership in Focus Media Hong Kong Limited the Group contributed the use of the Group’s brand name and certain technology. The value attributed to the investment of Focus Media Hong Kong Limited is nil as the exchange of the non-monetary assets related to the formation of Focus Media Hong Kong Limited.

d)

On September 23, 2003, the Group acquired 10% of the outstanding ordinary shares of Xian Focus Media. The Group has accounted for its investment in Xian Focus Media using the cost method of accounting. Subsequently in March 2005, the Group acquired an additional 60% of the outstanding ordinary shares of Xian Focus Media. Accordingly, the Group commenced consolidating Xian Focus Media upon obtaining control of this subsidiary (See Note 3(k)).

10.     Equipment, Net

       Equipment, net consists of the following:

	December 31,
										September 30,
	2002			2003			2004			2005
										(unaudited)
Flat-panel television screens	$	—		$	1,830,972		$	9,245,629		$	30,640,365
Shoes brushing machinery		—			—			138,633			196,519
Computers and office equipment		15,711			292,200			675,053			1,140,171
Leasehold improvements		—			14,505			167,932			399,141
Vehicles		—			—			83,834			344,285
	$	15,711		$	2,137,677		$	10,311,081		$	32,720,481
Less: accumulated depreciation and amortization		(7,877	)		(159,278	)		(1,142,742	)		(4,176,389	)
Assembly in progress		—			—			28,804			4,365,810
	$	7,834		$	1,978,399		$	9,197,143		$	32,909,902

       Assembly in process relates to the assembly of flat-panel television screens. These assets will be placed in service in 2005 and 2006.

11.     Short-term Bank Loan

       The Company had $3,089,089 outstanding under credit arrangement which consisted of lines of credit and revolving credit agreement at September 30, 2005 (unaudited). The amount available to the Group for additional borrowings under the lines of credit and revolving agreement was nil at September 30, 2005 (unaudited). The agreements were subject to interest rates of 10% discount of six-month loan interest rate of The People’s Bank of China. The short-term loan was guaranteed by Focus Media Advertisement, Focus Media Advertising Agency and Focus Media Technology. The interest expense incurred in the nine months ended September 30, 2005 (unaudited) was $27,100. The average interest rate on the loan is 4.96% as of September 30, 2005 (unaudited).

12.     Short-term Loan from a Shareholder

       As of December 31, 2003, the interest free short-term loan from a shareholder was composed of $500,000 repayable on June 30, 2004. The proceeds from the loan were used in the Group’s general operating activities and secured by the Group’s outstanding ordinary shares. The loan was repaid in June 2004.

F-28

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

13.     Accrued Expenses and Other Current Liabilities

       Accrued expenses and other current liabilities consist of the following:

	December 31,						September 30,
	2002		2003		2004		2005
							(unaudited)
Accrued expenses	$	—	$	119,840	$	759,817	$	2,467,977
Other taxes payables		182		248,288		1,728,850		2,393,641
Advance from customers		—		94,308		1,459,976		2,284,560
Accrued employee payroll and welfare		—		86,426		473,054		618,733
Accrued offering costs		—		—		767,821		553,051
Payables related to acquisitions		—		—		538,860		555,336
Deposit from customer		—		—		—		247,127
Amount due to minority shareholders of subsidiary		—		—		426,858		—
Others		28		12,372		436,199		476,414
	$	210	$	561,234	$	6,591,435	$	9,596,839

14.     Share Option

       In June 2003, the Group adopted the 2003 employee share option scheme (the “Option Plan”) which allows the Group to offer a variety of incentive awards to employees, directors or consultants and advisors or any members of the Group. For the year ended December 31, 2004 and nine months ended September 30, 2005 (unaudited) options to purchase 25,208,400 and 69,460,230 ordinary shares are authorized under the Option Plan, respectively. Under the terms of the Option Plan, options are generally granted at prices equal to the fair market value as determined by the Board of Directors and expire 10 years from the date of grant and generally vest over 3 years while certain options granted vest over 1 year. Subsequent to the initial public offering, options will be granted at the fair market value of the ordinary shares at the date of grant. As of December 31, 2004 and nine months ended September 30, 2005 (unaudited), options to purchase 25,208,200 and 69,460,030 ordinary shares were granted and outstanding. Not more than 30% of the Group’s share capital is reserved for issuance under the Option Plan.

Options to Employees

       In July and August 2004, the Group granted 20,643,400 share options with an exercise price of $0.24 to purchase ordinary shares to directors, officers and employees. The Group recorded deferred share based compensation of $969,959 as of December 31, 2004 and compensation expense of $364,876 for 2004 related to the difference between the exercise price and the deemed fair value of the ordinary shares. Prior to the Group’s initial public offering, the derived fair value of the ordinary shares underlying the options was determined for the July and August 2004 grants, based on a retrospective third-party valuation conducted by American Appraisal using a generally accepted valuation methodology, the guideline companies approach, which incorporates certain assumptions including the market performance of comparable listed companies as well as the financial results and growth trends of the Group, to derive the total equity value of the Group. The valuation model allocated the equity value between the ordinary shares and the preference shares and determined the fair value of ordinary shares based on two assumptions: where conversion into

F-29

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

ordinary shares would result in a higher economic value, preference shares were treated as if they had converted into ordinary shares; and preference shares that have a value higher than their conversion price were assigned a value that took into consideration their liquidation preference. Our ordinary shares were assigned a value equal to their pro rata share of the residual amount, if any, that remained after consideration of the liquidation preference of preferred shares with a value below their conversion price.

       In January and February 2005, the Group granted 6,020,000 share options with exercise prices ranging from $0.58 to $0.75 to purchase ordinary shares to directors, officers and employees. In July 2005, the Group granted 11,683,630 share options with exercise price of $1.7 to purchases ordinary shares to directors, officers and employees. The Group has not issued stock options under the Option Plan after initial public offering. The Group recorded deferred share based compensation of $813,614 as of September 30, 2005 (unaudited) and compensation expense of $364,876, $118,421 and $410,934 for 2004 and for the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited) related to the difference between the exercise price and the deemed fair value of the ordinary shares. The Group determined the fair value of ordinary shares for those grants in January and February 2005 using the Series C preference share price of $0.51 and the fair value of ordinary shares for the grants in July 2005 using the initial public offering price.

Options to Non-employees

       In 2004, the Group also granted 4,564,800 share options with an exercise price of $0.24 to purchase ordinary shares to its external consultants and advisors in exchange for past services, which part of them vest over 1 year and part of them vest over 3 years. In February 2005, the Group granted 1,240,000 share options with an exercise price of $0.75 to purchase ordinary shares to its external consultants and advisors in exchange for services. In July 2005, the Group granted 100,000 share options with an exercise of $1.7 to purchase ordinary to its external consultants and advisors in exchange for services. The Group recorded compensation expense of approximately $123,835 $64,138 and $235,466 for 2004 and the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited) estimated using the Black-Scholes option pricing model as such method provides a more accurate estimate of the fair value of services received by the external consultants and advisors.

       The following assumptions were used in the Black-Scholes option pricing model:

			Nine months
			ended
	December 31,		September 30,
	2004		2005
			(unaudited)
Option granted to external consultants and advisors:
Average risk-free rate of return		2.97%		3.88%
Weighted average expected option life		1-3 years		3 years
Volatility rate		36.2%		36.2%
Dividend yield		0%		0%

       Prior to 2004 the Group did not grant share options to employees, directors or external consultants and advisors or any members of the Group.

F-30

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       A summary of the share option activity is as follows:

			Weighted
	Number of		average
	option		exercise price
Options outstanding at December 31, 2003		—	$	—
Granted		25,208,200	$	0.24
Cancelled		—
Options outstanding at December 31, 2004		25,208,200	$	0.24
Granted		19,043,630	$	1.31
Cancelled		—		—
Options outstanding at September 30, 2005 (unaudited)		44,251,830	$	0.70

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

	December 31,		September 30,
	2004		2005
			(unaudited)
Ordinary shares	$	0.10	$	0.16

       The following table summarizes information with respect to share options outstanding at September 30, 2005 (unaudited)

	Options Outstanding						Options Exercisable
			Weighted
			average		Weighted				Weighted
			remaining		average				average
	Number of		contractual		exercise		Number		exercise
	outstanding		life		price		exercisable		price
Ordinary shares:
$0.24		25,208,200		8.76 years	$	0.24		16,907,440	$	0.24
$0.58		3,200,000		9.25 years	$	0.58		—		—
$0.75		4,060,000		9.34 years	$	0.75		—		—
$1.70		11,783,630		9.78 years	$	1.70		—		—
		44,251,830

F-31

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       The following table summarizes information regarding options issued within 12-month prior to September 30, 2005 (unaudited):

	Number of		Fair value of						Type of
Grant Date	options issued		ordinary shares		Exercise price		Intrinsic value		valuation
July 5, 2004		14,391,800	$	0.29	$	0.24	$	0.05		*
August 1, 2004		506,800	$	0.29	$	0.24	$	0.05		*
August 10, 2004		504,200	$	0.29	$	0.24	$	0.05		*
August 25, 2004		9,805,400	$	0.29	$	0.24	$	0.05		*
January 1, 2005		1,200,000	$	0.51	$	0.58		—		**
February 2, 2005		2,000,000	$	0.51	$	0.58		—		**
February 2, 2005		4,060,000	$	0.51	$	0.75		—		**
July 13, 2005		11,783,630	$	1.70	$	1.70		—		***
		44,251,830
Type of Valuation

*  The fair value was determined based on a retrospective unrelated party valuation.

**  Based on Series C-2 convertible redeemable preference shares sold to third party members for cash proceeds (Note 15(c))

***  The fair value was determined based on the initial public offering price.

15.     Income Taxes

       Focus Media Holding and certain of its subsidiaries are tax-exempted companies incorporated in the British Virgin Islands.

       Focus Media Hong Kong has not recorded a tax provision for Hong Kong tax purposes as the Group does not have any assessable profit in Hong Kong.

       The Group’s remaining subsidiaries, registered in the PRC (with the exception of Focus Media Technology), are all domestically owned and subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. Focus Media Technology is a Foreign Invested Enterprise and subject to the Foreign Enterprise Income Tax (“FEIT”) on the taxable income as calculated in accordance with the relevant PRC income tax law. EIT end FEIT rate for each Group member operating in the PRC is 33%. In 2002, the applicable EIT rate for each domestically owned Group member operating in the PRC was 18% which is the tax rate for entities with taxable income below $3,625 (RMB 30,000).

F-32

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

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

		December 31,							September 30,
		2002		2003			2004		2005
									(unaudited)
Deferred tax assets:
	Net operating loss carry forwards	$	—	$	215,308		$	276,673	$	645,898
	Accrued expenses temporarily non-deductible		—		42,363			54,281		108,044
	Pre-operating expenses		—		75,764			62,862		80,065
	Bad debt provision		—		29,044			57,147		141,941
	Total deferred tax assets	$	—	$	362,479		$	450,963	$	975,948
Valuation allowance on deferred tax assets			—		(235,710	)		—		(61,026	)
Net deferred tax assets		$	—	$	126,769		$	450,963	$	914,922

       The Group did not have any timing differences relating to deferred tax liabilities as of December 31, 2002 and 2003, 2004 and as of September 30, 2005 (unaudited).

       A significant portion of the deferred tax assets recognized relate to net operating loss carry forwards. The Group operates through multiple subsidiaries and the valuation allowance is considered on each individual subsidiary basis. Where a valuation allowance was not recorded, the Group believes that there was sufficient positive evidence to support its conclusion not to record a valuation allowance as it expects to generate sufficient taxable income in the future.

       The valuation allowance in 2002 and 2003 has increased as it relates to the net operating losses which the Group believes cannot generate future taxable income to recognize the income tax benefit. The valuation allowance from 2003 to 2004 has decreased as the Group has implemented a tax planning strategy which more likely than not allow the Group to utilize its deferred tax assets.

       A reconciliation between total income tax expense and the amount computed by applying the statutory income tax rate to income before taxes is as follows:

	Year ended							Nine months ended
	December 31,							September 30,
	2002		2003		2004			2004		2005
								(unaudited)		(unaudited)
Statutory rate		18%		33%		33%			33%		33%
Permanent book-tax difference		—		45%		58%			24%		(29%	)
Change in valuation allowance		—		15%		(19%	)		5%		(1%	)
Effective tax rate		18%		93%		72%			62%		3%

F-33

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

16.     Net income (loss) per Share

       The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated:

									Nine months ended
		Year ended December 31,							September 30,
		2002		2003		2004			2004			2005
									(unaudited)			(unaudited)
Income (loss) attributable to holders of ordinary shareholders (numerator):		$	183	$	25,483	$	(10,576,414	)	$	(8,801,598	)	$	14,122,459
Shares (denominator):
	Weighted average ordinary shares outstanding used in computing basic income (loss) per share		—		144,657,600		160,998,600			138,027,670			210,377,820
Plus incremental weighted average ordinary shares from assumed conversions of stock option using treasury stock method			—		—		—			—			27,828,790
Weighted average ordinary shares outstanding used in computing diluted income (loss) per share			—		—		160,998,600			138,027,670			238,206,610
Net income (loss) per share — basic		$	—	$	0.00	$	(0.07	)	$	(0.06	)	$	0.07
Net income (loss) per share — diluted		$	—	$	0.00	$	(0.07	)	$	(0.06	)	$	0.06

       For the above mentioned periods, the Group had securities outstanding which could potentially dilute basic earnings (loss) per share in the future, but which were excluded from the computation of

F-34

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

diluted net income (loss) per share in the periods presented, as their effects would have been antidilutive. Such outstanding securities consist of the following:

	December 31,						September 30,
	2002		2003		2004		2004		2005
							(unaudited)		(unaudited)
Series A convertible redeemable preference shares		—		—		41,967,400		62,400,000		—
Series B convertible redeemable preference shares		—		—		48,191,600		52,083,400		—
Series C-1 convertible redeemable preference shares		—		—		34,054,000		—		—
Series C-2 convertible redeemable preference shares		—		—		34,053,400		—		—
Outstanding options to purchase ordinary shares		—		—		25,208,200		25,208,200		—
		—		—		183,474,600		139,691,600		—

17.     Convertible Redeemable Preference Shares

       a) In April 2004, the Group issued 52,083,400 Series B convertible redeemable preference shares to a group of third party investors for cash proceeds of $12,062,696, net of issuance costs of $437,304. The holders of Series B redeemable convertible preference shares may redeem the Series B convertible redeemable preference shares at any time (i) before December 31, 2005 if the Group shall receive a notice from the holders of a majority of Series B convertible redeemable preference shares indicating a material breach by the Group and its affiliates of their representation, warranties or covenants under Series B convertible redeemable preference shares, the shareholders agreement or the Restructuring Documents (as defined in the amended Series B Purchase Agreement), or (ii) after April 28, 2004 (“Redemption Start Date”), at the option of a majority of the holders of the Series B convertible redeemable preference shares then outstanding. In the event of a redemption pursuant to this right, the Group shall redeem up to all of the Series B convertible redeemable preference shares at a redemption price per Series 13 redeemable convertible preference share equal to $0.24x(1+(0.15xN)) plus all declared but unpaid dividends. N refers to a fraction the numerator of which is the number of calendar days between April 28, 2004 and the Redemption Start Date and the denominator of which is 365. The Group recorded a deemed dividend of $2,191,442 in 2004, which resulted from the amortization of the 15% redemption premium associated with Series B convertible redeemable preference shares. According to the articles of association amended on November 29, 2004, the redemption price of Series B preferred stock is $0.24.

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

F-35

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

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

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

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

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

       Prior to the redemption or conversion of all Series C-2 convertible redeemable preference shares issued by the Group, any holder of Series C-1 convertible redeemable preference shares thereof may, at any time, require the Group to redeem such shares out of funds legally available therefore in connection with the redemption of any Series C-1 convertible redeemable preference shares under this Clause, the Group shall pay a redemption price equal to the Series C-1 convertible

F-36

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

redeemable preference shares Issue Price of $0.51 plus all declared but unpaid dividends on the Series C-1 convertible redeemable preference shares through to the date of redemption thereof.

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

Conversion

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

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

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

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

       1) In the event that the Group shall issue additional ordinary shares at a price per share less than the then prevailing Series A, Series B and Series C convertible redeemable preference shares’ respective conversion price, the Series A, Series B and Series C convertible redeemable preference shares’ respective conversion price shall be reduced, concurrently with such issuance, to a price (calculated to the nearest cent) equal to the price per share at which such additional shares are issued.

       2) If the Group’s financial results of 2004 and 2005 do not meet specified targets. Under the terms of the amended and restated memorandum and articles of association in April 2005, the performance-based adjustment was not triggered in 2004.

F-37

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

Voting Rights

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

Dividends

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

Liquidation Preference

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

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

       The embedded conversion option of Series B convertible redeemable preference shares has been recorded at its fair value of $1,179,689 and accounted for separately as an embedded conversion option. The Group has accounted for the derivative liability relating to the conversion option by adjusting the liability its estimated fair value at each subsequent balance sheet date up to the Modification Date, with adjustments recorded as other income or expenses. In 2004, the Group adjusted the derivative liability to fair market value and recorded a change in fair value of the derivative liability of $11,692,287 in the consolidated statements of operations. The Group recorded a deemed dividend of $1,179,689 in 2004, which resulted from the accretion of the discount of Series B convertible redeemable preference shares. On the Modification Date, the Group has re-combined the fair value of the derivative liability of $12,871,976 with Series B convertible redeemable preference shares and subsequently recorded an accretion of premium of $12,906,774, which represented the difference of the carrying balance of Series B convertible redeemable preference shares at the Modification Date and its initial issuance date.

       Each Series A, Series B, Series C-1 and Series C-2 convertible redeemable preference shares is automatically converted into ordinary shares at the then effective conversion price upon the closing of a qualified underwritten public offering of the ordinary shares of the Group. Upon the

F-38

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

completion of the Group’s initial public offering on July 13, 2005, all of the issued and outstanding Series A, Series B, Series C-1 and Series C-2 convertible redeemable preference shares were converted into ordinary shares.

18.     Ordinary Shares

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

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

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

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

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

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

       (g) Upon initial public offering, the Group issued 77,575,000 ordinary shares, for US$1.7 per ordinary share, for total proceeds of US$118,294,330, net of offering expenses.

19.     Mainland China Contribution Plan and Profit Appropriation

       Full time employees of the Group in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were $nil, $60,609, $338,923, $143,219 and $137,925 for the years ended December 31, 2002, 2003, 2004 and for the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited), respectively.

       Pursuant to laws applicable to entities incorporated in the PRC, the Group subsidiaries in the PRC must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the Group’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. In 2002, 2003 and 2004, the Group made total appropriations of $nil, $nil and approximately $1,488,000, respectively.

F-39

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

20.     Commitments

(a) Leases

       The Group has entered into certain leasing arrangements relating to the placement of the flat-panel television screens in the commercial locations where the Group operates the networks and in connection with the lease of the Group’s office premises. Rental expense under operating leases for 2002, 2003 and 2004 and the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited) were $5,030, $803,079, and $3,648,829, $2,222,838 and $9,562,998, respectively.

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

Twelve month period ending September 30
(unaudited)
2006	$	19,773,002
2007		16,966,960
2008		13,323,227
2009		8,669,476
2010		5,000,602
Thereafter		1,047,089
	$	64,780,356

21.     Segment and Geographic Information

       The Group is engaged in selling out-of-home television advertising time slots on their network of flat-panel television screens located in high traffic areas in commercial locations throughout China.

       The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group.

Geographic information

       The Group operates in the PRC and all of the Group’s long lived assets are located in the PRC.

       As of December 31, 2002, 2003, 2004 and September 30, 2005 (unaudited), there were no customers which accounted for 10% or more of the Group’s net revenues and accounts receivable.

       Although the Group operates through multiple cities in China which include Beijing, Shanghai, Guangzhou and Shenzhen, it believes it operates in one segment as all cities provide selling out-of-home television advertising time slots on their network of flat-panel television advertising displays. Accordingly all financial segment information can be found in the consolidated financial statements.

22.     Related Party Transactions

       In 2003, Jason Nanchun Jiang, a major shareholder of the Group, contributed technical know-how which valued at historical cost of $nil.

F-40

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

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

       Details of advertising service revenue from related parties for the years ended December 31, 2002, 2003 and 2004 and the nine months ended September 30, 2004 (unaudited) and 2005 (unaudited) are as follows:

								Nine months Ended
		Year Ended December 31,						September 30,
Name of related parties	Director interested	2002		2003		2004		2004		2005
								(unaudited)		(unaudited)
Everease Advertising & Communication Ltd.	Jason Nanchun Jiang	$	—	$	978,058	$	1,236,380	$	236,843	$	279,502
Multimedia Park Venture Capital	Jimmy Wei Yu		—		120,821		1,109,714		—		1,409,659
Shanghai Jobwell Business Consulting Ltd.	Jimmy Wei Yu		—		—		371,663		—		729,466
Shanghai Wealove Wedding Service Co., Ltd.	Jimmy Wei Yu		—		—		336,809		—		272,356
Shanghai Hetong Network Technology Co., Ltd.	Jimmy Wei Yu		—		—		326,757		—		555,624
Ctrip Travel Information Technology (Shanghai) Co., Ltd.	Neil Nanpeng Shen		—		—		43,662		—		267,914
		$	—	$	1,098,879	$	3,424,985	$	236,843	$	3,514,521

F-41

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       Details of amounts due from related parties as of December 31, 2002, 2003 and 2004 and September 30, 2005 (unaudited) are as follows:

		December 31,						September 30,
Name of related parties	Director interested	2002		2003		2004		2005
								(unaudited)
Shanghai Everease Advertising & Communication Ltd.	Jason Nanchun Jiang	$	—	$	252,576	$	1,259,138	$	—
Multimedia Park Venture Capital	Jimmy Wei Yu		—		—		690,212		588,804
Shanghai Jobwell Business Consulting Ltd.	Jimmy Wei Yu		—		—		275,971		218,919
Shanghai Wealove Wedding Service Co., Ltd.	Jimmy Wei Yu		—		—		251,556		261,482
Shanghai Hetong Network Technology Co., Ltd.	Jimmy Wei Yu		—		—		263,155		174,595
		$	—	$	252,576	$	2,740,032	$	1,243,800

       Details of amounts due to related parties as of December 31, 2002, 2003, 2004 and September 30, 2005 (unaudited) are as follows:

		December 31,						September 30,
Name of related parties	Director interested	2002		2003		2004		2005
								(unaudited)
Shanghai Everease Advertising & Communication Ltd.	Jason Nanchun Jiang	$	—	$	1,386,124	$	—	$	—
Multimedia Park Venture Capital	Jimmy Wei Yu		—		627,774		—		—
		$	—	$	2,013,898	$	—	$	—

23.     Restricted Net Assets

       Relevant PRC statutory laws and regulations permit payments of dividends by the Group’s PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, PRC laws and regulations require that annual appropriations of 10% of after-tax income should be set aside prior to payment of dividends as general reserve fund. As a result of these PRC laws and regulations, the Group’s PRC subsidiaries and PRC affiliates are restricted in their ability to transfer a portion of their net assets to either in the form of dividends, loans or advances, which restricted portion amounted to approximately $14,792,000 as of December 31, 2004.

24.     Subsequent Events (unaudited)

       On November 20, 2005, the Group completed the acquisition to purchase all of the equity interest of Shenyang Focus Media Advertising Company (“Shenyang FM”) in exchange for cash proceeds of $494,515.

F-42

FOCUS MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 AND FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

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

       On October 15, 2005, the Group signed a share purchase agreement to acquire all the issued shares of Infoachieve Limited (“Infoachieve”) from Total Team Investments Limited. The total consideration includes a cash payment of $39,600,000 and 22,157,003 ordinary shares with a fair market value of $79,720,897. An additional payment of up to 35,830,619 ordinary shares may be made contingent upon Infoachieve attaining certain earnings target in 2006.

       On January 1, 2006, the Group entered into an acquisition agreement to purchase all the assets and lease agreements of Shenzhen E-times Advertising Co., Ltd. (“Shenzhen E-times”) and Skyvantage Group Limited (“Skyvantage”) in exchange for cash proceeds of $5,000,000.

       On January 7, 2006, the Group entered into a stock purchase agreement to purchase all of the equity interests of Target Media Holdings Limited (“Target Media”), in exchange for $94,000,000 in cash and 77,000,000 ordinary shares of the Group.

F-43

Additional Information — Financial Statements Schedule 1

Focus Media Holding Limited

       These financial statements have been prepared in conformity with accounting principles generally accepted in the United States.

Financial information of parent company

Balance Sheets

	December 31
	2003			2004
	(in U.S. dollars)
Assets
Amounts due from subsidiaries	$	500,000		$	21,057,610
Goodwill		—			9,384,723
Investments in subsidiaries and affiliates		683,062			23,864,507
Total assets	$	1,183,062		$	54,306,840
Liabilities and shareholders’ equity (deficiency)
Current liabilities:
Other payable		—		$	6,606,885
Total current liabilities	$	—		$	6,606,885
Mezzanine equity
Series A convertible redeemable preference shares ($0.00005 par value; 41,967,400 shares authorized and nil, nil and 41,967,400 shares issued and outstanding in 2002, 2003 and 2004, respectively) (liquidation value $2,471,880)	$	—			6,295,110
Series B convertible redeemable preference shares ($0.00005 par value; 48,191,600 shares authorized and nil, nil and 48,191,600 shares issued and outstanding in 2002, 2003 and 2004, respectively) (liquidation value $11,565,984)		—			12,062,696
Series C-1 convertible redeemable preference shares ($0.00005 par value; 34,054,000 shares authorized and nil, nil and 34,054,000 shares issued and outstanding in 2002, 2003 and 2004, respectively) (liquidation value $17,500,350)		—			17,500,350
Series C-2 convertible redeemable preference shares ($0.00005 par value; 34,053,400 shares authorized and nil, nil and 34,053,400 shares issued and outstanding in 2002, 2003 and 2004, respectively) (liquidation value $17,500,042)		—			17,415,000
Shareholders’ equity (deficiency)
Ordinary shares ($0.00005 par value; nil 1,000,000,000 and 885,516,600 shares authorized in 2002, 2003 and 2004; nil, 200,000,000 and 142,464,600 issued and outstanding in 2002, 2003 and 2004, respectively)		10,000			7,124
Additional paid-in capital		1,188,817			5,981,154
Deferred share based compensation		—			(969,959	)
Retained earnings (accumulated deficit)		26,000			(10,550,414	)
Accumulated other comprehensive loss		(41,755	)		(41,106	)
Total shareholders’ equity (deficiency)	$	1,183,062		$	(5,573,201	)
Total liabilities and shareholders’ equity (deficiency)	$	1,183,062		$	54,306,840

F-44

Financial information of parent company

Statements of Operations

		December 31,
		2003		2004
		(in U.S. dollars)
Operating expenses:
	General and administrative (including share-based compensation of $488,711 for 2004 only)	$	—	$	(488,711	)
	Goodwill impairment loss		—		(58,397	)
Total operating expenses			—		(547,108	)
Income from operations			—		(547,108	)
Equity in earnings of subsidiaries and equity affiliates			25,483		12,612,147
Change in fair value of derivative liability associated with Series B convertible redeemable preference shares			—		(11,692,287	)
Income before income taxes			25,483		372,752
Income tax expenses			—		—
Net income			25,483		372,752
Deemed dividend on Series A convertible redeemable preference shares			—		(8,308,411	)
Deemed dividend on Series B convertible redeemable preference shares			—		(2,191,442	)
Deemed dividend on Series C-1 convertible redeemable preference shares			—		(13,356,087	)
Premium of Series B convertible redeemable preference shares			—		12,906,774
Income (loss) attributable to holders of ordinary shares		$	25,483	$	(10,576,414	)

F-45

Financial information of parent company

Statements of Shareholders’ Equity (deficiency) and Comprehensive Loss

(in U.S. dollars, except share data)

													Retained			Accumulated			Total
	Ordinary						Additional			Deferred			earning			other			shareholders’
							paid-in			share based			(accumulate			comprehensive			equity			Comprehensive
	Share			Amount			capital			compensation			deficit)			Loss			(deficiency)			loss
Balance at January 1, 2003		—			—			125,000		$	—		$	517		$	(4,183	)	$	121,334			—
Issuance of ordinary shares		200,000,000			10,000			1,615,000			—			—			—			1,625,000			—
Capital distribution relating to Everease		—			—			(551,183	)		—			—			—			(551,183	)		—
Cumulative translation adjustment		—			—			—			—			—			(37,572	)		(37,572	)	$	(37,572	)
Net Income		—			—			—			—			25,483			—			25,483			25,483
Balance at December 31, 2003		200,000,000		$	10,000		$	1,188,817			—		$	26,000		$	(41,755	)	$	1,183,062		$	(12,089	)
Issuance of ordinary shares		14,594,200			730			4,484,068												4,484,798
Reclassification of ordinary shares to Series A convertible redeemable preference shares		(62,400,000	)		(3,120	)		(1,048,469	)		—			—			—			(1,051,589	)		—
Reclassification of ordinary shares to Series C-1 convertible redeemable preference shares		(9,729,600	)		(486	)		(101,932	)		—			—			—			(102,418	)		—
Deferred share based compensation		—			—			1,334,835			(1,334,835	)		—			—			—			—
Amortization of deferred share based compensation		—			—			123,835			364,876			—			—			488,711			—
Deemed dividend on Series A convertible redeemable preference shares		—			—			—			—			(8,308,411	)		—			(8,308,411	)		—
Deemed dividend on Series B convertible redeemable preference shares		—			—			—			—			(2,191,442	)		—			(2,191,442	)		—
Deemed dividend on Series C-1 convertible redeemable preference shares		—			—			—			—			(13,356,087	)		—			(13,356,087	)		—
Premium of Series S convertible redeemable preference shares		—			—			—			—			12,906,774			—			12,906,774			—
Cumulative translation adjustment		—			—			—			—			—			649			649		$	649
Net income (loss)		—			—			—			—			372,752			—			372,752			372,752
Balance at December 31, 2004		142,464,600		$	7,124		$	5,981,154		$	(969,959	)	$	(10,550,414	)	$	(41,106	)	$	(5,573,201	)	$	373,401

F-46

Financial information of parent company

Statements of Cashflows

		December 31
		2003			2004
Operating activities:
Income (loss) attributable to holders of ordinary shares		$	25,483		$	(10,576,414	)
	Deemed dividend on Series A convertible redeemable preference shares		—			8,308,411
	Deemed dividend on Series B convertible redeemable preference shares		—			2,191,442
	Deemed dividend on Series C-1 convertible redeemable preference shares		—			13,356,087
	Premium relating to Series B convertible redeemable preference shares		—			(12,906,774	)
Net income			25,483			372,752
Adjustments to reconcile net income to net cash used in operating activities:
	Share based compensation		—			488,711
	Change in fair value of derivative liability		—			11,692,287
Goodwill impairment			—			58,397
Equity in earnings (loss) of subsidiaries			—			12,612,147
Changes in assets and liabilities:			—			—
	Amounts due from subsidiaries		(500,000	)		(20,557,610	)
	Other payables		—			6,606,885
Net cash used in operating activities			(474,517	)		11,273,569
Investing activities:			—			—
	Investments in subsidiaries and affiliates		(683,062	)		(40,751,914	)
	Acquisition of assets from a related party		(429,849	)		—
Net cash used in investing activities			(1,112,911	)		(40,751,914	)
Financing activities:
	Proceeds from issuance of ordinary shares		1,625,000			—
	Proceeds from issuance Series B convertible redeemable preference shares		—			12,062,696
	Proceeds from issuance Series C-2 convertible redeemable preference shares		—			17,415,000
Net cash provided by financing activities			1,625,000			29,477,696
Effect of exchange rate changes			(37,572	)		649
Net change in cash and cash equivalents			—			—
Cash and cash equivalents, beginning of year			—			—
Cash and cash equivalents, end of year		$	—		$	—

F-47

PERFECT MEDIA HOLDING LIMITED

INDEX TO FINANCIAL STATEMENTS

Contents

	Page
Report of Independent Registered Public Accounting Firm		P-2
Consolidated balance sheets as of December 31, 2003 and September 30, 2004		P-3
Consolidated statements of operations for the period from June 4, 2003 to December 31, 2003 and for the nine months ended September 30, 2004		P-4
Consolidated statements of shareholders’ equity and comprehensive loss for the period from June 4, 2003 to December 31, 2003 and for the nine months ended September 30, 2004		P-5
Consolidated statements of cash flows for the period from June 4, 2003 to December 31, 2003 and for the nine months ended September 30, 2004		P-6
Notes to the consolidated financial statements		P-7

P-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

PERFECT MEDIA HOLDING LIMITED

       We have audited the accompanying consolidated balance sheets of Perfect Media Holding Limited and its subsidiary (the “Company”) as of December 31, 2003 and September 30, 2004 and the related consolidated statements of operations, shareholders’ equity and others comprehensive loss, and cash flows for the period from June 4, 2003 to December 31, 2003 and for the nine months ended September 30, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstance, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. According, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Perfect Media Holding Limited and its subsidiary as of December 31, 2003 and September 30, 2004 and the results of its operations and its cash flows for the above stated periods in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

February 2, 2005

P-2

PERFECT MEDIA HOLDING LIMITED

CONSOLIDATED BALANCE SHEETS

		December 31,			September 30,
		2003			2004
		(In U.S. dollars)
Assets
Current assets:
	Cash and cash equivalents	$	20,341		$	1,219
	Amounts due from related parties		—			24,334
	Accounts receivable, net of allowance for doubtful account of $nil, $nil in 2003 and 2004		—			9,436
	Inventories		3,712			6,560
	Other current assets		50,387			13,975
	Total current assets		74,440			55,524
Equipment, net			—			132,222
	Total assets	$	74,440		$	187,746
Liabilities and shareholders’ equity
Current liabilities:
	Accounts payable	$	—		$	181
	Income taxes payable		109			—
	Accrued expenses and other current liabilities		7,646			186,469
	Total current liabilities		7,755			186,650
Commitments (Note 8)
Shareholders’ Equity
Additional paid-in capital			120,823			120,823
Accumulated other comprehensive loss			(2	)		(2	)
Deficit			(54,136	)		(119,725	)
Total shareholders’ equity		$	66,685		$	1,096
Total liabilities and shareholders’ equity		$	74,440		$	187,746

The accompanying notes are an integral part of these consolidated financial statements.

P-3

PERFECT MEDIA HOLDING LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

		For the
		period from
		June 4, 2003			For the nine
		to			months ended
		December 31,			September 30,
		2003			2004
		(In U.S. dollars)
Revenues		$	4,465		$	86,806
	Cost of revenues		2,099			27,047
	Gross profit		2,366			59,759
Operating expenses:
	General and administrative		30,814			76,637
	Selling and marketing		25,462			44,591
	Total operating expenses		56,276			121,228
Loss from operations			(53,910	)		(61,469	)
	Interest income		—			42
Loss before income taxes			(53,910	)		(61,427	)
Income taxes			226			4,162
Net loss		$	(54,136	)	$	(65,589	)

The accompanying notes are an integral part of these consolidated financial statements.

P-4

PERFECT MEDIA HOLDING LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

(in U.S. dollars, except share data)

										Accumulated
	Ordinary				Additional					other			Total
					paid-in					comprehensive			shareholders’			Comprehensive
	Share		Amount		capital		Deficit			loss			equity			loss
Balance at June 4, 2003		—	$	—	$	120,823	$	—		$	—		$	120,823
Cumulative translation adjustment		—		—		—		—			(2	)		(2	)	$	(2	)
Net loss		—		—		—		(54,136	)		—			(54,136	)		(54,136	)
Balance at December 31, 2003		—		—	$	120,823	$	(54,136	)	$	(2	)	$	66,685		$	(54,138	)
Issuance of ordinary share		1		—		—		—			—			—
Cumulative translation adjustment		—		—		—		—			—			—		$	—
Net loss		—		—		—		(65,589	)		—			(65,589	)		(65,589	)
Balance at September 30, 2004		1	$	—	$	120,823	$	(119,725	)	$	(2	)	$	1,096		$	(65,589	)

The accompanying notes are an integral part of these consolidated financial statements.

P-5

PERFECT MEDIA HOLDING LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

			For the
			period from
			June 4, 2003			For the nine
			to			months ended
			December 31,			September 30,
			2003			2004
			(In U.S. dollars)
Net loss			$	(54,136	)	$	(65,589	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Depreciation and amortization		—			15,259
	Changes in assets and liabilities
		Amounts due from related parties		—			(24,334	)
		Accounts receivable		—			(9,436	)
		Inventories		(3,712	)		(2,848	)
		Other current assets		(50,387	)		36,412
		Accounts payable		—			181
		Income taxes payable		109			(109	)
		Accrued expenses and other current liabilities		7,646			178,823
Net cash provided by (used in) operating activities			$	(100,480	)	$	128,359
Investing activities:
	Purchase of equipment		$	—		$	(147,481	)
Cash used in investing activities			$	—		$	(147,481	)
Financing activities:
	Proceeds from receipt of paid-in capital			120,823			—
Cash provided by financing activities			$	120,823		$	—
Net increase (decrease) in cash and cash equivalents			$	20,343		$	(19,122	)
Effect of exchange rate changes				(2	)		—
Cash and cash equivalents, beginning of year				—			20,341
Cash and cash equivalents, end of year			$	20,341		$	1,219
Supplemental disclosure of cash flow information
	Income taxes paid		$	226		$	4,162
	Interest paid		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

P-6

PERFECT MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM JUNE 4, 2003 TO DECEMBER 31, 2003 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(in U.S. dollars, unless otherwise stated)

1.     Organization and Principal Activities

       Perfect Media Holding Limited (“the Company”) was incorporated in the British Virgin Islands (“BVI”) on June 4, 2004.

       The PRC regulations currently limit foreign ownership of companies that provide advertising services. To comply with these regulations, the Company conducts substantially all of its advertising business activities through Shanghai Perfect Media Advertising Co., Ltd. (“Shanghai Perfect Media”), a variable interest entity, which was incorporated in the People’s Republic of China (the “PRC”) on June 4, 2003. The principal activities of Shanghai Perfect Media are the provision of advertisement services through the display panel of free shoes brushing machinery. Shanghai Perfect Media entered into various agreements with the Company, under which Shanghai Perfect Media pledged all of its equity to the Company and the Company has provided funds in an amount up to $120,820 (RMB 1,000,000) to satisfy its ongoing business requirements. In addition, the Company has been assigned all voting rights by the direct owners of Shanghai Perfect Media through an agreement that cannot be amended or terminated except by written consent of all parties. Finally, the Company has the option to acquire the equity interest of Shanghai Perfect Media.

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

       The Company is the sole beneficiary of Shanghai Perfect Media because all the variable interests are held by the Company. The agreements described above provided for effective control of Shanghai Perfect Media to be transferred to the Company in July 2004. Shanghai Perfect Media had operating activity prior to entering these agreements with the Company. As a result, the consolidated financial statements reflect the consolidation of Shanghai Perfect Media from its inception.

2. Summary of Significant Accounting Policies

(a)  Basis of Presentation

       The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

(b)  Basis of Consolidation

       The consolidated financial statements include the financial statements of the Company and its variable interest entity, Shanghai Perfect Media. All inter-company transactions and balances have been eliminated upon consolidation.

P-7

PERFECT MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM JUNE 4, 2003 TO DECEMBER 31, 2003 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(in U.S. dollars, unless otherwise stated)

(c) Cash and Cash Equivalents

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

(d) Use of Estimates

       The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of and impairment for equipment.

(e) Significant Risks and Uncertainties

       The Company participates in a young and dynamic industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operation, or cash flows: advances and trends in new technologies and industry standards; share market performance and public interest in companies operating in China that are listed on stock markets in the U.S.; competition from other competitors; changes in key suppliers; changes in certain strategic relationships; regulatory or other PRC factors; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth.

(f) Equipment, Net

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

Shoes brushing machinery	5 years
Computers and office equipment	5 years
Vehicles	5 years
Leasehold Improvements	lesser of the term of the lease or the estimated useful lives of the assets

(g) Impairment of Long-Lived Assets

       The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

(h)  Revenue Recognition

       The Company’s revenues are primarily derived from advertising services displayed on top of free shoes brushing machinery. Revenues from display advertising services are recognized ratably

P-8

PERFECT MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM JUNE 4, 2003 TO DECEMBER 31, 2003 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(in U.S. dollars, unless otherwise stated)

over the period in which the advertisement is displayed. Revenue from displays are recognized once the displays are delivered. Accordingly, revenue is recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assures.

(i)  Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating lease. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease periods.

(k)  Foreign Currency Translation

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

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

(l)  Income Taxes

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

(m)  Comprehensive Income (Loss)

       Comprehensive income (loss) includes foreign currency translation adjustment. Comprehensive income (loss) is reported in the statements of shareholders’ equity.

(n)  Fair Value of Financial Instruments

       Financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short-term maturities.

P-9

PERFECT MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM JUNE 4, 2003 TO DECEMBER 31, 2003 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(in U.S. dollars, unless otherwise stated)

(o)  Recently Issued Accounting Standards

       In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and requires additional disclosures for those investments. The recognition and measurement guidance in EITF No. 03-01 should be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for fiscal years ending after June 15, 2004 and are required only for annual periods. The Company does not believe that the adoption of this standard will have a material impact on its financial positions or results of operations.

       In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on the Company’s consolidated financial statements.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, cash flows or results of operations.

       In January 2003, the FASB issued Interpretation Number (“FIN”) No. 46, which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (Revised) to address certain FIN 46

P-10

PERFECT MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM JUNE 4, 2003 TO DECEMBER 31, 2003 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(in U.S. dollars, unless otherwise stated)

implementation issues. The Company has elected to retroactively apply FIN 46 (Revised) and has consolidated Shanghai Perfect Media as its variable interest entity from its inception.

3.     Other Current Assets

       Other current assets consist of the following:

	December 31,		September 30,
	2003		2004
Staff advances and other receivables	$	16,561	$	—
Advances to suppliers		33,826		13,975
	$	50,387	$	13,975

4. Equipment, Net

       Equipment consist of:

	December 31,		September 30,
	2003		2004
Shoes brushing machinery	$	—	$	75,633
Computers and office equipment		—		19,080
Leasehold improvements		—		20,298
Vehicles		—		32,470
	$	—	$	147,481
Less: accumulated depreciation and amortization		—		(15,259	)
	$	—	$	132,222

5. Accrued Expenses and Other Current Liabilities

	December 31,		September 30,
	2003		2004
Other payables	$	7,646	$	181,235
Accrued expenses		—		5,234
	$	7,646	$	186,469

6. Income Taxes

       The Company is a tax-exempted company incorporated in the British Virgin Islands.

       Shanghai Perfect Media, registered in the PRC is subject to PRC Enterprise Income Tax (“EIT”) on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant income tax laws. In accordance with “Income Tax Law of China for Private Enterprises”, the applicable EIT rate for Shanghai Perfect Media is 4%.

7. Mainland China Contribution Plan and Profit Appropriation

       Full time employees of Shanghai Perfect Media in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits,

P-11

PERFECT MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM JUNE 4, 2003 TO DECEMBER 31, 2003 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(in U.S. dollars, unless otherwise stated)

medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require Shanghai Perfect Media to accrue for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were $480 and $2,155 for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively.

       Pursuant to laws applicable to the entities incorporated in the PRC, Shanghai Perfect Media must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the Company’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. Shanghai Perfect Media did not make any appropriations to the reserve funds described above as it incurred losses in any of the periods presented.

8.     Commitments

       The Company leases certain office premises and certain building areas under non-cancelable leases, which expire in 2013. Rental expense under operating leases for 2003 and the nine months ended September 30, 2004 were $5,758 and $22,951, respectively.

       Future minimum lease payments under non-cancelable operating leases agreements were as follows:

		September 30,
		2004
September 30,
	2005	$	42,103
	2006		14,295
	2007		9,133
	2008		5,582
	2009		3,294
	Thereafter		101
		$	74,508

9.     Segment and Geographic Information

       The Company is engaged in providing advertisement services through the display panel of free shoe brushing machinery. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information can be found in the consolidated financial statements.

P-12

PERFECT MEDIA HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM JUNE 4, 2003 TO DECEMBER 31, 2003 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(in U.S. dollars, unless otherwise stated)

Geographic Information

       The Company operates, through Shanghai Perfect Media, in the PRC and all of the Company’s long lived assets are located in the PRC.

       As of December 31, 2003 and September 30, 2004, there were no customers which accounted for 10% or more of the Company’s net revenues and accounts receivable.

P-13

FOCUS MEDIA CHANGSHA HOLDING LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page
Report of Independent Registered Public Accounting Firm		P-15
Consolidated balance sheet as of October 31, 2004		P-16
Consolidated statement of operations for the period from March 11, 2004 (Date of inception) to October 31, 2004		P-17
Consolidated statement of shareholders’ deficiency and comprehensive loss for the period from March 11, 2004 (Date of inception) to October 31, 2004		P-18
Consolidated statement of cash flows for the period from March 11, 2004 (Date of inception) to October 31, 2004		P-19
Notes to the consolidated financial statements		P-20

P-14

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

FOCUS MEDIA CHANGSHA HOLDING LTD.

       We have audited the accompanying consolidated balance sheet of Focus Media Changsha Holding Ltd. and its subsidiary (the “Company”) as of October 31, 2004 and the related consolidated statement of operations, shareholders’ deficiency and comprehensive loss, and cash flows for the period from March 11, 2004 (date of inception) to October 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

       We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Focus Media Changsha Holding Ltd. and its subsidiary as of October 31, 2004 and the results of its operations and its cash flows for the above stated period in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

June 10, 2005

P-15

FOCUS MEDIA CHANGSHA HOLDING LTD.

CONSOLIDATED BALANCE SHEET

		October 31, 2004
		(In U.S. dollars)
Assets
Current assets:
	Cash and cash equivalents	$	6,421
	Accounts receivable, net of allowance for doubtful account of $nil		4,833
	Staff advances and other receivables		3,077
	Total current assets		14,331
	Rental deposits		14,614
Equipment, net			316,104
	Total assets	$	345,049
Liabilities and shareholders’ deficiency
Current liabilities:
	Accounts payable	$	3
	Accrued expenses and other current liabilities		436,023
	Total current liabilities		436,026
Commitments (Note 7)
Shareholders’ Deficiency
Additional paid-in capital			60,412
Deficit			(151,389	)
Total shareholders’ deficiency		$	(90,977	)
Total liabilities and shareholders’ deficiency		$	345,049

The accompanying notes are an integral part of these consolidated financial statements.

P-16

FOCUS MEDIA CHANGSHA HOLDING LTD.

CONSOLIDATED STATEMENT OF OPERATIONS

		For the
		period from
		March 11, 2004
		(Date of inception)
		to
		October 31, 2004
		(In U.S. dollars)
Revenues		$	13,054
	Cost of revenues		(42,590	)
	Gross loss		(29,536	)
Operating expenses:
	General and administrative		116,674
	Selling and marketing		5,216
	Total operating expenses		121,890
Loss from operations			(151,426	)
	Interest income		75
	Other expenses, net		(38	)
Loss before income taxes			(151,389	)
Income taxes			—
Net loss		$	(151,389	)

The accompanying notes are an integral part of these consolidated financial statements.

P-17

FOCUS MEDIA CHANGSHA HOLDING LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIENCY AND

COMPREHENSIVE LOSS

(in U.S. dollars, except share data)

	Ordinary				Additional					Total
					paid-in					shareholders’
	Share		Amount		capital		Deficit			deficiency
Balance as of March 11, 2004 (Date of inception)		—		—	$	—	$	—		$	—
Issuance of ordinary share		1		—		60,412		—			60,412
Net loss		—		—		—		(151,389	)		(151,389	)
Balance as of October 31, 2004		1	$	—	$	60,412	$	(151,389	)	$	(90,977	)

The accompanying notes are an integral part of these consolidated financial statements.

P-18

FOCUS MEDIA CHANGSHA HOLDING LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

			For the
			period from
			March 11, 2004
			(Date of inception)
			to
			October 31, 2004
			(In U.S. dollars)
Net loss			$	(151,389	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation		16,913
		Accounts receivable		(4,833	)
		Staff advances and other receivables		(3,077	)
		Accounts payable		3
		Accrued expenses and other current liabilities		121,206
Net cash used in operating activities			$	(21,177	)
Investing activities:
	Purchase of equipment		$	(18,200	)
	Rental deposits			(14,614	)
Cash used in investing activities			$	(32,814	)
Financing activities:
	Proceeds from issuance of ordinary share		$	60,412
Cash provided by financing activities			$	60,412
Net increase in cash and cash equivalents			$	6,421
Cash and cash equivalents, beginning of period				—
Cash and cash equivalents, end of period			$	6,421

The accompanying notes are an integral part of these consolidated financial statements.

P-19

FOCUS MEDIA CHANGSHA HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM MARCH 11, 2004

(DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

1. Organization and Principal Activities

       Focus Media Changsha Holding Ltd. (“the Company”) was incorporated in the British Virgin Islands (“BVI”) on March 11, 2004.

       The PRC regulations currently limit foreign ownership of companies that provide advertising services. To comply with these regulations, the Company conducts substantially all of its advertising business activities through Changsha Focus Media Shiji Advertising Co., Ltd. (“Changsha Advertising”), a variable interest entity, which was incorporated in the People’s Republic of China (the “PRC”) on March 11, 2004. The principal activities of Changsha Advertising are the operation and maintenance of out-of-home television advertising network. Through contractual agreements described below, the Company is deemed the primary beneficiary of Changsha Advertising resulting in Changsha Advertising being deemed a subsidiary of the Company under the requirements of FIN 46 (Revised) “Consolidation of Variable Interest Entities” (“FIN 46(R)”).

       On March 11, 2004, the sole shareholder of Changsha Advertising entered into various contractual agreements with the Company, under which the shareholder pledged all equity shares it owned to the Company. In addition, the Company was assigned all voting rights by the direct owner of Changsha Advertising through an agreement that cannot be amended or terminated except by written consent of all parties. Finally, the Company has the option to acquire the equity interest of Changsha Advertising for a purchase price equal to the respective registered capital of Changsha Advertising or a proportionate amount thereof, or such higher price as required under PRC laws at the time of such purchase. The Company has agreed to pay the shareholder of Changsha Advertising any excess of the purchase price paid for such equity interests in, or assets of Changsha Advertising over the registered capital of Changsha Advertising in the event that such option is exercised.

       The Company holds all the variable interest of Changsha Advertisement and the Company has been determined to be the most closely associated with Changsha Advertising. Therefore the Company is the primary beneficiary of Changsha Advertising. The agreements described above provided for effective control of Changsha Advertising to be transferred to the Company on March 11, 2004 (date of inception). As a result, the consolidated financial statements reflect the consolidation of Changsha Advertising starting from March 2004.

       In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest entities”, which requires certain variable interest entitles to be consolidated by the primary beneficiary of the entity if the ownership interest held by the equity investors in the entity does not have characteristics of a controlling financial interest or does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective for all new variable interest entities created or acquired after December 15, 2003.

2. Summary of Significant Accounting Policies

(a)  Basis of Presentation

       The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

P-20

FOCUS MEDIA CHANGSHA HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 11, 2004

(DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(b)  Basis of Consolidation

       The consolidated financial statements include the financial statements of the Company and its variable interest entity, Changsha Advertising. All inter-company transactions and balances have been eliminated upon consolidation.

(c)  Cash and Cash Equivalents

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

(d)  Use of Estimates

       The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of and impairment for equipment.

(e)  Significant Risks and Uncertainties

       The Company participates in a young and dynamic industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operation, or cash flows: advances and trends in new technologies and industry standards; share market performance and public interest in companies operating in China that are listed on stock markets in the U.S.; competition from other competitors; changes in key suppliers; changes in certain strategic relationships; regulatory or other PRC factors; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth.

(f)  Equipment, Net

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

Flat-panel television screens		5 years
Computers and office equipment		5 years
Leasehold improvements	lesser of the term of the lease or the estimated useful lives of the assets

(g)  Impairment of Long-Lived Assets

       The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

P-21

FOCUS MEDIA CHANGSHA HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 11, 2004

(DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(h)  Revenue Recognition

       The Company’s revenues are primarily derived from advertising services. Revenues from advertising services are recognized ratably over the period in which the advertisement is displayed. Revenue is recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assures.

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

       The Company presents advertising service revenue, net of business tax incurred, which amounts to $1,228 for the period from March 11, 2004 (Date of inception) to October 31, 2004.

(i)  Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating lease. Payments made under operating leases are charged to the consolidated statement of operations on a straight-line basis over the lease periods.

(k)  Foreign Currency Translation

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

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

(l) Income Taxes

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

P-22

FOCUS MEDIA CHANGSHA HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 11, 2004

(DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(m)  Comprehensive loss

       The net loss for the period presented was the same as the comprehensive loss for the period presented.

(n) Fair Value of Financial Instruments

       Financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short-term maturities.

(o)  Recently Issued Accounting Standards

       In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and requires additional disclosures for those investments. The recognition and measurement guidance in EITF No. 03-01 should be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for fiscal years ending after June 15, 2004 and are required only for annual periods. The adoption of this standard did not have a material impact on its financial positions or results of operations.

       In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on the Company’s consolidated financial statements.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, cash flows or results of operations.

P-23

FOCUS MEDIA CHANGSHA HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 11, 2004

(DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

       In January 2003, the FASB issued Interpretation Number (“FIN”) No. 46, which clarifies the application of Accounting Research Bulletin No. 51, “Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (Revised) to address certain FIN 46 implementation issues. The Company has applied FIN 46 (Revised) and has Changsha Advertising as its variable interest entity from its incorporation.

3. Equipment, Net

       Equipment consists of:

Flat-panel television screens	$	314,817
Computers and office equipment		11,434
Leasehold improvements		6,766
	$	333,017
Less: accumulated depreciation		(16,913	)
	$	316,104

4. Accrued Expenses and Other Current Liabilities

Accrued expenses	$	1,803
Accrued employee payroll and welfare		8,474
Other taxes payable		711
Advance from customers		5,248
Payable for acquisition of equipment		314,817
Others		104,970
	$	436,023

5. Income Taxes

       The Company is a tax-exempted company incorporated in the British Virgin Islands.

       Changsha Advertising, registered in the PRC is subject to PRC Enterprise Income Tax (“EIT”) on the taxable income as reported in its statutory financial statements adjusted in accordance with the relevant income tax laws. In accordance with “Income Tax Law of China for Private Enterprises”, the applicable EIT rate for Changsha Advertising is 33%. No income tax has been provided in the consolidated financial statements as Changsha Advertising incurred tax loss in the period presented.

P-24

FOCUS MEDIA CHANGSHA HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 11, 2004

(DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

6. Mainland China Contribution Plan and Profit Appropriation

       Full time employees of Changsha Advertising in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require Changsha Advertising to accrue for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were $2,137 for the period from March 11, 2004 (Date of inception) to October 31, 2004.

       Pursuant to laws applicable to the entities incorporated in the PRC, Changsha Advertising must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the company’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. Changsha Advertising did not make any appropriations to the reserve funds described above as it incurred loss in the period presented.

7. Commitments

       The Company leases certain office premises and certain building areas under non-cancelable leases, which expire in 2014. Rental expense under operating leases for the period from March 11, 2004 (Date of inception) to October 31, 2005 was $20,071.

       Future minimum lease payments under non-cancelable operating leases agreements were as follows:

October 31,
	2005	$	91,291
	2006		79,734
	2007		54,843
	2008		34,228
	2009		27,083
	Thereafter		6,836
		$	294,015

8. Segment and Geographic Information

       The Company is engaged in providing advertisement services through the operation and maintenance of out-of-home television advertising network. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information can be found in the consolidated financial statements.

P-25

FOCUS MEDIA CHANGSHA HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 11, 2004

(DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

Geographic Information

       The Company operates, through Changsha Advertising, in the PRC and all of the Company’s long lived assets are located in the PRC.

       As of October 31, 2004, there was one customer who accounted for 10% or more of the Company’s net revenues and accounts receivable, as follows:

	Net revenue			Accounts receivable
Customer A		68	%		100	%

9. Subsequent Event

       On October 15, 2004, Focus Media Holding Limited acquired 100% of the outstanding ordinary shares of the Company including its then variable interest entity Changsha Advertising in exchange of cash of $989,484. Immediately following the acquisition the Company became a wholly owned subsidiary of Focus Media Holding Limited and Changsha Advertising became a wholly owned subsidiary of Focus Media Advertisement Co. Ltd.

P-26

FOCUS MEDIA QINGDAO HOLDING LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page
Report of Independent Registered Public Accounting Firm		P-28
Consolidated balance sheet as of October 31, 2004		P-29
Consolidated statement of operations for the period from March 22, 2004 (Date of inception) to October 31, 2004		P-30
Consolidated statement of shareholders’ deficiency and comprehensive loss for the period from March 22, 2004 (Date of inception) to October 31, 2004		P-31
Consolidated statement of cash flows for the period from March 22, 2004 (Date of inception) to October 31, 2004		P-32
Notes to the consolidated financial statements		P-33

P-27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

FOCUS MEDIA QINGDAO HOLDING LTD.

       We have audited the accompanying consolidated balance sheet of Focus Media Qingdao Holding Ltd. and its subsidiary (the “Company”) as of October 31, 2004 and the related consolidated statement of operations, shareholders’ deficiency and comprehensive loss, and cash flows for the period from March 22, 2004 (date of inception) to October 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

       We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Focus Media Qingdao Holding Ltd. and its subsidiary as of October 31, 2004 and the results of its operations and its cash flow for the above stated period in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

June 10, 2005

P-28

FOCUS MEDIA QINGDAO HOLDING LTD.

CONSOLIDATED BALANCE SHEET

		October 31,
		2004
		(In U.S. dollars)
Assets
Current assets:
	Cash and cash equivalents	$	5,862
	Accounts receivable, net of allowance for doubtful account of $nil		4,400
	Inventories — spare parts		2,734
	Staff advances and other receivables		454
Total current assets			13,450
Rental deposits			27,187
Equipment, net			232,620
Total assets		$	273,257
Liabilities and shareholders’ deficiency
Current liabilities:
	Accounts payable	$	5,344
	Accrued expenses and other current liabilities		354,256
Total current liabilities			359,600
Commitments (Note 8)
Shareholders’ Deficiency
Additional paid-in capital			60,412
Deficit			(146,755	)
Total shareholders’ deficiency		$	(86,343	)
Total liabilities and shareholders’ deficiency		$	273,257

The accompanying notes are an integral part of these consolidated financial statements.

P-29

FOCUS MEDIA QINGDAO HOLDING LTD.

CONSOLIDATED STATEMENT OF OPERATIONS

		For the
		period from
		March 22, 2004
		(Date of inception)
		to
		October 31, 2004
		(In U.S. dollars)
Revenues		$	12,052
	Cost of revenues		(84,492	)
	Gross loss		(72,440	)
Operating expenses:
	General and administrative		59,262
	Selling and marketing		15,073
	Total operating expenses		74,335
Loss from operations			(146,775	)
	Interest income		74
	Other expenses, net		(54	)
Loss before income taxes			(146,755	)
Income taxes			—
Net loss		$	(146,755	)

The accompanying notes are an integral part of these consolidated financial statements.

P-30

FOCUS MEDIA QINGDAO HOLDING LTD.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIENCY AND

COMPREHENSIVE LOSS

(in U.S. dollars, except share data)

	Ordinary				Additional					Total
					paid-in					shareholders’
	Share		Amount		capital		Deficit			deficiency
Balance as of March 22, 2004 (Date of inception)		—		—	$	—	$	—		$	—
Issuance of ordinary share		1		—		60,412		—			60,412
Net loss		—		—		—		(146,755	)		(146,755	)
Balance as of October 31, 2004		1	$	—	$	60,412	$	(146,755	)	$	(86,343	)

The accompanying notes are an integral part of these consolidated financial statements.

P-31

FOCUS MEDIA QINGDAO HOLDING LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

			For the
			period from
			March 22, 2004
			(Date of inception)
			to
			October 31, 2004
			(In U.S. dollars)
Net loss			$	(146,755	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation		10,666
		Accounts receivable		(4,400	)
		Inventories		(2,734	)
		Staff advances and other receivables		(454	)
		Accounts payable		5,344
		Accrued expenses and other current liabilities		115,798
Net cash used in operating activities			$	(22,535	)
Investing activities:
	Purchase of equipment		$	(4,828	)
	Rental deposits			(27,187	)
Cash used in investing activities			$	(32,015	)
Financing activities:
	Proceeds from issuance of ordinary share		$	60,412
Cash provided by financing activities			$	60,412
Net increase in cash and cash equivalents			$	5,862
Cash and cash equivalents, beginning of period				—
Cash and cash equivalents, end of period			$	5,862

The accompanying notes are an integral part of these consolidated financial statements.

P-32

FOCUS MEDIA QINGDAO HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM MARCH 22, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

1.     Organization and Principal Activities

       Focus Media Qingdao Holding Ltd. (“the Company”) was incorporated in the British Virgin Islands (“BVI”) on March 22, 2004.

       The PRC regulations currently limit foreign ownership of companies that provide advertising services. To comply with these regulations, the Company conducts substantially all of its advertising business activities through Qingdao Fukesi Advertisement Co., Ltd. (“Qingdao Advertising”), a variable interest entity, which was incorporated in the People’s Republic of China (the “PRC”) on March 22, 2004. The principal activities of Qingdao Advertising are the operation and maintenance of out-of-home television advertising network. Through contractual agreements described below, the Company is deemed the primary beneficiary of Qingdao Advertising resulting in Qingdao Advertising being deemed a subsidiary of the Company under the requirements of FIN 46 (Revised) “Consolidation of Variable Interest Entities” (“FIN 46(R)”).

       On March 22, 2004, the sole shareholder of Qingdao Advertising entered into various contractual agreements with the Company, under which the direct owner pledged all equity shares it owned to the Company. In addition, the Company was assigned all voting rights by the sole shareholder of Qingdao Advertising through an agreement that cannot be amended or terminated except by written consent of all parties. Finally, the Company has the option to acquire the equity interest of Qingdao Advertising for a purchase price equal to the respective registered capital of Qingdao Advertising or a proportionate amount thereof, or such higher price as required under PRC laws at the time of such purchase. The Company has agreed to pay the shareholder of Qingdao Advertising any excess of the purchase price paid for such equity interests in, or assets of Qingdao Advertising .over the registered capital of Qingdao Advertising in the event that such option is exercised.

       The Company holds all the variable interest of Qingdao Advertisement and the Company has been determined to be the most closely associated with Qingdao Advertising. Therefore the Company is the primary beneficiary of Qingdao Advertising. The agreements described above provided for effective control of Qingdao Advertising to be transferred to the Company on March 22, 2004 (date of inception). As a result, the consolidated financial statements reflect the consolidation of Qingdao Advertising starting from March 2004.

       In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest entities”, which requires certain variable interest entitles to be consolidated by the primary beneficiary of the entity if the ownership interest held by the equity investors in the entity does not have characteristics of a controlling financial interest or does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective for all new variable interest entities created or acquired after December 15, 2003.

2. Summary of Significant Accounting Policies

(a)  Basis of Presentation

       The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

P-33

FOCUS MEDIA QINGDAO HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 22, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(b)  Basis of Consolidation

       The consolidated financial statements include the financial statements of the Company and its variable interest entity, Qingdao Advertising. All inter-company transactions and balances have been eliminated upon consolidation.

(c)  Cash and Cash Equivalents

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

(d)  Use of Estimates

       The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of and impairment for equipment.

(e)  Significant Risks and Uncertainties

       The Company participates in a young and dynamic industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operation, or cash flows: advances and trends in new technologies and industry standards; share market performance and public interest in companies operating in China that are listed on stock markets in the U.S.; competition from other competitors; changes in key suppliers; changes in certain strategic relationships; regulatory or other PRC factors; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth.

(f)  Equipment, Net

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

Flat-panel television screens	5  years
Computers and office equipment	5  years

(g)  Impairment of Long-Lived Assets

       The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

P-34

FOCUS MEDIA QINGDAO HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 22, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(h)  Revenue Recognition

       The Company’s revenues are primarily derived from advertising services. Revenues from advertising services are recognized ratably over the period in which the advertisement is displayed. Revenue is recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assures.

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

       The Company presents advertising service revenue, net of business tax incurred, which amounts to $1,120 for the period from March 22, 2004 (date of inception) to October 31, 2004.

(i)  Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating lease. Payments made under operating leases are charged to the consolidated statement of operations on a straight-line basis over the lease periods.

(k)  Foreign Currency Translation

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

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

(l) Income Taxes

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

(m) Comprehensive loss

       The net loss for the period presented was the same as the comprehensive loss for the period presented.

P-35

FOCUS MEDIA QINGDAO HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 22, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(n) Fair Value of Financial Instruments

       Financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short-term maturities.

(o) Recently Issued Accounting Standards

       In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and requires additional disclosures for those investments. The recognition and measurement guidance in EITF No. 03-01 should be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for fiscal years ending after June 15, 2004 and are required only for annual periods. The adoption of this standard did not have a material impact on its financial positions or results of operations.

       In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on the Company’s consolidated financial statements.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, cash flows or results of operations.

       In January 2003, the FASB issued Interpretation Number (“FIN”) No. 46, which clarifies the application of Accounting Research Bulletin No. 51, “Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling

P-36

FOCUS MEDIA QINGDAO HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 22, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (Revised) to address certain FIN 46 implementation issues. The Company has applied FIN 46 (Revised) and has Qingdao Advertising as its variable interest entity from its incorporation.

3.     Accounts receivable

       Accounts receivable consists of the following:

Billed receivables	$	3,938
Unbilled receivables		462
	$	4,400

       Unbilled receivables represent amounts earned under advertising contracts in progress but not billable at the balance sheet date. These amounts become billable according to the contract term. The Company anticipates that substantially all of such unbilled amounts will be billed and collected within twelve months of balance sheet date

4. Equipment, Net

       Equipment consists of:

Flat-panel television screens	$	238,458
Computers and office equipment		4,828
	$	243,286
Less: accumulated depreciation		(10,666	)
	$	232,620

5. Accrued Expenses and Other Current Liabilities

Accrued expenses	$	1,088
Accrued employee payroll and welfare		6,555
Other taxes payable		248
Advance from customers		3,157
Payable for acquisition of equipment		238,458
Others		104,750
	$	354,256

6. Income Taxes

       The Company is a tax-exempted company incorporated in the British Virgin Islands.

       Qingdao Advertising, registered in the PRC is subject to PRC Enterprise Income Tax (“EIT”) on the taxable income as reported in its statutory financial statements adjusted in accordance with the relevant income tax laws. In accordance with “Income Tax Law of China for Private Enterprises”, the applicable EIT rate for Qingdao Advertising is 33%. No income tax has been provided in the consolidated financial statements as Qingdao Advertising incurred tax loss in the period presented.

P-37

FOCUS MEDIA QINGDAO HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 22, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

7. Mainland China Contribution Plan and Profit Appropriation

       Full time employees of Qingdao Advertising in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require Qingdao Advertising to accrue for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were $1,375 for the period from March 22, 2004 (Date of inception) to October 31, 2004.

       Pursuant to laws applicable to the entities incorporated in the PRC, Qingdao Advertising must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the company’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. Qingdao Advertising did not make any appropriations to the reserve funds described above as it incurred loss in the period presented.

8. Commitments

       The Company leases certain office premises and certain building areas under non-cancelable leases, which expire in 2014. Rental expense under operating leases for the period from March 22, 2004 (Date of inception) to October 31, 2005 was $31,943.

       Future minimum lease payments under non-cancelable operating leases agreements were as follows:

October 31,
	2005	$	87,648
	2006		59,080
	2007		30,914
	2008		18,505
	2009		12,402
	Thereafter		11,578
		$	220,127

9. Segment and Geographic Information

       The Company is engaged in providing advertisement services through the operation and maintenance of out-of-home television advertising network. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information can be found in the consolidated financial statements.

Geographic Information

       The Company operates, through Qingdao Advertising, in the PRC and all of the Company’s long lived assets are located in the PRC.

P-38

FOCUS MEDIA QINGDAO HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 22, 2004 (DATE OF INCEPTION) TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

       As of October 31, 2004, there were 2 customers which accounted for 10% or more of the Company’s net revenues and accounts receivable, as follows:

	Net revenue			Accounts receivable
Customer A		12	%		35	%
Customer B		16	%		47	%

10. Subsequent Event

       On October 15, 2004, Focus Media Holding Limited acquired 100% of the outstanding ordinary shares of the Company including its then variable interest entity Qingdao Advertising in exchange of cash of $989,496. Immediately following the acquisition the Company became a wholly owned subsidiary of Focus Media Holding Limited and Qingdao Advertising became a wholly owned subsidiary of Focus Media Advertisement Co. Ltd.

P-39

FOCUS MEDIA DALIAN HOLDING LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page
Report of Independent Registered Public Accounting Firm		P-41
Consolidated balance sheet as of October 31, 2004		P-42
Consolidated statement of operations for the period from March 24, 2004 (Date of inception) to October 31, 2004		P-43
Consolidated statement of shareholders’ deficiency and comprehensive loss for the period from March 24, 2004 (Date of inception) to October 31, 2004		P-44
Consolidated statement of cash flows for the period from March 24, 2004 (Date of inception) to October 31, 2004		P-45
Notes to the consolidated financial statements		P-46

P-40

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

FOCUS MEDIA DALIAN HOLDING LTD.

       We have audited the accompanying consolidated balance sheet of Focus Media Dalian Holding Ltd. and its subsidiary (the “Company”) as of October 31, 2004 and the related consolidated statement of operations, shareholders’ deficiency and comprehensive loss, and cash flows for the period from March 24, 2004 (date of inception) to October 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

       We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Focus Media Dalian Holding Ltd. and its subsidiary as of October 31, 2004 and the results of its operations and its cash flows for the above stated period in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

June 10, 2005

P-41

FOCUS MEDIA DALIAN HOLDING LTD.

CONSOLIDATED BALANCE SHEET

		October 31,
		2004
		(In U.S. dollars)
Assets
Current assets:
	Cash and cash equivalents	$	11,093
	Accounts receivable, net of allowance for doubtful account of $nil		6,903
	Staff advances and other receivables		7,107
	Total current assets		25,103
Rental deposits			43,843
Equipment, net			267,807
	Total assets	$	336,753
Liabilities and shareholders’ deficiency
Current liabilities:
	Accounts payable	$	458
	Accrued expenses and other current liabilities		388,476
	Total current liabilities		388,934
Commitments (Note 8)
Shareholders’ Deficiency
Additional paid-in capital			60,412
Deficit			(112,593	)
Total shareholders’ deficiency		$	(52,181	)
Total liabilities and shareholders’ deficiency		$	336,753

The accompanying notes are an integral part of these consolidated financial statements.

P-42

FOCUS MEDIA DALIAN HOLDING LTD.

CONSOLIDATED STATEMENT OF OPERATIONS

		For the
		period from
		March 24, 2004
		(Date of inception)
		to
		October 31, 2004
		(In U.S. dollars)
Revenues		$	36,645
	Cost of revenues		(73,318	)
	Gross loss		(36,673	)
Operating expenses:
	General and administrative		53,470
	Selling and marketing		22,452
	Total operating expenses		75,922
Loss from operations			(112,595	)
	Interest income		55
	Other expenses, net		(53	)
Loss before income taxes			(112,593	)
Income taxes			—
Net loss		$	(112,593	)

The accompanying notes are an integral part of these consolidated financial statements.

P-43

FOCUS MEDIA DALIAN HOLDING LTD.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIENCY AND

COMPREHENSIVE LOSS

(in U.S. dollars, except share data)

	Ordinary				Additional					Total
					Paid-In					shareholders’
	Share		Amount		Capital		Deficit			deficiency
Balance as of March 24, 2004 (Date of inception)		—		—	$	—	$	—		$	—
Issuance of ordinary share		1		—		60,412		—			60,412
Net loss		—		—		—		(112,593	)		(112,593	)
Balance as of October 31, 2004		1	$	—	$	60,412	$	(112,593	)	$	(52,181	)

The accompanying notes are an integral part of these consolidated financial statements.

P-44

FOCUS MEDIA DALIAN HOLDING LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

			For the
			period from
			March 24, 2004
			(Date of inception)
			to
			October 31, 2004
			(In U.S. dollars)
Net loss			$	(112,593	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation		15,001
		Accounts receivable		(6,903	)
		Staff advances and other receivables		(7,107	)
		Accounts payable		458
		Accrued expenses and other current liabilities		116,044
Net cash provided by operating activities			$	4,900
Investing activities:
	Purchase of equipment		$	(10,376	)
	Rental deposits			(43,843	)
Cash used in investing activities			$	(54,219	)
Financing activities:
	Proceeds from issuance of ordinary share		$	60,412
Cash provided by financing activities			$	60,412
Net increase in cash and cash equivalents			$	11,093
Cash and cash equivalents, beginning of period				—
Cash and cash equivalents, end of period			$	11,093

The accompanying notes are an integral part of these consolidated financial statements.

P-45

FOCUS MEDIA DALIAN HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM MARCH 24, 2004 TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

1. Organization and Principal Activities

       Focus Media Dalian Holding Ltd. (“the Company”) was incorporated in the British Virgin Islands (“BVI”) on March 24, 2004.

       The PRC regulations currently limit foreign ownership of companies that provide advertising services. To comply with these regulations, the Company conducts substantially all of its advertising business activities through Dalian Focus Media Advertising Co., Ltd. (“Dalian Advertising”), a variable interest entity, which was incorporated in the People’s Republic of China (the “PRC”) on March 24, 2004. The principal activities of Dalian Advertising are the operation and maintenance of out-of-home television advertising network. Through contractual agreements described below, the Company is deemed the primary beneficiary of Dalian Advertising resulting in Dalian Advertising being deemed a subsidiary of the Company under the requirements of FIN 46 (Revised) “Consolidation of Variable Interest Entities” (“FIN 46(R)”).

       On March 24, 2004, the sole shareholder owner of Dalian Advertising entered into various contractual agreements with the Company, under which the direct owner pledged all equity shares it owned to the Company. In addition, the Company was assigned all voting rights by the direct owner of Dalian Advertising through an agreement that cannot be amended or terminated except by written consent of all parties. Finally, the Company has the option to acquire the equity interest of Dalian Advertising for a purchase price equal to the respective registered capital of Dalian Advertising or a proportionate amount thereof, or such higher price as required under PRC laws at the time of such purchase. The Company has agreed to pay the shareholder of Dalian Advertising any excess of the purchase price paid for such equity interests in, or assets of Dalian Advertising over the registered capital of Dalian Advertising in the event that such option is exercised.

       The Company holds all the variable interest of Dalian Advertisement and the Company has been determined to be the most closely associated with Dalian Advertising. Therefore the Company is the primary beneficiary of Dalian Advertising. The agreements described above provided for effective control of Dalian Advertising to be transferred to the Company on March 24, 2004 (date of inception). As a result, the consolidated financial statements reflect the consolidation of Dalian Advertising starting from March 2004.

       In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest entities”, which requires certain variable interest entitles to be consolidated by the primary beneficiary of the entity if the ownership interest held by the equity investors in the entity does not have characteristics of a controlling financial interest or does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective for all new variable interest entities created or acquired after December 15, 2003.

2. Summary of Significant Accounting Policies

(a)  Basis of Presentation

       The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

P-46

FOCUS MEDIA DALIAN HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 24, 2004 TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(b)  Basis of Consolidation

       The consolidated financial statements include the financial statements of the Company and its variable interest entity, Dalian Advertising. All inter-company transactions and balances have been eliminated upon consolidation.

(c)  Cash and Cash Equivalents

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

(d)  Use of Estimates

       The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of and impairment for equipment.

(e)  Significant Risks and Uncertainties

       The Company participates in a young and dynamic industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operation, or cash flows: advances and trends in new technologies and industry standards; share market performance and public interest in companies operating in China that are listed on stock markets in the U.S.; competition from other competitors; changes in key suppliers; changes in certain strategic relationships; regulatory or other PRC factors; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth.

(f)  Equipment, Net

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

Flat-panel television screens	5  years
Computers and office equipment	5  years

(g)  Impairment of Long-Lived Assets

       The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

P-47

FOCUS MEDIA DALIAN HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 24, 2004 TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(h)  Revenue Recognition

       The Company’s revenues are primarily derived from advertising services. Revenues from advertising services are recognized ratably over the period in which the advertisement is displayed. Revenue is recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assures.

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

       The Company presents advertising service revenue, net of business tax incurred, which amounts to $3,334 for the period from March 24, 2004 (date of inception) to October 31, 2004.

(i)  Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating lease. Payments made under operating leases are charged to the consolidated statement of operations on a straight-line basis over the lease periods.

(k)  Foreign Currency Translation

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

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

(l)  Income Taxes

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

(m)  Comprehensive loss

       The net loss for the period presented was the same as the comprehensive loss for the period presented.

P-48

FOCUS MEDIA DALIAN HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 24, 2004 TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

(n)  Fair Value of Financial Instruments

       Financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short-term maturities.

(o)  Recently Issued Accounting Standards

       In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and requires additional disclosures for those investments. The recognition and measurement guidance in EITF No. 03-01 should be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for fiscal years ending after June 15, 2004 and are required only for annual periods. The adoption of this standard did not have a material impact on its financial positions or results of operations.

       In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on the Company’s consolidated financial statements.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, cash flows or results of operations.

       In January 2003, the FASB issued Interpretation Number (“FIN”) No. 46, which clarifies the application of Accounting Research Bulletin No. 51, “Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling

P-49

FOCUS MEDIA DALIAN HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 24, 2004 TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (Revised) to address certain FIN 46 implementation issues. The Company has applied FIN 46 (Revised) and has Dalian Advertising as its variable interest entity from its incorporation.

3. Accounts receivable

       Accounts receivable consists of the following:

Billed receivables	$	5,292
Unbilled receivables		1,611
	$	6,903

       Unbilled receivables represent amounts earned under advertising contracts in progress but not billable at the balance sheet date. These amounts become billable according to the contract term. The Company anticipates that substantially all of such unbilled amounts will be billed and collected within twelve months of balance sheet date

4. Equipment, Net

       Equipment consists of:

Flat-panel television screens	$	272,432
Computers and office equipment		10,376
	$	282,808
Less: accumulated depreciation		(15,001	)
	$	267,807

5. Accrued Expenses and Other Current Liabilities

Accrued expenses	$	2,150
Accrued employee payroll and welfare		3,774
Other taxes payable		1,561
Advance from customers		6,530
Payable for acquisition of equipment		272,432
Others		102,029
	$	388,476

6. Income Taxes

       The Company is a tax-exempted company incorporated in the British Virgin Islands.

       Dalian Advertising, registered in the PRC is subject to PRC Enterprise Income Tax (“EIT”) on the taxable income as reported in its statutory financial statements adjusted in accordance with the relevant income tax laws. In accordance with “Income Tax Law of China for Private Enterprises”, the applicable EIT rate for Dalian Advertising is 33%. No income tax has been provided in the consolidated financial statements as Dalian Advertising incurred tax loss in the period presented

P-50

FOCUS MEDIA DALIAN HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 24, 2004 TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

7. Mainland China Contribution Plan and Profit Appropriation

       Full time employees of Dalian Advertising in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require Dalian Advertising to accrue for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were $3,108 for the period from March 24, 2004 (Date of inception) to October 31, 2004.

       Pursuant to laws applicable to the entities incorporated in the PRC, Dalian Advertising must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the company’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. Dalian Advertising did not make any appropriations to the reserve funds described above as it incurred loss in the period presented.

8. Commitments

       The Company leases certain office premises and certain building areas under non-cancelable leases, which expire in 2009. Rental expense under operating leases for the period from March 24, 2004 (Date of inception) to October 31, 2005 was $32,464.

       Future minimum lease payments under non-cancelable operating leases agreements were as follows:

October 31,
	2005	$	119,153
	2006		85,414
	2007		54,255
	2008		17,665
	2009		3,656
		$	280,143

9. Segment and Geographic Information

       The Company is engaged in providing advertisement services through the operation and maintenance of out-of-home television advertising network. The Company’s Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information can be found in the consolidated financial statements.

Geographic Information

       The Company operates, through Dalian Advertising, in the PRC and all of the Company’s long lived assets are located in the PRC.

P-51

FOCUS MEDIA DALIAN HOLDING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE PERIOD FROM MARCH 24, 2004 TO OCTOBER 31, 2004

(in U.S. dollars, unless otherwise stated)

       As of October 31, 2004, there were 2 customers which accounted for 10% or more of the Company’s net revenues and accounts receivable, as follows:

	Net revenue			Accounts receivable
Customer A		15	%		42	%
Customer B		25	%		26	%

10. Subsequent Event

       On October 15, 2004, Focus Media Holding Limited acquired 100% of the outstanding ordinary shares of the Company including its then variable interest entity Dalian Advertising in exchange of cash of $989,584. Immediately following the acquisition the Company became a wholly owned subsidiary of Focus Media Holding Limited and Dalian Advertising became a wholly owned subsidiary Focus Media Advertisement Co. Ltd.

P-52

CAPITAL BEYOND LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page
Report of Independent Registered Public Accounting Firm		P-54
Consolidated balance sheets for the year ended December 31, 2004 and as of March 31, 2005 (Unaudited)		P-55
Consolidated statements of operations for the year ended December 31, 2004 and the three months ended March 31, 2004 (Unaudited) and 2005 (Unaudited)		P-56
Consolidated statements of shareholders’ equity and comprehensive loss for the year ended 2004 and for the three months ended March 31, 2005 (Unaudited)		P-57
Consolidated statements of cash flows for the year ended December 31, 2004 and the three months ended March 31, 2004 (Unaudited) and 2005 (Unaudited)		P-58
Notes to the consolidated financial statements		P-59

P-53

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

CAPITAL BEYOND LIMITED

       We have audited the accompanying consolidated balance sheet of Capital Beyond Limited and its subsidiary (the “Company”) as of December 31, 2004 and the related consolidated statement of operations, shareholders’ equity, and cash flows for the year ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

       We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

       In our opinion, such financial statements present fairly, in all material respects, the financial position of Capital Beyond Limited and its subsidiary as of December 31, 2004 and the results of its operations and its cash flow for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

June 10, 2005

P-54

CAPITAL BEYOND LIMITED

CONSOLIDATED BALANCE SHEETS

		December 31,			March 31,
		2004			2005
					(Unaudited)
		(In U.S. dollars)
Assets
Current assets:
	Cash and cash equivalents	$	7,693		$	25,611
	Staff advances and other receivables		3,474			33,376
	Total current assets		11,167			58,987
Equipment, net			502,989			476,290
	Total assets	$	514,156		$	535,277
Liabilities and shareholders’ equity
Current liabilities:
	Amount due to related parties	$	27,910		$	101,734
	Accrued expenses and other current liabilities		3,932			73,855
Total current liabilities			31,842			175,589
Commitments (Note 7)
Shareholders’ Equity
Additional paid-in capital			880,419			880,419
Accumulated deficit			(398,105	)		(520,731	)
Total shareholders’ equity			482,314			359,688
Total liabilities and shareholders’ equity		$	514,156		$	535,277

The accompanying notes are an integral part of these consolidated financial statements.

P-55

CAPITAL BEYOND LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

		For the year
		ended			Three months ended
		December 31,			March 31
		2004			2004			2005
					(Unaudited)			(Unaudited)
		(In U.S. dollars)
Revenues		$	276,786		$	1,348		$	—
	Cost of revenues		491,673			60,144			122,038
	Gross loss		(214,887	)		(58,796	)		(122,038	)
Operating expenses:
	General and administrative		59,985			11,907			607
	Selling and marketing		23,849			275			—
	Total operating expenses		83,834			12,182			607
Loss from operations			(298,721	)		(70,978	)		(122,645	)
	Interest income		135			18			48
	Other expenses, net		(134	)		(11	)		(29	)
Loss before income taxes			(298,720	)		(70,971	)		(122,626	)
Income taxes			—			—			—
Net loss		$	(298,720	)	$	(70,971	)	$	(122,626	)

The accompanying notes are an integral part of these consolidated financial statements.

P-56

CAPITAL BEYOND LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in U.S. dollars, except share data)

	Ordinary				Additional					Total
					paid-in		Accumulated			shareholders’
	Share		Amount		Capital		deficit			equity
Balance as of January 1, 2004		1	$	—	$	120,824	$	(99,385	)	$	21,439
Capital injection by shareholders		—		—		759,595		—			759,595
Net loss		—		—		—		(298,720	)		(298,720	)
Balance as of December 31, 2004		1		—		880,419		(398,105	)		482,314
Net loss		—		—		—		(122,626	)		(122,626	)
Balance as of March 31, 2005 (unaudited)		1	$	—	$	880,419	$	(520,731	)	$	359,688

The accompanying notes are an integral part of these consolidated financial statements.

P-57

CAPITAL BEYOND LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

			For the year
			ended			Three months
			December 31,			ended March 31
			2004			2004			2005
						(Unaudited)			(Unaudited)
						(In U.S. dollars)
Net loss			$	(298,720	)	$	(70,971	)	$	(122,626	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Depreciation		56,631			5,126			26,699
	Changes in assets and liabilities
		Amounts due to related parties		27,910			240,942			73,824
		Inventories		6,041			(18,910	)		—
		Staff advances and other receivables		11,306			(5,272	)		(29,901	)
		Accrued expenses and other current liabilities		(91,562	)		(94,468	)		69,922
Net cash provided by (used in) operating activities			$	(288,394	)	$	56,447		$	17,918
Investing activities:
	Purchase of equipment		$	(488,977	)	$	(41,429	)	$	—
	Rental deposits			22,412			(6,329	)		—
Cash used in investing activities			$	(466,565	)	$	(47,758	)	$	—
Financing activities
	Capital injection		$	759,595		$	—		$	—
Cash provided by financing activities			$	759,595		$	—		$	—
Net increase in cash and cash equivalents			$	4,636		$	8,689		$	17,918
Cash and cash equivalents, beginning of period				3,057			3,057			7,693
Cash and cash equivalents, end of period			$	7,693		$	11,746		$	25,611

The accompanying notes are an integral part of these consolidated financial statements.

P-58

CAPITAL BEYOND LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

(in U.S. dollars, unless otherwise stated)

1. Organization and Principal Activities

       Capital Beyond Limited (“the Company”) was incorporated in the British Virgin Islands (“BVI”) on December 16, 2003.

       The PRC regulations currently limit foreign ownership of companies that provide advertising services. To comply with these regulations, the Company conducts substantially all of its advertising business activities through Guangdong Framedia Advertising Company Ltd. (“Guangdong Framedia”), a variable interest entity, which was incorporated in the People’s Republic of China (the “PRC”) on December 16, 2003. The principal activities of Guangdong Framedia are the operation and maintenance of out-of-home television advertising network, as well as lift frame advertising network. Through contractual agreements described below, the Company is deemed the primary beneficiary of Guangdong Framedia resulting in Guangdong Framedia being deemed a subsidiary of the Company under the requirements of FIN 46 (Revised) “Consolidation of Variable Interest Entities” (“FIN 46(R)”).

       On December 5, 2004, all of the shareholders of Guangdong Framedia entered into various contractual agreements with the Company, under which all of the shareholders pledged all equity shares it owned to the Company. In addition, the Company was assigned all voting rights by all the shareholders of Guangdong Framedia through an agreement that cannot be amended or terminated except by written consent of all parties. Finally, the Company has the option to acquire the equity interest of Guangdong Framedia for a purchase price equal to the respective registered capital of Guangdong Framedia or a proportionate amount thereof, or such higher price as required under PRC laws at the time of such purchase. The Company has agreed to pay the shareholder of Guangdong Framedia any excess of the purchase price paid for such equity interests in, or assets of Guangdong Framedia over the registered capital of Guangdong Framedia in the event that such option is exercised.

       The Company holds all the variable interest of Guangdong Framedia and the Company has been determined to be the most closely associated with Guangdong Framedia. Therefore the Company is the primary beneficiary of Guangdong Framedia. The agreements described above provided for effective control of Guangdong Framedia to be transferred to the Company on December 16, 2003 (date of inception). As a result, the consolidated financial statements reflect the consolidation of Guangdong Framedia starting from date of inception.

       In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest entities”, which requires certain variable interest entitles to be consolidated by the primary beneficiary of the entity if the ownership interest held by the equity investors in the entity does not have characteristics of a controlling financial interest or does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective for all new variable interest entities created or acquired after December 15, 2003.

2. Summary of Significant Accounting Policies

(a)  Basis of Presentation

       The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

P-59

CAPITAL BEYOND LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

(in U.S. dollars, unless otherwise stated)

(b)  Basis of Consolidation

       The consolidated financial statements include the financial statements of the Company and its variable interest entity, Guangdong Framedia. All inter-company transactions and balances have been eliminated upon consolidation.

(c)  Cash and Cash Equivalents

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

(d)  Use of Estimates

       The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of and impairment for equipment.

(e)  Significant Risks and Uncertainties

       The Company participates in a young and dynamic industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operation, or cash flows: advances and trends in new technologies and industry standards; share market performance and public interest in companies operating in China that are listed on stock markets in the U.S.; competition from other competitors; changes in key suppliers; changes in certain strategic relationships; regulatory or other PRC factors; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth.

(f) Equipment, Net

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

Flat-panel television screens	5  years
Computers and office equipment	5  years

(g)  Impairment of Long-Lived Assets

       The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

P-60

CAPITAL BEYOND LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

(in U.S. dollars, unless otherwise stated)

(h)  Revenue Recognition

       The Company’s revenues are primarily derived from advertising services. Revenues from advertising services are recognized ratably over the period in which the advertisement is displayed. Revenue is recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assures.

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

       The Company presents advertising service revenue, net of business tax incurred, which amounts to $25,878, $78 and $Nil for the year ended December 31, 2004 and three months ended March 31, 2004 (unaudited) and 2005 (unaudited), respectively.

(i)  Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating lease. Payments made under operating leases are charged to the consolidated statement of operations on a straight-line basis over the lease periods.

(k)  Foreign Currency Translation

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

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

(l)  Income Taxes

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

P-61

CAPITAL BEYOND LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

(in U.S. dollars, unless otherwise stated)

(m)  Comprehensive loss

       The net loss for the period presented was the same as the comprehensive loss for the period presented.

(n)  Fair Value of Financial Instruments

       Financial instruments include cash and cash equivalents, The carrying value of cash and cash equivalents approximates their fair values due to their short-term maturities.

(o)  Recently Issued Accounting Standards

       In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. EITF No. 03-01 provides guidance on recording other-than-temporary impairments of cost method investments and requires additional disclosures for those investments. The recognition and measurement guidance in EITF No. 03-01 should be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for fiscal years ending after June 15, 2004 and are required only for annual periods. The adoption of this standard did not have a material impact on its financial positions or results of operations.

       In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on the Company’s consolidated financial statements.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, cash flows or results of operations.

P-62

CAPITAL BEYOND LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

(in U.S. dollars, unless otherwise stated)

       In January 2003, the FASB issued Interpretation Number (“FIN”) No. 46, which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (Revised) to address certain FIN 46 implementation issues. The Company has elected to retroactively apply FIN 46 (Revised) and has consolidated Guangdong Framedia as its variable interest entity from its inception.

3. Equipment, Net

       Equipment consists of:

	December 31,			March 31,
	2004			2005
				(Unaudited)
Flat-panel television screens	$	562,080		$	562,080
Less: accumulated depreciation		(59,091	)		(85,790	)
	$	502,989		$	476,290

4. Accrued Expenses and Other Current Liabilities

	December 31,		March 31,
	2004		2005
			(Unaudited)
Other payables	$	—	$	69,935
Other taxes payable		3,932		3,920
	$	3,932	$	73,855

5. Income Taxes

       The Company is a tax-exempted company incorporated in the British Virgin Islands.

       Guangdong Framedia, registered in the PRC is subject to PRC Enterprise Income Tax (“EIT”) on the taxable income as reported in its statutory financial statements adjusted in accordance with the relevant income tax laws. In accordance with “Income Tax Law of China for Private Enterprises”, the applicable EIT rate for Guangdong Framedia is 33%. No income tax has been provided in the consolidated financial statements as Guangdong Framedia was exempted from income tax in the periods presented.

6. Mainland China Contribution Plan and Profit Appropriation

       Full time employees of Guangdong Framedia in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care,

P-63

CAPITAL BEYOND LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

(in U.S. dollars, unless otherwise stated)

unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require Guangdong Framedia to accrue for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were $5,747, $1,003 and $Nil for the year ended December 31, 2004 and the three months ended March 31, 2004 (unaudited) and 2005 (unaudited), respectively.

       Pursuant to laws applicable to the entities incorporated in the PRC, Guangdong Framedia must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the Company’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. In 2004, Guangdong Framedia made total appropriation of approximately $46,087.

7. Commitments

       The Company leases certain office premises and certain building areas under non-cancelable leases, which expire in 2014. Rental expense under operating leases for year ended December 31, 2004 and the three months ended March 31, 2004 (unaudited) and 2005 (unaudited) were $350,650, $38,060 and $83,163, respectively.

       Future minimum lease payments under non-cancelable operating leases agreements were as follows:

	December 31,
	2004
2005	$	445,860
2006		393,022
2007		276,157
2008		213,896
2009		57,998
Thereafter		48,861
	$	1,435,794

8. Segment and Geographic Information

       The Company is engaged in the operation and maintenance of out-of-home television advertising network, as well as lift frame advertising network.. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information can be found in the consolidated financial statements.

P-64

CAPITAL BEYOND LIMITED

NOTES TO THE FINANCIAL STATEMENTS — (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND 2005 (UNAUDITED)

(in U.S. dollars, unless otherwise stated)

Geographic Information

       The Company operates, through Guangdong Framedia, in the PRC and all of the Company’s long lived assets are located in the PRC.

       As of December 31, 2004 and March 31, 2004 (unaudited) and 2005 (unaudited), there were no customers which accounted for 10% or more of the Company’s net revenues and accounts receivable.

9. Related Party Transaction

       The amount due to Beijing Framedia Advertising Co., Ltd., an entity owned by the same shareholders of the Company, amounted to $27,910, $240,942 and $101,734 as of December 31, 2004, March 31, 2004 (unaudited) and 2005 (unaudited), respectively.

10. Subsequent Event

       On March 21, 2005, Focus Media Holding Limited acquired 100% of the outstanding ordinary shares of the Company including its then variable interest entity Guangdong Framedia in exchange of cash of $2,054,008. Immediately following the acquisition the Company became a wholly owned subsidiary of Focus Media Holding Limited and Guangdong Framedia became a wholly owned subsidiary Focus Media Advertisement Co. Ltd.

P-65

INFOACHIEVE LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents

	Page(s)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		P-67
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2004 AND SEPTEMBER 30, 2005		P-68
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005		P-69
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005		P-70
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) AND 2005		P-71-72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		P-73

P-66

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

INFOACHIEVE LIMITED

       We have audited the accompanying consolidated balance sheets of Infoachieve Limited and its subsidiaries (the “Group”) as of December 31, 2003 and 2004 and September 30, 2005 and the related consolidated statements of operations, shareholders’ equity and comprehensive loss, and cash flows for the years ended December 31, 2003 and 2004 and the nine months ended September 30, 2005. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Group is not required to have, nor were we engaged to perform, an audit of its financial control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2003 and 2004 and September 30, 2005 and the results of its operations and its cash flows for the above stated periods in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Deloitte Touche Tohmatsu CPA Ltd.

Beijing, China

January 6, 2006

P-67

INFOACHIEVE LIMITED

CONSOLIDATED BALANCE SHEETS

(In U.S. dollars, except share data)

		December 31,					September 30,
		2003		2004			2005
Assets
Current assets:
	Cash and cash equivalents	$	143,595	$	228,909		$	1,459,980
	Accounts receivable, net of allowance for doubtful accounts of $Nil, $Nil and $5,932 in 2003, 2004 and September 30, 2005		724,672		1,293,569			3,160,697
	Inventories		6,608		6,572			9,101
	Prepaid expenses and other current assets		292,450		367,635			1,186,370
	Amounts due from related parties		302,859		501,819			—
Total current assets			1,470,184		2,398,504			5,816,148
Equipment, net			552,621		1,031,010			877,951
Acquired intangible assets, net			—		—			779,563
Goodwill			—		—			12,703,580
Total assets		$	2,022,805	$	3,429,514		$	20,177,242
Liabilities and shareholders’ equity
Current liabilities:
	Short-term loans from shareholders	$	81,892	$	365,802		$	3,048,522
	Accounts payable		79,121		113,817			702,690
	Accrued expenses and other current liabilities		301,698		868,129			5,958,361
	Amounts due to related parties		624,293		1,677,741			1,738,425
Total current liabilities			1,087,004		3,025,489			11,447,998
Commitments (Note 14)
Mezzanine equity
	Series A-1 convertible redeemable preference shares ($0.01 par value; nil, nil and 270,000 shares authorized and nil, nil and 270,000 shares issued and outstanding in 2003, 2004 and 2005, respectively) (liquidation value $1,709,100)		—		—			1,484,154
	Series A-2 convertible redeemable preference shares ($0.01 par value; nil, nil and 110,000 shares authorized and nil, nil and 110,000 shares issued and outstanding in 2003, 2004 and 2005, respectively) (liquidation value $937,200)		—		—			813,849
Shareholders’ equity
	Ordinary shares ($0.01 par value; nil, 4,620,000 and 4,620,000 shares authorized in 2003, 2004 and 2005, respectively; nil, 40,000 and 1,244,200 issued and outstanding in 2003, 2004 and 2005, respectively)		—		400			12,442
	Additional paid-in capital		477,950		543,110			25,079,080
	Retained earnings (accumulated deficit)		457,820		(140,669	)		(18,567,467	)
	Accumulated other comprehensive income (loss)		31		1,184			(92,814	)
Total shareholders’ equity		$	935,801	$	404,025		$	6,431,241
Total liabilities and shareholders’ equity		$	2,022,805	$	3,429,514		$	20,177,242

The accompanying notes are an integral part of these consolidated financial statements.

P-68

INFOACHIEVE LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In U.S. dollars, except share data)

		For the years ended						For the nine months ended
		December 31,						September 30,
		2003			2004			2004			2005
								(Unaudited)
Revenues:
	Advertising service revenue	$	2,154,591		$	4,323,551		$	3,111,087		$	7,020,592
Cost of revenues:
	Advertising service cost		1,305,527			3,336,840			2,446,136			3,618,979
Gross profit			849,064			986,711			664,951			3,401,613
Operating expenses:
	General and administrative (including share-based compensation of nil, nil and $1,395,100 for 2003, 2004 and 2005, respectively)		514,607			543,351			402,866			2,437,239
	Selling and marketing		218,795			821,518			573,671			1,871,706
Total operating expenses			733,402			1,364,869			976,537			4,308,945
Income (loss) from operations			115,662			(378,158	)		(311,586	)		(907,332	)
	Interest income		671			1,691			1,100			1,998
	Interest expense		(46,720	)		(254,962	)		(174,917	)		(117,471	)
	Other income (expense), net		(2,051	)		36,820			(1,197	)		78,645
Income (loss) before income taxes			67,562			(594,609	)		(486,600	)		(944,160	)
Income taxes:
	Current		6,459			3,880			2,822			1,235
	Deferred		—			—			—			—
Total income taxes			6,459			3,880			2,822			1,235
Net income (loss)			61,103			(598,489	)		(489,422	)		(945,395	)
Deemed dividend on ordinary shares			—			—			—			(15,187,200	)
Deemed dividend on Series A-1 convertible redeemable preference shares — Redesignation			—			—			—			(1,136,700	)
Deemed dividend on Series A-1 convertible redeemable preference shares — Accretion of redemption premium			—			—			—			(344,754	)
Deemed dividend on Series A-2 convertible redeemable preference shares — Redesignation			—			—			—			(623,700	)
Deemed dividend on Series A-2 convertible redeemable preference shares — Accretion of redemption premium			—			—			—			(189,049	)
Income (loss) attributable to holders of ordinary shares		$	61,103		$	(598,489	)	$	(489,422	)	$	(18,426,798	)
Loss per share-basic and diluted		$	—		$	(35.10	)	$	(52.38	)	$	(25.31	)
Shares used in calculating basic and diluted loss per share			—			17,049			9,343			728,167

The accompany notes are an integral part of these consolidated financial statements.

P-69

INFOACHIEVE LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In U.S. dollars, except share data)

										Retained			Accumulated
	Ordinary						Additional			earnings			other			Total
							paid-in			(Accumulated			comprehensive			shareholders			Comprehensive
	Shares			Amount			capital			deficit)			income (loss)			equity			income (loss)
Balance at January 1, 2003		—		$	—		$	181,004		$	396,717			—		$	577,721
Incorporation of Guangzhou Frameda, Shenzhen Framedia and Wuhan Framedia		—			—			296,946			—						296,946
Cumulative translation adjustment		—			—			—			—			31			31		$	31
Net income		—			—			—			61,103			—			61,103			61,103
Balance at December 31, 2003		—		$	—		$	477,950		$	457,820		$	31		$	935,801		$	61,134
Issuance of ordinary shares to incorporate Infoachieve		40,000			400			—			—			—			400
Incorporation of Wuhan Framedia		—			—			65,160			—			—			65,160
Cumulative translation adjustment		—			—			—			—			1,153			1,153		$	1,153
Net loss		—			—			—			(598,489	)		—			(598,489	)		(598,489	)
Balance at December 31, 2004		40,000		$	400		$	543,110		$	(140,669	)		1,184		$	404,025		$	(597,336	)
Issuance of ordinary shares		960,000			9,600			15,187,200			(15,187,200	)		—			9,600			—
Reclassification of ordinary shares to Series A-1 convertible redeemable preference shares		(270,000	)		(2,700	)		—			—			—			(2,700	)		—
Series A-2 convertible redeemable preference shares		(110,000	)		(1,100	)		—			—			—			(1,100	)		—
Issuance of ordinary shares for acquisitions		584,200			5,842			8,437,366			—			—			8,443,208			—
Return of capital for reorganization of entities under common control		—			—			(483,296	)		—			—			(483,296	)		—
Issuance of ordinary shares to Chief Executive Officer		40,000			400			1,394,700			—			—			1,395,100			—
Cumulative translation adjustment		—			—			—			—			(93,998	)		(93,998	)	$	(93,998	)
Deemed dividend on Series A-1 convertible redeemable preference shares		—			—			—			(1,481,454	)		—			(1,481,454	)		—
Deemed dividend on Series A-2 convertible
Redeemable preference shares		—			—			—			(812,749	)		—			(812,749	)		—
Net loss		—			—			—			(945,395	)		—			(945,395	)		(945,395	)
Balance at September 30, 2005		1,244,200		$	12,442		$	25,079,080		$	(18,567,467	)	$	(92,814	)	$	6,431,241		$	(1,039,393	)

P-70

INFOACHIEVE LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. dollars)

			For the years ended						For nine months ended
			December 31,						September 30,
			2003			2004			2004			2005
									(Unaudited)
Operating activities:
	Income (loss) attributable to holders of ordinary shares		$	61,103		$	(598,489	)	$	(489,422	)	$	(18,426,798	)
	Deemed dividend on ordinary shares			—			—			—			15,187,200
	Deemed dividend on Series A-1 convertible redeemable preference shares — Redesignation			—			—			—			1,136,700
	Deemed dividend on Series A-1 convertible redeemable preference shares — Accretion of redemption premium			—			—			—			344,754
	Deemed dividend on Series A-2 convertible redeemable preference shares — Redesignation			—			—			—			623,700
	Deemed dividend on Series A-2 convertible redeemable preference shares — Accretion of redemption premium			—			—			—			189,049
	Net income (loss)			61,103			(598,489	)		(489,422	)		(945,395	)
	Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
		Share-based compensation expense		—			—			—			1,395,100
		Depreciation and amortization		75,278			157,990			139,573			330,008
		Impairment loss		—			—			—			115,789
	Changes in assets and liabilities, net of effects of acquisitions
		Accounts receivable		(522,829	)		(568,897	)		(46,087	)		(1,867,128	)
		Inventories		(6,608	)		35			(18,650	)		(3,160	)
		Prepaid expenses and other current assets		(249,251	)		(75,185	)		(60,982	)		(815,359	)
		Amounts due from related parties		—			(133,800	)		241,231			248,522
		Accounts payable		79,121			34,696			(74,590	)		588,873
		Accrued expenses and other current liabilities		344,819			566,431			514,943			1,247,918
		Amounts due to related parties		45,052			738,591			—			954,782
Net cash (used in) provided by operating activities				(173,315	)		121,372			206,016			1,249,950
Investing activities:
	Acquisition of businesses, net of cash acquired of $nil			—			—			—			(1,234,150	)
	Purchase of equipment			(518,900	)		(636,378	)		(358,709	)		(488,953	)
	Proceeds from short-term investments			6,033			—			—			—
Net cash used in investing activities			$	(512,867	)	$	(636,378	)	$	(358,709	)	$	(1,723,103	)

P-71

		For the years ended					For nine months ended
		December 31,					September 30,
		2003		2004			2004			2005
							(Unaudited)
Financing activities:
	Proceeds from short-term loans from shareholders	$	81,892	$	365,802		$	—		$	2,682,720
	Repayment of short-term loans from shareholders		—		(81,892	)		(81,892	)		—
	Proceeds of amounts due to related parties		579,241		435,681			366,464			—
	Repayment of amounts due to related parties		—		(120,824	)		—			(894,098	)
	Proceeds from issuance of ordinary shares		—		400			400			9,600
	Capital injection from shareholders		36,203		—			—			—
Net cash provided by financing activities		$	697,336	$	599,167		$	284,972		$	1,798,222
Effect of exchange rate changes		$	31	$	1,153		$	555		$	(93,998	)
Net increase in cash and cash equivalents			11,185		85,314			132,834			1,231,071
Cash and cash equivalents, beginning of period			132,410		143,595			143,595			228,909
Cash and cash equivalents, end of period		$	143,595	$	228,909		$	276,429		$	1,459,980
Supplemental disclosure of cash flow information
	Income taxes paid	$	6,459	$	3,880		$	2,822		$	6,966
	Interest paid	$	—	$	—		$	—		$	—
Supplemental disclosures of non-cash financing activities:
Acquisition of businesses:
Value of ordinary shares issued		$	—	$	—		$	—		$	8,443,208
Cash consideration			—		—			—			5,387,158
Businesses acquired (including intangibles of $968,422, goodwill of $12,703,580, equipment of $115,789)		$	—	$	—		$	—		$	13,830,366
Non-cash financing activities:
	Reclassification of ordinary shares to Series A-1 convertible redeemable preference shares	$	—	$	—		$	—		$	1,139,400
	Reclassification of ordinary shares to Series A-2 convertible redeemable preference shares	$	—	$	—		$	—		$	624,800
Issuance of ordinary shares to shareholders in exchange for services		$	—	$	—		$	—		$	15,187,200
Issuance of ordinary shares to Chief Executive Officer in exchange for services		$	—	$	—		$	—		$	1,395,100

The accompany notes are an integral part of these consolidated financial statements.

P-72

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

1.     Organization and Principal Activities

       Prior to April 28, 2004, the Group operated through the following entities (collectively “the Combined Entities”):

Entities under common control	Place of incorporation	Date of incorporation
Shanghai Framedia Advertising Co., Ltd. (“Shanghai Framedia”)	People’s Republic of China (“PRC”)		November 4, 2002
Beijing Framedia Advertising Co., Ltd. (“Beijing Framedia”)	PRC		May 9, 2000
Guangdong Framedia Advertising Co., Ltd. (“Guangdong Framedia”)	PRC		December 16, 2003
Shenzhen Framedia Advertising Co., Ltd. (“Shenzhen Framedia”)	PRC		May 8, 2003
Wuhan Framedia Advertising Co., Ltd. (“Wuhan Framedia”)	PRC		November 28, 2003

       Subsequent to April 28, 2004, Framedia Advertisement Development (Shanghai) Co., Ltd. (“Framedia Development”), a PRC entity, was incorporated by the same shareholders of the Combined Entities and all of the operations of the Combined Entities were transferred to Framedia Development.

       On July 28, 2004, the same shareholders of the Combined Entities and Framedia Development incorporated Infoachieve Limited (“Infoachieve”), a British Virgin Islands entity.

       In substance, the combined entities which are existing companies have been reorganized into the new company Framemedia Development. Accordingly, the Group’s financial statements are prepared by including the financial statements of the combined entities through April 2004 and subsequently the Group’s consolidated financial statements which include Framemedia Development, Infoachieve and its variable interest entities.

       The PRC rules and regulations currently limit direct foreign ownership in companies that provide advertising services, including frame space advertising services. To comply with these rules and regulations, when the shareholders established Infoachieve in July 2004, Framedia Development entered into various agreements with Infoachieve, including transfer of operation agreements and exclusive consulting and service agreements. Under these agreements, Infoachieve is the exclusive provider of management consulting services to Framedia Development. In return, Framedia Development is required to pay Infoachieve services fees for the management consulting services received. The management consulting service fees are the net profits of Framedia Development. In addition, Infoachieve has been assigned all voting rights by the direct owners of Framedia Development through agreements valid for ten years. Finally, Infoachieve has the option to acquire the equity interest of Framedia Development. Infoachieve holds all the variable interests of Framedia Development and has been determined to be most closely associated with Framedia Development and is considered the primary beneficiary of Framedia Development.

       On June 1, 2005, Infoachieve provided loans to two of its shareholders to acquire 100% of the outstanding shares of Guangdong Century Sparkle Advertisement Co., Ltd. (“Sparkle”), a frame advertisement service provider. Principal terms of the loan agreements provide that (i) Infoachieve entitles to receive service fees by providing management consulting services to Sparkle;

P-73

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

(ii) Infoachieve has been assigned all voting rights valid indefinitely that cannot be amended or terminated except by written consent of all parties; and (iii) Infoachieve has the options to acquire the equity interest of Sparkle. Infoachieve holds all the variable interests of Sparkle and has been determined to be most closely associated with Sparkle and is considered the primary beneficiary of Sparkle.

       Through the above arrangements, under the requirements of FIN 46 (Revised) “Consolidation of Variable Interest Entities” (“FIN 46 (R)”), Framedia Development and Sparkle have become the variable interest entities of Infoachieve, as a result, the financial statements of Framedia Development and Sparkle have been consolidated with Infoachieve as its subsidiaries since they were established or acquired.

       As of September 30, 2005, Infoachieve’s variable interest entities include the following entities:

	Date of		Place of
Subsidiary	incorporation		incorporation
Framedia Development		April 28, 2004		PRC
Sparkle		March 25, 2005		PRC

       These Companies have been entities under common control which has established the basis to consolidate them from their inception. Accordingly, the accompanying financial statements include the financial statements of Beijing Framemedia, Guangzhou Framemedia, Shenzhen Framemedia, Wuhan Framemedia, Framemedia Development and Infoachieve and its variable interest entities, collectively the “Group.”

       The Group is principally engaged in the sale of frame space advertising in high-end residential complex in the PRC.

       Between June 1, 2005 and September 30, 2005, the Group through Infoachieve acquired the frame advertising net assets from seven companies that operated in the same industry in the PRC. These acquisitions were accounted for as acquisition of a business and for details, see Note 3, Acquisitions.

2.     Summary of Significant Accounting Policies

(a) Basis of Presentation

       The consolidated financial statements of the Group has been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements reflect the operations of Shanghai Framemedia, Beijing Framemedia, Guangzhou Framemedia, Shenzhen Framemedia and Wuhan Framemedia through April 2004 and the Group’s consolidated financial statements thereafter.

(b) Cash and Cash Equivalents

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

P-74

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

(c) Use of Estimates

       The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include allowance for doubtful accounts, the useful lives and impairment of equipment, intangible assets and goodwill and valuation allowance for deferred tax assets.

(d) Significant Risks and Uncertainties

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

(e) Equipment, Net

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

Frame	5  years
Computer and office equipment	5  years
Liquid crystal display	5  years

(f) Impairment of Long-Lived Assets

       The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets. The Group recognized impairment loss of Nil, Nil and $115,789 for the years ended December 31, 2003 and 2004 and nine months ended September 30, 2005. In 2005, the Group decided to replace the remaining tangible assets acquired through the acquisitions and assessed the recoverable amounts of the net tangible assets be nil, therefore, the Group recognized an impairment loss of $115,789 which is equal to the remaining amount of the tangible assets acquired from the acquisitions.

(g) Goodwill

       Beginning in 2002, with the adoption of SFAS 142, “Goodwill and Other Intangible Assets”, goodwill is no longer amortized, but instead tested for impairment upon first adoption and annually thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. SFAS No. 142 requires the Group to complete a two-step goodwill impairment test. The first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If

P-75

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. SFAS No. 142 requires completion of this first step within the first six months of initial adoption and annually thereafter. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

       No events had occurred and no indications had been identified as of September 30, 2005 that reduced the fair value of the Group’s reporting units below the goodwill and intangible assets carrying amounts. Management will perform the annual goodwill impairment test as of December 31, 2005 to determine if there is any goodwill impairment.

       The changes in the carrying amount of goodwill for the nine months ended September 30, 2005 are as follows:

Balance as of January 1, 2005	$	—
Goodwill acquired during the period		12,703,580
Goodwill impaired since acquired		—
Balance as of September 30, 2005	$	12,703,580

(h) Revenue Recognition

       The Group’s revenues are primarily derived from advertising services. Revenues from advertising services are recognized ratably over the period in which the advertisement is displayed. Accordingly, revenue is recognized when all four of the following criteria are met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the products and /or services has occurred and risks and rewards of ownership have passed to the customer; (iii) the selling price is both fixed and determinable; and (iv) collection of the resulting receivable is reasonably assured.

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

       The Group presents advertising service revenue, net of business tax incurred, which amounts to $227,489, $442,593 and $772,940 for the years ended December 31, 2003 and 2004 and the nine months ended September 30, 2005, respectively.

(i) Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating lease. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease periods.

P-76

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

(j) Foreign Currency Translation

       The reporting currency of the Group is the United States dollar (“US dollar”). The functional currency of the Group is the Renminbi (“RMB”). Monetary assets and liabilities denominated in currencies other than US dollar are translated into the US dollar at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than US dollar during the periods are converted into US dollar at the applicable rates of exchange prevailing at the first day of the month transactions occurred. Transaction gains and losses are recognized in the consolidated statements of operations.

(k) Income Taxes

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

(l) Comprehensive Income/Loss

       Comprehensive income/loss includes foreign currency translation adjustments. Comprehensive income/loss is reported in the statements of shareholders’ equity.

(m) Concentration of Credit Risk

       Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Group places their cash and cash equivalents with financial institutions with high-credit ratings and quality.

       The Group conducts credit evaluations of customers and generally do not require collateral or other security from their customers. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

(n) Fair Value of Financial Instruments

       Financial instruments include cash and cash equivalents and short-term borrowings. The carrying values of cash and cash equivalents and short-term borrowings approximate their fair values due to their short-term maturities.

(o) Loss per Share

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

P-77

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

(p) Recently Issued Accounting Standards

       In December 2003, the Security Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 updates portions of existing interpretative guidance in order to make this guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material effect on the Group’s consolidated financial statements.

       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Group’s financial position, cash flows or results of operations.

       In January 2003, the FASB issued Interpretation Number FIN 46, which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN 46 (Revised to address certain FIN 46 implementation issues. The Group has elected to retroactively apply FIN 46 (Revised) and have consolidated the two variable interest entities, Framedia Development and Sparkle since they were incorporated or acquired.

(q) Unaudited Interim Financial Information

       The interim comparative financial information for the nine months ended September 30, 2004 is unaudited and has been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, such unaudited consolidated financial information includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the results of the interim information.

P-78

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

3.     Acquisitions

       During 2005 and 2004, the Group has made the following acquisitions to continue to expand its networks in desirable locations to establish other stand alone networks that provide effective channels for advertisers:

       (a) On June 1, 2005, two shareholders of Infoachieve, Lei Liu and Shi Yong acquired 100% of the equity of Guangdong Century Sparkle Advertising Co., Ltd. (“Sparkle”), a frame advertising service provider, in exchange for cash of $701,330 and 90,000 ordinary shares of Infoachieve having a fair value of $15.62 per ordinary share which was determined by a retrospective valuation performed by an independent valuation firm. The cash consideration was satisfied by a loan from the Group to Lei Liu and Yong Shi. At the completion of the acquisition, Lei Liu and Yong Shi entered into various agreements with Infoachieve, including an exclusive service agreement entitled Infoachieve to receive service fees in an amount up to all of the net income of Sparkle. In addition, Infoachieve has been assigned all the voting rights by Lei Liu and Yong Shi through an agreement valid indefinitely that cannot be amended or terminated except by written consent of all parties. Finally, Infoachieve has the option to acquire the equity interest of Sparkle. Infoachieve holds all the variable interests of Sparkle and has been determined to be most closely associated with Sparkle. Therefore Infoachieve is the primary beneficiary of Sparkle. As a result, the consolidated financial statements reflect the consolidation of Sparkle into Infoachieve. The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair market value at the date of acquisition. The aggregate purchase price of $2,107,130 consisted of the following:

Cash consideration	$	701,330
Value of the ordinary shares issued		1,405,800
Total consideration	$	2,107,130

       The purchase price was allocated as follows:

				Amortization
				period
Net tangible assets acquired		$	23,942
Intangible assets:
	Lease agreements		111,473		5 years
	Customer base		18,237		5 years
	Contract backlog		14,372		2.5 months
Goodwill			1,939,106		N/A
Total		$	2,107,130

       (b) On July 1, 2005, the Group through Infoachieve acquired the signed lease agreements, frames and ongoing advertising agreements of Langmei Co. Ltd., a frame advertising service provider, in exchange for cash of $828,295 and 160,000 ordinary shares of Infoachieve having a fair value of $14.24 per ordinary share which was determined by a retrospective valuation performed by an independent valuation firm. This is considered an acquisition of a business and accordingly the purchase method of accounting has been applied. The acquired net assets were recorded at their fair market value at the date of acquisition. The aggregate purchase price of $3,106,695 consisted of the following:

P-79

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

Cash consideration	$	828,295
Value of the ordinary shares issued		2,278,400
Total consideration	$	3,106,695

       The purchase price was allocated as follows:

				Amortization
				period
Net tangible assets acquired		$	12,563
Intangible assets:
	Lease agreements		56,878		5 years
	Customer base		41,314		5 years
	Contract backlog		49,891		2.5 months
Goodwill			2,946,049		N/A
Total		$	3,106,695

       (c) On July 1, 2005, the Group through Infoachieve acquired the signed lease agreements, frames and ongoing advertising agreements of Beijing Xinchengsihai Advertising Co., Ltd., a frame advertising services provider, in exchange for cash of $1,207,730. This is considered an acquisition of a business and accordingly the purchase method of accounting has been applied. The acquired net assets were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

				Amortization
				period
Net tangible assets acquired		$	6,642
Intangible assets:
	Lease agreements		63,043		5 years
	Customer base		5,918		5 years
	Contract backlog		483		2.5 months
Goodwill			1,131,644		N/A
Total		$	1,207,730

       (d) On July 5, 2005, the Group through Infoachieve acquired the signed lease agreements, frames and ongoing advertising agreements of Beijing Tuojia Advertising Co., Ltd., a frame advertising services provider, in exchange for cash of $870,617 and 95,200 ordinary shares of Infoachieve having a fair value of $14.24 per ordinary share which was determined by a retrospective valuation performed by an independent valuation firm. This is considered an acquisition of a business and accordingly the purchase method of accounting has been applied. The acquired net assets were recorded at their fair market value at the date of acquisition. The aggregate purchase price of $2,226,265 consisted of the following:

Cash consideration	$	870,617
Value of the ordinary shares issued		1,355,648
Total consideration	$	2,226,265

P-80

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

       The purchase price was allocated as follows:

				Amortization
				period
Net tangible assets acquired		$	21,263
Intangible assets:
	Lease agreements		92,546		5 years
	Customer base		12,323		5 years
	Contract backlog		43,735		2.5 months
Goodwill			2,056,398		N/A
Total		$	2,226,265

       (e) On July 1, 2005, the Group through Infoachieve acquired the signed lease agreements, frames and ongoing advertising agreements of Shanghai Yangguangjiaxin Advertising Co., Ltd., a frame advertising services provider, in exchange for cash of $241,838 and 99,000 ordinary shares of Infoachieve having a fair value of $14.24 per ordinary share which was determined by a retrospective valuation performed by an independent valuation firm. This is considered an acquisition of a business and accordingly the purchase method of accounting has been applied. The acquired net assets were recorded at their fair market value at the date of acquisition. The aggregate purchase price of $1,651,598 consisted of the following:

Cash consideration	$	241,838
Value of the ordinary shares issued		1,409,760
Total consideration	$	1,651,598

       The purchase price was allocated as follows:

				Amortization
				period
Net tangible assets acquired		$	15,340
Intangible assets:
	Lease agreements		140,475		5 years
	Customer base		11,233		5 years
	Contract backlog		30,680		2.5 months
Goodwill			1,453,870		N/A
Total		$	1,651,598

       (f) On July 1, 2005, the Group through Infoachieve acquired the signed lease agreements, frames and ongoing advertising agreements of Guangzhou Liju Advertising Co., Ltd., a frame advertising services provider, in exchange for cash of $483,676 and 140,000 ordinary shares of Infoachieve having a fair market value of $14.24 per ordinary share which was determined by a retrospective valuation performed by an independent valuation firm. This is considered an acquisition of a business and accordingly the purchase method of accounting has been applied. The acquired net assets were recorded at their fair market value at the date of acquisition. The aggregate purchase price of $2,477,276 consisted of the following:

P-81

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

Cash consideration	$	483,676
Value of the ordinary shares issued		1,993,600
Total consideration	$	2,477,276

       The purchase price was allocated as follows:

				Amortization
				period
Net tangible assets acquired		$	10,146
Intangible assets:
	Lease agreements		139,751		5 years
	Customer base		21,863		5 years
	Contract backlog		16,427		2.5 months
Goodwill			2,289,089		N/A
Total		$	2,477,276

       (g) On September 1, 2005, the Group through Infoachieve acquired the signed lease agreements, frames and ongoing advertising agreements of Beijing Lingxian Media Advertising Co., Ltd., a frame advertising services provider, in exchange for cash of $1,011,097. This is considered an acquisition of a business and accordingly the purchase method of accounting has been applied. The acquired net assets were recorded at their fair market value at the date of acquisition. The purchase price was allocated as follows:

				Amortization
				period
Net tangible assets acquired		$	25,893
Intangible assets:
	Lease agreements		52,898		5 years
	Customer base		19,852		5 years
	Contract backlog		25,030		2.5 months
Goodwill			887,424		N/A
Total		$	1,011,097

Pro Forma

       The following summarized unaudited pro forma results of operations for the nine months ended September 30, 2005 assuming that all significant acquisitions during the nine months ended September 30, 2005 occurred as of January 1, 2004 and 2005. These pro forma results have been prepared for comparative purposes only based on management’s best estimate and do not purport

P-82

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

to be indicative of the results of operations which actually would have resulted had the acquisitions occurred as of January 1, 2004 and 2005.

	Pro forma
	Year ended			Nine months ended
	December 31, 2004			September 30, 2005
	(unaudited)			(unaudited)
Revenues	$	13,246,468		$	11,207,226
Net loss attributable to holders of ordinary shares	$	(1,094,854	)	$	(19,153,592	)
Loss per share — basic and diluted	$	(64.22	)	$	(26.30	)

4.     Accounts Receivable, Net

       Accounts receivable, net consists of the following:

	December 31,				September 30,
	2003		2004		2005
Billed receivable	$	636,412	$	589,634	$	1,616,306
Unbilled receivables		88,260		703,935		1,544,391
	$	724,672	$	1,293,569	$	3,160,697

       Unbilled receivables represent amounts earned under advertising contracts in progress but not billable at the respective balance sheet dates. These amounts become billable according to the contract term. The Group anticipates that substantially all of such unbilled amounts will be billed and collected within twelve months of the balance sheet dates.

5.     Prepaid Expenses and Other Current Assets

       Prepaid expenses and other current assets consist of the following:

	December 31,				September 30,
	2003		2004		2005
Other receivables	$	56,388	$	135,576	$	462,980
Prepaid expenses		199,124		111,870		355,054
Employee advances		36,938		72,026		236,246
Other taxes refundable		—		48,163		132,090
	$	292,450	$	367,635	$	1,186,370

P-83

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

6.     Acquired Intangible Assets, Net

       Acquired intangible assets, net consist of the following:

	December 31,				September 30,
	2003		2004		2005
Lease agreements	$	—	$	—	$	657,064
Customer base		—		—		130,740
Contract backlogs		—		—		180,618
Less: accumulated amortization		—		—		(188,859	)
	$	—	$	—	$	779,563

       In 2005, the Group acquired certain lease agreements, customer base and contract backlogs through various acquisitions (see Note 3). The Group recorded amortization expense of $188,859 for the nine months ended September 30, 2005. The Group will record amortization expense of $55,277, $160,900, $160,900, $160,900 and $160,900 for the remainder of 2005, 2006, 2007, 2008 and 2009, respectively.

7.     Equipment, Net

       Equipment, net consists of the following:

	December 31,						September 30,
	2003			2004			2005
Frame	$	318,983		$	641,008		$	1,038,979
Computers and office equipment		99,871			174,164			265,146
Liquid crystal displays		322,020			562,080			—
		740,874			1,377,252			1,304,125
Less: accumulated depreciation and amortization		(188,253	)		(346,242	)		(426,174	)
	$	552,621		$	1,031,010		$	877,951

8.     Accrued Expenses and Other Current Liabilities

       Accrued expenses and other current liabilities consist of the following:

	December 31,				September 30,
	2003		2004		2005
Payables related to acquisitions	$	—	$	—	$	4,110,433
Advance from customers		—		75,580		437,556
Other taxes payable		186,267		387,074		423,301
Sales commission		—		30,688		404,499
Accrued expenses		51,919		45,315		177,192
Employee payroll and welfare		26,415		43,954		34,292
Advances from employees		13,677		244,847		—
Others		23,420		40,671		371,088
	$	301,698	$	868,129	$	5,958,361

P-84

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

9.     Income Taxes

       Infoachieve is a tax-exempted company incorporated in the British Virgin Islands.

       Beijing Framedia, Shanghai Framedia, Guangdong Framedia, Shenzhen Framedia, Wuhan Framedia and Infoachieve’s variable interest entities were all registered in the PRC, which are all subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws.

       The tax rate for Beijing Framedia was 33% and the taxable income was calculated at 8% of gross revenue in the periods presented.

       The EIT rate for Shanghai Framedia was 33% but no income tax was provided as Shanghai Framedia was exempted from income tax in 2004 and there was no assessable taxable income in 2005.

       The EIT rate for Guangdong Framedia was 33%. No income tax has been provided as Guangdong Framedia was exempted from income tax in the periods presented.

       The EIT rate for Shenzhen Framedia was 15% and no income tax was provided as Shenzhen Framedia had no assessable taxable income.

       Wuhan Framedia was subject to a fixed amount of income tax, which was $445 per year.

       The EIT rate for Framedia Development is 33%. No income tax has been provided in the periods presented as Framedia Development was exempted from income tax in 2004 and 2005.

       The EIT rate for Sparkle is 33%, and no income tax was provided as Sparkle had no assessable taxable income.

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

		December 31,				September 30,
		2003		2004		2005
Deferred tax assets:
	Pre-operating expenses	$	—	$	—	$	12,184
	Allowance for doubtful accounts		—		—		1,958
Total deferred tax assets			—		—		14,142
Valuation allowance on deferred tax assets			—		—		(14,142	)
Net deferred tax assets		$	—	$	—	$	—

10.     Loss per Share

       For the above mentioned periods, the Group had securities outstanding which could potentially dilute basic loss per share in the future, but which were excluded from the computation of diluted net

P-85

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

loss per share in the periods presented, as their effects would have been antidilutive. Such outstanding securities consist of the following:

	December 31,				September 30,
	2003		2004		2004		2005
					(unaudited)
Series A-1 convertible redeemable preference shares		—		—		—		270,000
Series A-2 convertible redeemable preference shares		—		—		—		110,000
		—		—		—		380,000

11.     Convertible Redeemable Preference Shares

       (a) In May 2005, 270,000 outstanding ordinary shares were reclassified and re-designated into 270,000 Series A-1 convertible redeemable preference shares. The re-designation has resulted in a deemed dividend of $1,136,700 which represents the difference between the fair value of the Series A-1 convertible redeemable preference shares at the date of the re-designation of $4.22 and the initial issuance price of the ordinary shares of $0.01 for 270,000 shares.

       At any time on or after the sixtieth month after the date on which the Series A convertible redeemable preference shares were first allotted and issued, and from time to time thereafter, the Group shall, at the election of any holder of Series A convertible redeemable preference shares, redeem all or part of the Series A convertible redeemable preference shares held by such redeeming holder. The redemption price shall be 150% of the $4.22 per share for Series A-1 convertible redeemable preference shares in effect on the redemption date plus all declared but unpaid dividends thereon up to the date of redemption, proportionally adjusted for share subdivisions, share dividends, reorganizations, reclassifications, consolidations, or mergers. The Group recorded a deemed dividend of $344,754 as of September 31, 2005, which resulted from amortization of the 50% redemption premium associated with Series A-1 convertible redeemable preference shares.

       (b) In May 2005, 110,000 outstanding ordinary shares were reclassified and re-designated into 110,000 Series A-2 convertible redeemable preference shares. The re-designation has resulted in a deemed dividend of $623,700 which represents the difference between the fair value of the Series A-2 convertible redeemable preference shares at the date of the re-designation of $5.68 and the initial issuance price of the ordinary shares of $0.01 for 110,000 shares.

       At any time on or after the sixtieth month after the date on which the Series A convertible redeemable preference shares were first allotted and issued, and from time to time thereafter, the Group shall, at the election of any holder of Series A convertible redeemable preference shares, redeem all or part of the Series A convertible redeemable preference shares held by such redeeming holder. The redemption price shall be 150% of the $5.68 per share for Series A-2 convertible redeemable preference shares in effect on the redemption date plus all declared but unpaid dividends thereon up to the date of redemption, proportionally adjusted for share subdivisions, share dividends, reorganizations, reclassifications, consolidations, or mergers. The Group recorded a deemed dividend of $189,049 as of September 31, 2005, which resulted from amortization of the 50% redemption premium associated with Series A-1 convertible redeemable preference shares.

P-86

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

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

Conversion

       Each of the Series A-1 and Series A-2 convertible redeemable preference shares is convertible into one ordinary share at a conversion price of $4.22 per share for Series A-1 convertible redeemable preference shares and $5.68 per share for Series A-2 convertible redeemable preference shares, at the option of the holder at any time after the date of issuance of such shares, or is automatically converted into ordinary shares at the then effective Series A conversion price upon a Qualified IPO. The conversion price should be subject to the following adjustment:

       Adjustment of the Series A-1 and Series A-2 convertible redeemable preference shares conversion price upon issuance of additional ordinary shares at below Series A convertible redeemable preference shares conversion price — in the event that Infoachieve shall issue any additional ordinary shares at a subscription price per share less than the Series A-1 and Series A-2 convertible redeemable preference shares conversion price, in effect on the date of and immediately prior to such issuance, the Series A convertible redeemable preference shares conversion price shall be reduced to a price equal to the consideration per share for which such additional ordinary shares are issued.

Voting Rights

       All ordinary shares shall have one vote each. Each convertible redeemable preference share shall be entitled to the number of votes equal to the number of ordinary shares into which such Series A convertible redeemable preference could be converted at the record date for determination of the members entitled to vote on such matters. The holders of the Series A-1 and Series A-2 convertible redeemable preference shares and the ordinary shares shall vote together and not as a separate class, except as otherwise specifically required by the merger and acquisition agreements.

Dividends

       The holders of the Series A-1 and Series A-2 convertible redeemable preference shares shall be entitled to receive out of any funds legally available therefore, when and if declared by the Directors, equivalent dividends or other distributions made or declared, whether in cash, in property or in any shares of Infoachieve, in respect of any other class or series of shares of Infoachieve.

Liquidation Preference

       In the event of any liquidation, dissolution or winding up of Infoachieve, the holders of Series A-2 convertible redeemable preference shares shall receive the amount equal to 100% of the Series A Original Reference Price. After setting aside or paying in full the preferential amount due to the holders of Series A-2 convertible redeemable preference shares, the holders of the Series A-1 convertible redeemable preference shares shall be entitled to receive, the amount equal to 100% of the Series A Original Reference Price.

       Series A Original Reference Price means, with respect to the Series A-1 convertible redeemable preference shares, $4.22, being the price at which the Series A-1 convertible redeemable preference shares were valued on the date on which the Series A-1 preference shares were first created by the Group by the redesignation of ordinary shares then in issue, and, with

P-87

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

respect to the Series A-2 preference shares, $5.68, being the price at which the Series A-2 convertible redeemable preference shares were valued on the date on which the Series A-2 convertible redeemable preference shares were first created by the Group by the redesignation of ordinary shares then in issue.

12.     Ordinary Shares

       (a) On July 28, 2004, to incorporate Infoachieve, the Group issued 400 ordinary shares to the shareholders of the combined entities for cash proceeds of $400.

       (b) On March 12, 2005 the Board of Directors approved a stock split of 100:1 of the ordinary shares which has been retroactively reflected in the Group’s consolidated financial statements.

       (c) On March 21, 2005, the Group issued 960,000 ordinary shares to the Founders for cash proceeds of $9,600. This has resulted in a deemed dividend of $15,187,200 which represents the difference between the fair value of the ordinary shares at the date of issuance of $15.83 and the par value of $0.01 for 960,000 shares. The fair value was determined based on a retrospective independent third party valuation.

       (d) On May 12, 2005, 380,000 outstanding ordinary shares were reclassified and redesignated into 270,000 Series A-1 convertible redeemable preference shares and 110,000 Series A-2 convertible redeemable preference shares. (See Note 11(a)(b))

       (e) On May 12, 2005 and September 2, 2005, the principal shareholders of the Group transferred 50,000 ordinary shares of their own and the Group issued 40,000 ordinary shares to the Chief Executive Officer of Infoachieve in return for his service, respectively. These have resulted in a compensation expense of $1,395,100, which was based on the fair value of the price of ordinary shares. The fair value was determined based on a retrospective independent third party valuation.

13.     Mainland China Contribution Plan and Profit Appropriation

       Full time employees of the Group in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits were $4,370, $18,991, $9,251 (unaudited) and $32,670 for the years ended December 31, 2003 and 2004 and for the nine months ended September 30, 2004 and 2005, respectively.

       Pursuant to laws applicable to entities incorporated in the PRC, the Group’s variable interest entities in the PRC must make appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) a enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the other fund appropriations are at the Group’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. In 2003, 2004 and 2005, the Group did not make any appropriations.

P-88

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

14.     Commitments

(a) Leases

       The Group has entered into operating leasing arrangements relating to the placement of the print in the commercial locations where the Group operates the networks and in connection with the lease of the Group’s office premises. Rental expense under operating leases for 2003 and 2004 and the nine months ended September 30, 2004 and 2005 was $436,426, $1,935,891, $1,322,340 (unaudited) and $2,379,144, respectively.

       Future minimum lease payments under non-cancelable operating leases agreements were as follows:

	September 30,
	2005
September 30,
2006	$	2,482,272
2007		871,508
2008		225,115
2009		30,084
2010 and thereafter		4,409
	$	3,613,388

15.     Segment and Geographic Information

       The Group is engaged in selling print advertisement on their network of frame located in high traffic areas in commercial locations throughout China.

       The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group.

       Although the Group operates through multiple cities in China which include Beijing, Shanghai, Guangzhou, Shenzhen and Wuhan, it believes it operates in one segment as all cities provide selling frame space to the customers and advertisers. Accordingly all financial segment information can be found in the consolidated financial statements.

Geographic information

       The Group operates in the PRC and all of the Group’s long lived assets are located in the PRC.

P-89

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

16.     Major Customers

       Details of the customers accounting for 10% or more of total revenues are as follows:

					Nine months
	Years ended				periods ended
	December 31,				September 30,
	2003		2004		2004		2005
	%		%		%		%
					(unaudited)
Beijing Yitongfeiyang Advertising Co., Ltd.		7.5		16.9		14.9		18.5

       Details of the customers accounting for 10% or more of accounts receivable are as follows:

	December 31,				September 30,
	2003		2004		2005
	%		%		%
Beijing Yitongfeiyang Advertising Co., Ltd.		21.6		26.6		16.3
Guangzhou Taoshi Broadcasting Advertising Co., Ltd.		—		—		11.9
Beijing Guanliang Advertising Co., Ltd.		—		18.2		—
Beijing Taihedongfang Advertising Co., Ltd.		—		10.3		—

17.     Related Party Balances

(a) Amounts Due from Related Parties

       The amounts due from related parties of $302,859 and $501,819 at December 31, 2003 and 2004 were cash advances to the Founders to invest in Shanghai Framedia, Guangdong Framedia, Shenzhen Framedia, Wuhan Framedia and Infoachieve. The amounts were unsecured and interest free.

(b) Short-Term Loans from Shareholders

       At December 31, 2003, the short-term loans from shareholders represented the principal of $81,892, which were interest free and repaid in 2004.

       At December 31, 2004, the short-term loans from shareholders represented the principal of $365,802, which was interest bearing starting from January 1, 2005 at an interest rate of 7% per annum and was repayable in December 2005.

       At September 30, 2005, the short-term loans from shareholders are comprised of the principal of $3,048,522 and the interest calculated at 7% per annum all of which was repayable within one year.

       The short-term loans were provided to the Group to be used as part of the consideration to complete the acquisitions described in Note 3.

P-90

INFOACHIEVE LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2005

(c) Amounts Due to Related Parties

       Details of amounts due to related parties as of December 31, 2003 and 2004 and September 30, 2005 were as follows:

	December 31				September 30
	2003		2004		2005
Principal shareholders	$	624,293	$	1,677,741	$	1,738,425

       The loans from a Founder’s relative and employees were unsecured, bore interest ranging from 20% to 30% per annum and were repaid in 2005.

       The cash advances were unsecured and interest free. The Group expects the amounts to be repaid within the next 12 months.

18.     Subsequent Events

       (a) On October 1, 2005, the Group acquired the signed lease agreements, frames and ongoing advertising agreements of Shenzhen Xinghuo Advertising Co., Ltd., a frame advertising services provider, in exchange for cash of $865,073 and 30,000 ordinary shares having a fair market value of $14.73 per ordinary share which was determined by a retrospective valuation performed by an independent valuation firm. This is considered an acquisition of a business and accordingly the purchase method of accounting will be applied. The acquired net assets were recorded at their fair market value at the date of acquisition. The aggregate purchase price of $1,306,973 consisted of the following:

Cash consideration	$	865,073
Value of the ordinary shares issued		441,900
Total consideration	$	1,306,973

       (b) On October 14, 2005, all the same shareholders of Infoachieve incorporated Total Team Investments Limited in the British Virgin Islands, and transferred all the issued shares in Infoachieve Limited to Total Team Investments.

       (c) On October 15, 2005, Focus Media Holding Limited, a publicly listed company on Nasdaq, signed a share purchase agreement to acquire all the issued shares of Infoachieve Limited from Total Team Investments Limited. The total consideration includes a cash payment of $39,600,000 and 22,157,003 ordinary shares with a fair market value of $79,720,897. An additional payment of up to 35,830,619 ordinary shares may be made contingent upon Infoachieve attaining certain earnings target in 2006.

P-91

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

	Page
Report of Independent Registered Public Accounting Firm		P-93
Consolidated Balance Sheets as of December 31, 2003 and 2004		P-94
Consolidated Statements of Operations for the years ended December 31, 2003 and 2004		P-95
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2003 and 2004		P-96
Consolidated Statements of Cash Flows for the years ended December 31, 2003 and 2004		P-97
Notes to the Consolidated Financial Statements for the years ended December 31, 2003 and 2004		P-98
Interim Unaudited Condensed Consolidated Balance Sheets as of December 31, 2004 and September 30, 2005		P-126
Interim Unaudited Condensed Consolidated Statements of Operations for the nine-month periods ended September 30, 2004 and 2005		P-127
Interim Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the year ended December 31, 2004 and for the nine-month period ended September 30, 2005		P-128
Interim Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2004 and 2005		P-129
Notes to the Interim Unaudited Condensed Consolidated Financial Statements		P-130

P-92

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

TARGET MEDIA HOLDINGS LIMITED:

       We have audited the accompanying consolidated balance sheets of Target Media Holdings Limited and its subsidiaries as of December 31, 2003 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2004, all expressed in Renminbi. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

       In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Target Media Holdings Limited and its subsidiaries as of December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

       The accompanying consolidated financial statements as of and for the year ended December 31, 2004, have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, such consolidated financial statements expressed in Renminbi have been translated into United States dollars on the basis set forth in note 2(c) to the consolidated financial statements.

/s/ KPMG

Hong Kong, China

September 19, 2005, except as to the second paragraph

of note 15(d), which is as of October 31, 2005, and

except as to note 15(e), which is as of January 7, 2006

P-93

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

					December 31,
		Note			2003			2004		2004
					RMB			RMB		US$
Assets
Current assets
	Cash and cash equivalents					20,680			103,804		12,542
	Time deposits					—			828		100
	Accounts receivable, net		(3	)		—			45,505		5,498
	Due from related parties		(14	)		—			4,611		557
	Prepaid expenses and other current assets		(4	)		468			5,969		721
	Deferred tax assets		(8	)		—			112		14
	Total current assets					21,148			160,829		19,432
Rental deposits						—			202		24
Property, equipment and software, net			(5	)		12,620			35,586		4,300
Total assets						33,768			196,617		23,756
Liabilities and shareholders’ equity
Current liabilities
	Accounts and bills payable					—			5,311		642
	Accrued expenses and other payables		(6	)		263			8,052		973
	Due to related parties		(14	)		10,770			10,033		1,212
	Income tax payable					—			442		53
	Total current liabilities					11,033			23,838		2,880
Commitments and contingencies			(9	)
Series A redeemable convertible preferred shares: US$0.0001 par value; nil and 44,000,000 shares authorized; nil and 41,641,679 shares issued and outstanding as of December 31, 2003 and 2004, respectively			(10	)		—			130,978		15,825
Shareholders’ equity
	Common shares: US$0.0001 par value; nil and 200,000,000 shares authorized; nil and 111,100,000 shares issued and outstanding as of December 31, 2003 and 2004, respectively		(11	)		—			92		11
	Paid-in capital					23,184			25,045		3,026
	Statutory reserves					—			5,011		606
	(Accumulated deficit) retained earnings					(449	)		11,653		1,408
Total shareholders’ equity						22,735			41,801		5,051
Total liabilities and shareholders’ equity						33,768			196,617		23,756

The accompanying notes are an integral part of these consolidated financial statements.

P-94

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except per share data)

					Years ended December 31,
		Note			2003			2004			2004
					RMB			RMB			US$
Revenues:
	Advertising service revenue					5,932			80,475			9,723
	Advertising agency revenue					9,550			—			—
	Total revenues					15,482			80,475			9,723
Cost of revenues						(4,961	)		(32,407	)		(3,915	)
Gross profit						10,521			48,068			5,808
Operating expenses:
	Sales and marketing					(8,394	)		(16,317	)		(1,971	)
	General and administrative					(2,712	)		(5,344	)		(646	)
	Total operating expenses					(11,106	)		(21,661	)		(2,617	)
Income (loss) from operations						(585	)		26,407			3,191
Other income (expenses):
	Interest income					69			86			10
	Interest expense					(313	)		(362	)		(44	)
	Investment income					800			—			—
	Exchange loss					—			(25	)		(3	)
Income (loss) before income tax expense						(29	)		26,106			3,154
Income tax expense			(8	)		(420	)		(330	)		(40	)
Net income (loss)						(449	)		25,776			3,114
Accretion to Series A redeemable convertible preferred shares redemption value						—			(8,663	)		(1,047	)
Net income (loss) available to common shareholders						(449	)		17,113			2,067
Basic income (loss) per common share			(12	)		(0.01	)		0.15			0.02
Diluted income (loss) per common share			(12	)		(0.01	)		0.15			0.02

The accompanying notes are an integral part of these consolidated financial statements.

P-95

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

	Common shares
													Total
	Number of				Paid-in			Statutory		Retained			shareholders’
	shares		Amount		capital			reserves		earnings			equity
			RMB		RMB			RMB		RMB			RMB
January 1, 2003		—		—		8,000			—		8,112			16,112
Capital contributions from shareholders		—		—		30,680			—		—			30,680
Dividends to shareholders		—		—		—			—		(1,266	)		(1,266	)
Distributions to shareholders in connection with the Restructuring (note 1)		—		—		(15,496	)		—		(6,846	)		(22,342	)
Net loss		—		—		—			—		(449	)		(449	)
December 31, 2003		—		—		23,184			—		(449	)		22,735
Issuance of common shares		111,100,000		92		—			—		—			92
Share-based compensation (note 7)		—		—		1,861			—		—			1,861
Accretion to Series A redeemable convertible preferred shares redemption value		—		—		—			—		(8,663	)		(8,663	)
Net income		—		—		—			—		25,776			25,776
Appropriation to statutory reserves		—		—		—			5,011		(5,011	)		—
December 31, 2004		111,100,000		92		25,045			5,011		11,653			41,801
December 31, 2004 (US$)				11		3,026			606		1,408			5,051

The accompanying notes are an integral part of these consolidated financial statements.

P-96

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004

(Amounts in thousands)

				Years ended December 31,
				2003			2004			2004
				RMB			RMB			US$
Cash flows from operating activities:
	Net income (loss)				(449	)		25,776			3,114
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Allowance for doubtful accounts			—			340			41
		Gain on disposal of equipment			—			(69	)		(8	)
		Depreciation and amortization			1,034			4,383			530
		Share-based compensation			—			1,861			225
		Deferred income tax			—			(112	)		(14	)
		Changes in operating assets and liabilities:
			Accounts receivable		4,088			(45,845	)		(5,539	)
			Due from related parties		—			(4,611	)		(557	)
			Prepaid expenses and other current assets		(1,368	)		(5,501	)		(665	)
			Rental deposits		—			(202	)		(24	)
			Accounts and bills payable		(364	)		1,730			209
			Accrued expenses and other payables		2,695			7,789			941
			Due to related parties		—			(737	)		(89	)
			Income tax payable		—			442			53
			Net cash provided by (used in) operating activities		5,636			(14,756	)		(1,783	)
Cash flows from investing activities:
	Purchase of time deposits				—			(828	)		(100	)
	Purchase of property, equipment and software				(13,912	)		(24,045	)		(2,905	)
	Proceeds from disposal of equipment				—			346			42
			Net cash used in investing activities		(13,912	)		(24,527	)		(2,963	)
Cash flows from financing activities:
	Proceeds from loan from shareholder				—			31,655			3,825
	Repayment of loan from shareholder				—			(21,655	)		(2,617	)
	Proceeds from issuance of common shares				—			92			11
	Proceeds from issuance of Series A redeemable convertible preferred shares, net of issuance costs				—			122,315			14,779
	Capital contributions from shareholders				30,680			—			—
	Cash dividends				(1,266	)		—			—
	Distributions to shareholders in connection with the Restructuring				(11,652	)		(10,000	)		(1,208	)
			Net cash provided by financing activities		17,762			122,407			14,790
Net increase in cash and cash equivalents					9,486			83,124			10,044
Cash and cash equivalents at beginning of year					11,194			20,680			2,498
Cash and cash equivalents at end of year					20,680			103,804			12,542
Supplemental disclosures of cash flow and non-cash information:
Cash paid for income taxes					420			—			—
Cash paid for interest					313			348			42
Accrual for purchase of property, equipment and software					—			3,581			433

The accompanying notes are an integral part of these consolidated financial statements.

P-97

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(1)     Principal Activities, Organization and Basis of Presentation

Principal Activities

       The accompanying consolidated financial statements consist of the financial statements of Target Media Holdings Limited (the “Company”), its wholly-owned subsidiary, Target Media Multi-Media Technology (Shanghai) Co., Ltd. (“TMM”), and a consolidated variable interest entity (“VIE”), Shanghai Target Media Co., Ltd. (“STM”). The Company and its subsidiary and consolidated VIE are collectively referred to as the “Group”. The Group is principally engaged in operating a nationwide flat panel display advertising network in the People’s Republic of China (“PRC”), which is made up of liquid crystal displays, or LCD, and plasma screens placed in the elevator lobbies or other waiting areas of commercial buildings, high-end residential buildings, hotels, banks and supermarkets. Using the advertisement content provided by its customers, the Group displays commercial advertisements for its customers on this network to capture targeted consumers who work, live or shop at these locations.

Organization

       In July 2004, the shareholders of STM incorporated the Company in the Cayman Islands as part of the reorganization of STM (the “Reorganization”). The purpose of the Reorganization was to enable a group of foreign investors to invest in STM where current PRC laws restrict direct foreign investment or ownership in advertising companies in the PRC. In connection with the Reorganization, the Company entered into the following series of transactions:

       1) The formation and incorporation and issuance of the Company’s common shares to the STM’s shareholders in the same direct proportion to their relative equity interests of STM in August 2004. See note 11.

       2) The formation and incorporation of TMM as a wholly-owned subsidiary of the Company in August 2004.

       3) The entering into certain contractual agreements and arrangements between TMM and STM in August 2004 since the Company and TMM currently are ineligible to apply and hold the required licenses for provision of advertising services in the PRC.

       4) The issuance of the Company’s Series A redeemable convertible preferred shares to a group of foreign investors for cash consideration of US$15,000 as discussed in note 10.

       The contractual agreements and arrangements between TMM and STM have resulted in the Company receiving substantially all the economic benefits and residual returns, absorbing substantially all the risks of expected losses of STM, and controlling the operating and financial decision making of STM. In addition, under the terms of these contractual agreements and arrangements, the Company, through TMM and its de facto agents, is considered to be the primary beneficiary of STM since it holds substantially all the variable interests of STM and is determined to be most closely associated with STM.

       Under Financial Accounting Standard Board (“FASB”) Interpretation No. 46(R), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46R”), a variable interest entity is required to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Accordingly, the financial statements of STM have been consolidated in the Company’s

P-98

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

financial statements from August 2004, which is the date when the Company first became the primary beneficiary of STM through the above contractual agreements and arrangements.

       The fees, payments or other sources of income and expenses arising from the transactions between TMM and STM under the terms of these agreements are eliminated against the related expenses or income on consolidation and do not have any impact on the consolidated financial position and operations and cash flow of the Group other than to reflect such amounts on a separate legal entity basis. The key terms and salient features of these contractual agreements and arrangements, which became effective from August 2004, are as follows:

       Assets Purchase Agreement

       Under the Assets Purchase Agreement, TMM purchased all of the tangible and intangible assets of STM other than (i) advertisement contracts with customers, (ii) flat panel display placement contracts, and (iii) other assets prohibited from transfer under applicable PRC laws and regulations. The purchase price was equal to the net book value of these assets as of July 31, 2004 and is payable by TMM through deducting the fees and expenses payable to TMM by STM under the Lease and Service Agreement and the Software License and Exclusive Technical Service Agreement described below.

       Lease and Service Agreement

       Under the Lease and Service Agreement, STM exclusively leases flat panel display and related equipment from TMM. STM also undertakes to exclusively procure certain services from TMM from time to time, including (i) repair and maintenance of flat panel display equipment, (ii) secondment of TMM’s employees to STM and (iii) business promotion services. Equipment rental is charged based on the amount of depreciation charge of the equipment plus a reasonable profit as determined and approved by TMM and the Board of Directors of the Company. Service fees are charged based on the relevant costs plus a reasonable profit as determined and approved by TMM and the Board of Directors of the Company. The initial term of the Lease and Service Agreement is 10 years and is automatically renewable for another 10 years unless, TMM gives written notice of its intention not to renew at least three months prior to expiration. The terms of this agreement also prohibit STM from purchasing or leasing flat panel display equipment, hiring new employees and procuring the services described above from any other third parties without TMM’s written consent.

       Software License and Exclusive Technical Service Agreement

       Under the Software License and Exclusive Technical Service Agreement, TMM provides a non-exclusive, non-transferable and non-assignable license to STM to install and run its licensed software solely in the PRC. TMM is the exclusive technical service provider to STM and STM is not permitted to procure any similar or identical technical services from other third parties. STM further agrees that TMM is the sole owner of any and all intellectual property rights or any other rights arising by way of research and development under this agreement. The software license fees payable by STM to TMM shall be based on a certain percentage of the business income generated from the use of TMM’s software in STM’s business operations as determined and approved by TMM and the Board of Directors of the Company. The technical service fees payable by STM to TMM shall be based on the relevant costs plus a reasonable profit as determined and approved by TMM and the Board of Directors of the Company. The initial term of the agreement is 10 years and is automatically renewable for another 10 years unless, TMM gives written notice of its intention not to renew at least three months prior to expiration.

P-99

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

       Guarantee Agreement

       Under the Guarantee Agreement and as security for STM’s obligations under the Lease and Service Agreement and the Software License and Exclusive Technical Service Agreement, each of the shareholders of STM has guaranteed STM’s performance under, and settlement of obligations arising from the Lease and Service Agreement and the Software License and Exclusive Technical Service Agreement by pledging all their equity interests in STM. Furthermore, the shareholders of STM have agreed to appoint the general manager, chief financial officer and other senior management of STM according to the Company’s or TMM’s instruction.

       Future Equity Transfer Agreement

       Under the Future Equity Transfer Agreement, the shareholders of STM shall transfer to the Company or its nominee, and the Company or its nominee shall acquire, when the PRC laws permit, their entire equity interests in the registered capital of STM at a nominal amount of RMB10, provided that the prevailing PRC laws at the time of transfer do not require a valuation of the transferred equity interests or post other restrictions. Furthermore, the terms of the Future Equity Transfer Agreement place significant restrictions on the shareholders of STM as summarized below:

       a) Without the written consent of the Company, each of the shareholders of STM shall not use their equity interests in STM as a guarantee or security against a loan, or shall not cause STM to enter into any loan transaction.

       b) Without the written consent of the Company, each of the shareholders of STM shall not dispose of their equity interests in the registered capital of STM in any form, including but not limited to transfer, security, or other forms of entitlements.

       c) Without the written consent of the Company, each of the shareholders of STM shall not adopt any measure which may cause the current approved business scope of STM to be altered, or may cause STM to be liquidated or wound up.

       d) Each of the shareholders of STM shall cause their respective nominees on STM’s Board not to pay any dividend or declare any dividend payable to the legal shareholders unless the Company’s prior approval is obtained.

       e) Each of the shareholders of STM shall invite the Company to attend STM’s shareholders and Board of Directors’ meetings, to cast their votes at the shareholders’ meeting in accordance with the Company’s instructions and direct their respective nominees on STM’s Board to vote in accordance with the Company’s instructions.

       f) Each of the shareholders of STM shall ensure that STM’s capital structure remains unchanged unless otherwise instructed by the Company, and that STM’s registered capital will not be increased, nor will it be assigned, in whole or in part, to any third party without prior written consent of the Company.

       No minority interests (or noncontrolling interests) have been presented in the accompanying consolidated financial statements since the Company, through TMM and its de facto agents (who are also all the shareholders of STM), has a 100% controlling financial interest in STM through the terms of the aforementioned contractual agreements and arrangements. In addition, the common shareholders of the Company and the shareholders of STM are the same and their shareholders’ equity interests in the Company are in the same proportion as to their equity interests in STM.

P-100

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

       STM is a domestic company incorporated in Shanghai, the PRC, in December 2003 and was formed in connection with the restructuring of Shanghai Dian Yang Digital Media Technology Co., Ltd. (“Dian Yang”), whose sole beneficial equity owner is also the controlling and majority shareholder of STM and the Company. Dian Yang was established in 2000 and initially operated as an advertising agency company by placing advertisements with media companies on behalf of advertising clients. In March 2003, Dian Yang commenced the flat panel display advertising business as an extension to its advertising agency business.

       As part of the restructuring of Dian Yang (the “Restructuring”), all tangible and intangible assets, assignable business contracts and employees relevant to the flat panel display advertising business were transferred from Dian Yang to STM in December 2003 at the time of STM’s incorporation. In connection with the transfer, RMB20,000 was distributed to Dian Yang, of which RMB10,000 was paid by STM at the end of December 2003 and the remaining RMB10,000 was paid by STM in January 2004. Following the Restructuring, STM began to operate the flat panel display advertising business.

Basis of Presentation

       The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).

       Since the controlling and majority shareholder of STM prior to the Reorganization remained the controlling and majority shareholder of the Company after consummation of the Reorganization, the assets and liabilities of STM have been stated and recognized by the Company at the historical carrying amounts of STM. As discussed above, the financial position and results of operations of STM have been consolidated and included in the Company’s consolidated financial statements from August 2004 onwards. For the periods prior to August 2004, since the Company was formed for the sole purpose of the Reorganization to allow a group of foreign investors to invest in STM’s flat panel display advertising business, the accompanying consolidated financial statements include the financial position and the related results of operations of STM from the earliest date presented through August 2004 at historical cost basis with no lapse in financial information.

       As discussed above, prior to August 2004, the accompanying consolidated financial statements include the financial position and results of operations of STM as of the earliest date presented. Since STM’s majority shareholder controlled Dian Yang prior to and after the Restructuring, the Restructuring has been accounted for as a reorganization of entities under common control. Accordingly, the assets and liabilities of Dian Yang transferred to STM have been recognized at Dian Yang’s historical carrying amount and as if the transfer of assets and liabilities and related business operations had occurred as of January 1, 2003, the earliest date presented in the accompanying consolidated financial statements. The RMB20,000 payable by STM to Dian Yang in connection with the transfer of the flat panel display advertising business and related assets has been accounted for as a distribution to shareholders in the consolidated statement of shareholders’ equity for the year ended December 31, 2003. In addition, the accompanying consolidated statement of operations for the year ended December 31, 2003 includes the results of operations of the advertising agency business of Dian Yang that was retained by Dian Yang subsequent to the Restructuring. Although the assets and liabilities of the advertising agency business of Dian Yang were not transferred to STM, the results of such operations up to the date of the Restructuring have been included in the accompanying consolidated financial statements because prior to the Restructuring, both the advertising agency business and the flat panel display advertising business were historically

P-101

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

managed, operated and financed as a group rather than as separate autonomous businesses and are therefore, operationally inseparable. Other than the legal form of ownership and the inclusion of the advertising agency business of Dian Yang, the results of operations for the year ended December 31, 2003 are comparable to the results of operations for the year ended December 31, 2004. The net assets retained by Dian Yang, which primarily consisted of office equipment, bank balances, receivables and payables, had a historical carrying value of RMB2,342 and have been reflected as a distribution to shareholders in the accompanying consolidated statement of shareholders’ equity for the year ended December 31, 2003.

(2)     Summary of Significant Accounting Policies

(a) Principles of Consolidation

       The consolidated financial statements include the financial statements of the Company, its subsidiary and its VIE, since the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated on consolidation.

(b) Use of Estimates

       The preparation of financial statements in conformity with US GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates, including those related to the allowance for doubtful accounts, valuation allowance for deferred tax assets, asset depreciable lives and residual values, and carrying values of long-lived assets, based on currently available information. Changes in facts and circumstances may result in revised estimates.

(c) Foreign Currencies

       The Group’s functional currency is the Renminbi (“RMB”). Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the People’s Bank of China at the balance sheet dates. All such exchange gains and losses are included in the consolidated statements of operations.

       The accompanying consolidated financial statements have been expressed in RMB. The translations of amounts from RMB into United States dollars (“US$”) as of and for the year ended December 31, 2004, are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB8.2765, on December 31, 2004, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2004, or at any other rate. See also note 13.

(d) Commitments and Contingencies

       Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(e) Cash and Cash Equivalents

       Cash and cash equivalents consist of cash at bank and on hand and certificates of deposit with an initial term of less than three months when purchased. None of the Group’s cash and cash equivalents are restricted for withdrawal.

(f) Accounts Receivable

       Accounts receivable billed are recorded at the invoiced amount and are non interest bearing. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing accounts receivable. The Group determines the allowance based on historical write-off experience by customer types and reviews specific larger amounts individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet credit exposure related to its customers.

(g) Property, Equipment and Software, Net

       Property, equipment and software are stated at cost, net of accumulated depreciation, amortization and impairment.

       Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives, taking into account the assets’ estimated residual value:

Flat panel display equipment, primarily LCD and plasma television screens	5 years
Computers and office equipment and software	3-5 years
Motor vehicles	5 years
Leasehold improvements	Shorter of 5 years or term of the lease

       In accordance with SFAS 143, “Accounting for Asset Retirement Obligations,” legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset are recognized at fair value in the period in which the liability is incurred if a reasonable estimate of fair value can be made. For the periods presented, there were no legal retirement obligations associated with the placement and use of the Group’s flat panel display equipment.

(h) Impairment of Long-lived Assets

       In accordance with Statements of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets, such as property, equipment and software, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment of long-lived assets was recognized for the years ended December 31, 2003 and 2004.

P-103

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(i) Goodwill and Other Intangible Assets

       Goodwill and intangible assets which are determined to have indefinite useful lives are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” Intangible assets with determinable useful lives are amortized over their respective useful lives and reviewed for impairment in accordance with SFAS No. 144. The Company did not have any goodwill or intangible assets as of or during the years presented.

(j) Fair Value of Financial Instruments

       Financial instruments of the Group include cash and cash equivalents, time deposits, accounts receivable, amounts due from related parties, other receivables, accounts and bills payable, and amounts due to related parties, for which the carrying values approximate their fair values due to their short-term maturities.

(k) Revenue Recognition

       The Group’s revenue is derived from the rendering of advertising services. Revenues from advertising services are recognized ratably on a straight-line basis over the period in which the advertisement is contractually required to be displayed, starting from the date the customer provides the advertisement content and the Group displays such content on its flat panel display equipment, and only when all four of the following criteria are met: (i) pervasive evidence of an arrangement exists; (ii) the advertising services have been rendered; (iii) the service fee is fixed or determinable; and (iv) collectibility is reasonably assured.

       Billing terms of the Group’s advertising service contracts are in the form of the following: (i) full billing after the end of the advertisement displayed period (the “Service Period”); (ii) progress billings over the Service Period; and (iii) partial cash down payment at the beginning of the Service Period with the remainder being billed in the form of progress payments during or after the end of the Service Period. Payments are due between 30 to 90 days from the date of billing. The Group’s accounts receivable comprise amounts billed under the contract terms and revenues recognized under contractual terms but not yet billed (unbilled receivables). The Group expects that substantially all unbilled receivables will be billed and collected within twelve months of the balance sheet date. Historically the Group has been able to collect substantially all amounts due under the contract terms without making any concessions on payments.

       For the period prior to December 2003, Dian Yang acted as an advertising agent generating commissions from placing advertisements with media companies on behalf of advertising clients. Commissions were recognized as revenues when the related agency services were rendered and the commission became contractually payable.

(l) Cost of Revenues

       Cost of revenues consists primarily of operating lease costs associated with the placement of flat panel display equipment, business tax and surcharges, depreciation of flat panel display equipment and personnel and other related expenses that are directly attributable to the rendering of advertising services.

       The Group’s advertising revenues are subject to a 5% business tax on revenues generated from services in the PRC. In addition, advertising revenues are subject to a cultural and education

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

development fee at 4% of revenue earned and various other surcharges at 5% of the business tax levied.

(m) Operating Leases

       Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the respective lease terms.

(n) Advertising Costs

       The Group expenses its advertising and promotion costs as incurred. Total advertising and promotion costs were RMB72 and RMB333 for the years ended December 31, 2003 and 2004, respectively, and were included in sales and marketing expenses.

(o) Income Taxes

       Deferred income taxes are provided using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to reduce the carrying amount of deferred tax assets if it is considered more likely than not that some portion, or all, of the deferred tax assets will not be realized.

(p) Share-based Compensation

       The Company has adopted SFAS No. 123R, “Share-based Payment ”, which requires that share-based payment transactions with employees, such as share options, be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period, with a corresponding addition to paid-in capital. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

       The Company accounts for equity instruments issued to non-employee vendors in accordance with the provisions of Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counterparty’s performance is completed. For the periods presented, the Company did not issue any equity instruments to non-employee vendors.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(q) Employee Benefit Plans

       As stipulated by the regulations of the PRC, the Company’s subsidiary and consolidated VIE participate in various defined contribution plans organized by municipal and provincial governments for their employees. These companies are required to make contributions to these plans at rates ranging from 14% to 24% of the salaries, bonuses and certain allowances of the employees. Under these plans, certain pension, medical and other welfare benefits are provided to the employees. The Group has no other material obligation for the payment of employee benefits associated with these plans beyond the annual contributions described above. Employee benefits associated with these plans are expensed when incurred. During the years ended December 31, 2003 and 2004, the Group accrued contributions of RMB268 and RMB903 respectively.

(r) Earnings Per Share

       In accordance with SFAS No. 128 “Computation of Earnings Per Share”, basic earning per share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the common shares issuable upon the conversion of the convertible preferred shares (using the as-converted method) and common shares issuable upon the exercise of outstanding share options (using the treasury stock method). Common equivalent shares in the diluted earning per share computation are excluded to the extent that their effect would be anti-dilutive.

(s) Segment Reporting

       The Company uses the management approach in determining operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions, allocating resources and assessing performance. Based on this assessment and subsequent to the Restructuring, the Company has determined that it has only one operating segment which is the rendering of flat panel display advertising services in the PRC.

(t) Comprehensive Income

       Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances except for transactions resulting from investments by shareholders and distributions to shareholders. The Company has no comprehensive income (loss) other than net income (loss) for the years ended December 31, 2003 and 2004.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(3)     Accounts Receivable, Net

       Accounts receivable, net is analyzed as follows:

	December 31,
	2003		2004
	RMB		RMB
Billed receivables		—		20,496
Unbilled receivables		—		25,349
		—		45,845
Less: allowance for doubtful accounts		—		(340	)
		—		45,505

       The activities in the allowance for doubtful accounts for accounts receivable for the years ended December 31, 2003 and 2004, were as follows:

	December 31,
	2003		2004
	RMB		RMB
Beginning allowance for doubtful accounts		—		—
Additions charged to bad debt expense		—		340
Ending allowance for doubtful accounts		—		340

(4)     Prepaid Expenses and Other Current Assets

       Components of prepaid expenses and other current assets are as follows:

	December 31,
	2003		2004
	RMB		RMB
Prepaid lease rental expenses		468		4,710
Advances to employees		—		470
Tax receivable		—		655
Other receivables and deposits		—		134
		468		5,969

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(5)     Property, Equipment and Software, Net

       Property, equipment and software, net consist of the following:

	December 31,
	2003			2004
	RMB			RMB
Flat panel display equipment		12,858			36,826
Computers and office equipment		160			1,722
Leasehold improvements		—			709
Motor vehicles		—			860
Software		—			250
		13,018			40,367
Less: Accumulated depreciation and amortization		(398	)		(4,781	)
		12,620			35,586

(6)     Accrued Expenses and Other Payables

       Components of accrued expenses and other payables are as follows:

	December 31,
	2003		2004
	RMB		RMB
Accrued payroll and welfare		—		3,881
Accrued expenses		263		1,764
Business tax and surcharges payable		—		2,264
Receipts in advance		—		143
		263		8,052

(7)     Share-based Compensation

       The Company grants share options to its executives and employees to reward for services.

       In August 2004, upon approval by the Board of Directors of the Company, 10,987,640 share options were granted to the Company’s executives and employees at an exercise price of US$0.36 with a contractual term of ten years and vesting period of four years.

       In December 2004, upon approval by the Board of Directors of the Company, 1,507,704 share options were granted to the Company’s executives and employees at an exercise price of US$0.45 with a contractual term of ten years and vesting period of four years.

       The fair value of each option award is estimated on the date of grant using a lattice-based option valuation model that uses the assumptions noted in the following table. Because the Company does not maintain an internal market for its shares, the expected volatility was based on the historical volatilities of comparable publicly traded advertising companies operating in the PRC and in the United States. The Company uses historical data to estimate employee termination within the valuation model. The expected life of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The employees that were granted the share options are expected to exhibit the same

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

behavior. Since the share options once exercised will primarily trade in the U.S. capital market and there was no comparable PRC zero coupon rate, the risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	2004
	August		December
Expected volatility		45%		45%
Expected dividends		0%		0%
Expected life		5  years		5 years
Risk-free interest rate		3.36%		3.71%
Estimated fair value of underlying common shares		US$0.36		US$0.48

       The estimated fair value of the underlying common shares on the date of grant was determined based on management valuation of the Company’s common shares which considered the cash issuance price for the Series A redeemable convertible preferred shares paid by a group of unrelated investors (see note 10), the proximity of that issuance to the date of the share option grant and the forecasted profitability and cash flows of the Company. The weighted-average grant-date fair value of options granted during 2004 was US$0.13 per share. The Company recorded non-cash share-based compensation expense of RMB1,861 for the year ended December 31, 2004 in respect of share options granted in 2004, of which RMB193 was allocated to costs of revenues and RMB1,668 was allocated to general and administrative expenses.

       A summary of option activities during 2004 is presented below:

						Weighted
				Weighted		average
				average		remaining		Aggregate
	Number of			exercise		contractual		intrinsic
	shares			price		term		value
Outstanding as of January 1, 2004		—			—
Granted		12,495,344		US$	0.37
Exercised		—			—
Forfeited or expired		(399,800	)	US$	0.37
Outstanding as of December 31, 2004		12,095,544		US$	0.37		9.7 years		RMB11,296
Exercisable as of December 31, 2004		1,209,554		US$	0.37		9.7 years

       The following is additional information relating to options outstanding as of December 31, 2004:

Options outstanding as of December 31, 2004						Options exercisable as of December 31, 2004
Number of		Exercise price		Remaining		Number of		Exercise price		Remaining
shares		per share		contractual life		shares		per share		contractual life
	10,587,840	US$	0.36		9.7 years		1,058,784	US$	0.36		9.7 years
	1,507,704	US$	0.45		10.0 years		150,770	US$	0.45		10.0 years
	12,095,544				9.7 years		1,209,554				9.7 years

       As of December 31, 2004, there was RMB11,519 of total unrecognized compensation cost related to nonvested share options. This cost is expected to be recognized over the next four years. The Company is expected to issue new shares to satisfy share option exercises.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(8)     Income Taxes

       The Company, its subsidiary and consolidated VIE file separate income tax returns.

Cayman Islands

       Under the current laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, upon any payment of dividends by the Company, no Cayman Islands withholding tax is imposed.

Peoples’ Republic of China

       TMM is governed by the income tax law of the PRC concerning foreign investment and foreign enterprises (the “Income Tax Law”). Under the Income Tax Law, foreign enterprises satisfying certain criteria can enjoy preferential tax treatment. Since TMM has obtained the status of a software enterprise, and is registered and operating in the Shanghai Zhangjiang High Technology Park, it has been granted a reduced income tax rate of 15% and a “tax holiday” for exemption from foreign enterprise income tax for 2 years starting from the calendar year of 2005 and is entitled to a 50% tax reduction for the succeeding 3 years beginning from 2007. In addition, TMM is entitled to a reduced income tax rate of 15% upon the expiration of the tax holiday, as well as exemption from local income tax.

       STM is entitled to a preferential tax treatment of exemption from enterprise income tax for the first and second years of operations starting from the calendar year of 2004. Upon the expiration of the tax holiday, STM will be subject to the PRC enterprise income tax rate of 33%.

       As a PRC domestic company that qualified as a small business tax filer, Dian Yang was subject to enterprise income tax, which was computed at 3.5% of its total revenue.

       Income tax expense attributable to income from operations, which substantially is derived from PRC sources, consists of:

	2003		2004
	RMB		RMB
Current		420		442
Deferred		—		(112	)
		420		330

       Income tax expense attributable to income from operations was RMB420 and RMB330 for the years ended December 31, 2003 and 2004, respectively, and differed from the amounts computed

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

by applying the statutory PRC enterprise income tax rate of 33% to pre-tax income from operations as a result of the following:

	2003			2004
	RMB			RMB
Computed expected tax (benefit) expense		(10	)		8,615
Increase (reduction) in income taxes resulting from:
Tax rate differential		—			92
Tax holiday (note 1)		—			(8,382	)
Non-deductible items		430			5
		420			330

Note

1)  The aggregate amount and basic per share effect of the tax holiday in 2004 were RMB8,382 and RMB0.08 (diluted RMB0.08), respectively.

       The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below. There were no deferred tax liabilities as of December 31, 2003 and 2004.

		December 31,
		2003		2004
		RMB		RMB
Deferred tax assets:
	Allowance for doubtful accounts		—		112
Less: valuation allowance			—		—
Net deferred tax assets			—		112

       In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or utilized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon an assessment of the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible or can be utilized, no valuation allowance has been provided as of December 31, 2004. The deferred tax assets of RMB112 as of December 31, 2004, represent the tax benefits of deductible temporary differences which are more likely than not to be realized in a non tax holiday year. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

       The PRC tax system is subject to substantial uncertainties and has been subject to recently enacted changes, the interpretation and enforcement of which are also uncertain. There can be no assurance that changes in PRC tax laws or their interpretation or their application will not subject the Group’s PRC entities to substantial PRC taxes in the future.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(9)     Commitments and Contingencies

       The Group has entered into operating lease agreements relating to the placement of flat panel display equipment.

       The Group has also entered into operating lease arrangements in connection with the lease of the Group’s office premises.

       Future minimum lease payments under non-cancellable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2004 are as follows:

	Flat panel
	display		Office
	equipment		premises
	RMB		RMB
2005		21,070		1,071
2006		14,062		—
2007		7,038		—
2008		4,377		—
2009		1,646		—
Thereafter		19		—
		48,212		1,071

       Rental expenses incurred under operating leases for placement of flat panel display equipment for the years ended December 31, 2003 and 2004, amounted to RMB2,784 and RMB15,210, respectively. Rental expenses incurred under operating leases for office premises for the years ended December 31, 2003 and 2004 amounted to RMB736 and RMB1,685, respectively.

       In June 2005, the Group entered into a non-cancellable operating lease agreement in connection with the lease of office premises, which has a three-year term, commencing from October 1, 2005, with a monthly rental of RMB239.

(10)     Redeemable Convertible Preferred Shares

       In August 2004, the Company issued 41,641,679 Series A redeemable convertible preferred shares (“Series A Shares”) to a group of investors at US$0.360216 per share (the “Series A issue price”) for total cash consideration of US$15,000 (RMB124,148). The holders of Series A Shares have the right to require the Company to redeem the shares at any time after the fifth anniversary of the date of issuance at the option of a majority of the holders of Series A Shares then outstanding. In the event of a redemption under this right, the Company shall redeem all of the outstanding Series A Shares at a redemption price equal to 100% of the Series A issue price, plus an additional amount equal to 20% of the Series A issue price compounded annually from the date of issuance to the date of redemption plus all declared but unpaid dividends (the “Series A Preference Amount”). The accretion to the redemption value is reflected as a reduction to net income to arrive at net income available to common shareholders in the accompanying consolidated statements of operations and amounted to RMB8,663 for the year ended December 31, 2004. Total direct external incremental costs of issuing the security of RMB1,833 was charged against the proceeds of the Series A Shares.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

       The significant terms of the Series A Shares are as follows:

Conversion

       The holders of Series A Shares have the right to convert all or any portion of their holdings into common shares of the Company at any time after the date of issuance of such preferred shares. In addition, each Series A Share is automatically convertible into one common share at any time after the date of issuance of such preferred shares, subject to the conversion ratio adjustment as described below upon the consummation of a Qualified Public Offering. A Qualified Public Offering refers to the closing of an underwritten public offering of the common shares of the Company on a reputable international stock exchange approved by the Company’s Board of Directors at a public offering price of at least four times the Series A issue price and with aggregate gross proceeds to the Company (before payment of underwriters’ discounts, commissions and offering expenses) in excess of US$50,000.

       Each Series A Share is convertible into one common share, subject to a conversion ratio adjustment equal to US$6,900 divided by the Group’s audited US GAAP consolidated net income for the period from July 1, 2004 to June 30, 2005 (the “Series A Performance Multiplier”). The Series A Performance Multiplier shall be limited to a maximum of 1.6 common shares (that is, one Series A Share converted into 1.6 common shares or 66,626,686 common shares, on a fully converted basis) and a minimum of 0.727273 common shares (that is, one Series A Share converted into 0.727273 common shares or 30,284,869 common shares, on a fully converted basis) and shall be automatically set at 1.6 in the event that the audited US GAAP consolidated net income of the Group for the period from July 1, 2004 to June 30, 2005, is not made available to the holders of Series A Shares before November 15, 2005, for the purpose of determining the Series A Performance Multiplier.

       The conversion price of Series A Shares is subject to adjustment for dilution, including but not limited to share splits, share dividends and recapitalization. In addition, in the event that the Company issues additional common shares other than those specifically excluded under the Series A Share Subscription Agreement at a price per share less than the then prevailing Series A Shares’ respective conversion price (“Additional Common Shares”), the Series A Shares’ respective conversion price shall be reduced, concurrently with such common share issuance, to a price (calculated to the nearest cent) equal to the price per share at which such Additional Common Shares are issued (the “Series A Dilution Adjustment”). Common shares specifically excluded from this provision include common shares issued or issuable upon conversion of Series A Shares, up to 15,274,168 common shares which are issuable or issued under the Company’s equity incentive plan, common shares issued in an underwritten public offering, common shares issued in a bona fide acquisition or merger transaction, and common shares issued to third party providers in exchange for services rendered to the Company. The impact of such potential adjustment to the conversion price is contingent upon the issuance of Additional Common Shares at an issuance price less than the conversion price of Series A Shares. No issuance of Additional Common Shares was made during the year which caused the conversion price of Series A Shares to be reduced under this adjustment provision.

       The Company has determined that there was no embedded beneficial conversion feature attributable to the Series A Shares, since the initial conversion price of the Series A Shares is equal to the Series A issue price, which was negotiated and agreed between the Company and a group of third party investors on an arm’s length basis and, which was determined by management to

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

approximate the fair value of the Company’s common shares at the commitment date since there was no existence of a public or active market of the Company’s common shares, nor were there any cash transactions involving the Company’s common shares that occurred prior to this date. In addition, under the provisions of EITF Issue No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instrument ”, the Company has determined that the contingent beneficial conversion feature relating to the conversion ratio adjustment in respect of the Series A Performance Multiplier will be recognized only when the Performance Multiplier is determined and the contingency is resolved and with respect of the Series A Dilution Adjustment, upon the issuance of Additional Common Shares. To the extent that the audited US GAAP consolidated net income of the Group for the period from July 1, 2004 to June 30, 2005 is below US$6,900 or the Company issued Additional Common Shares at a price less than the then prevailing Series A Shares’ conversion price, the intrinsic value that results from such contingent beneficial conversion feature would be recognized as an addition to paid-in capital with a corresponding charge to net income available to common shareholders at the earliest conversion date, which is the later of the issuance date or the date the contingency is resolved. The intrinsic value is measured as the difference between the commitment-date fair value of the underlying common shares of the Company issuable upon conversion and the gross proceeds received for or allocated to the Series A Shares. See note 15.

Voting Rights

       Each Series A Share has voting rights equivalent to the number of common shares into which it is convertible.

Registration Rights

       Holders of Series A Shares have registration rights similar to the common shareholders. These registration rights include demand registration, Form F-3 registration and piggyback registration. Such rights allow the holders of at least 50% of shares having registration rights then outstanding to demand the Company at any time after six months following the closing of a Qualified Public Offering to file a registration statement covering the offer and sales of their securities, subject to certain restrictions and conditions. The Company will pay all expenses relating to any demand, Form F-3 or piggyback registrations, except broker’s commission, underwriting discounts, selling commissions and stock transfer taxes.

Dividends

       Holders of Series A Shares shall be entitled to receive dividends out of any funds legally available for this purpose, when and if declared by the Board of Directors of the Company, at the rate or in the amount as the Board of Directors considers appropriate prior to any dividend payments to common shares.

Liquidation Preference

       In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or any Deemed Liquidation Event, the holders of Series A Shares shall receive an amount per share equal to the Series A Preference Amount, as adjusted for any share splits, share dividends and recapitalization. A Deemed Liquidation Event is defined in the Company’s Articles of Association as (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolida-

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

tion) that results in the transfer of more than fifty percent of the outstanding voting power of the Company such that its existing shareholders do not retain a majority of the voting power in the surviving entity; or (b) a sale of all or substantially all of the assets of the Company; provided, however, that a Deemed Liquidation Event shall not include any reorganization for tax purposes or for purposes of reincorporating in a different jurisdiction.

(11)     Common Shares

       The Company’s Memorandum and Articles of Association, as amended, authorizes the Company to issue 200,000,000 shares with a par value of US$0.0001 per share. In August 2004, the Company issued 111,100,000 common shares at par value in connection with the Reorganization as discussed in note 1.

(12)     Income (Loss) per Share

       Basic income (loss) and diluted income (loss) per share have been calculated in accordance with SFAS No. 128. As discussed in note 11, the Company issued 111,100,000 common shares in connection with the Reorganization. For the purposes of calculating basic/ diluted income (loss) per share as a result of the Reorganization, the number of common shares used in the calculation reflects the issuance of common shares as if it took place on January 1, 2003.

		Years ended December 31,
		2003			2004
		RMB			RMB
Net income (loss) available to common shareholders			(449	)		17,113
Denominator for basic income (loss) per share:
	Weighted average number of common shares outstanding		111,100,000			111,100,000
Basic income (loss) per share			(0.01	)		0.15
Diluted income (loss) per share			(0.01	)		0.15

       During the year ended December 31, 2004, the Company’s dilutive potential common shares outstanding consist of Series A Shares and share options. The computation of diluted income per share for the year ended December 31, 2004, did not assume conversion of the Series A Shares because, when applying the if-converted method, the effect of the common shares issuable upon conversion of the Series A Shares, including the maximum number of 24,985,007 contingent shares issuable under the conversion terms of the Series A Shares agreement as described in note 10, was anti-dilutive. The conversion of the Series A Shares was anti-dilutive because the amount of the accretion to the Series A Shares redemption value for the period per common share obtainable upon conversion on a weighted average outstanding basis exceeded basic income per share. In addition, in computing diluted income per share for the year ended December 31, 2004, there was no dilutive effect of outstanding share options by applying the treasury stock method because the common shares assumed to be issued upon the exercise of the share options was less than the number of shares assumed to be purchased at the average estimated fair value during the year. The proceeds used for the assumed purchase was equal to the sum of the exercise price of the share options and the amount of unrecognized compensation costs attributed to future services.

       For the year ended December 31, 2003, there were no potentially dilutive securities outstanding.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(13)     Concentration of Risks

Credit and Concentration Risks

       The carrying amounts of cash and cash equivalents, time deposits, accounts receivable, amounts due from related parties and other receivables represent the Group’s maximum exposure to credit risk in relation to financial assets. As of December 31, 2003 and 2004, substantially all of the Group’s cash and cash equivalents were held in major financial institutions located in the PRC and the Hong Kong Special Administrative Region, which management believes have high credit ratings. Accounts receivable are typically unsecured and denominated in RMB, and are derived from revenues generated in the PRC.

       All of the Group’s customers are located in the PRC. The following are the customers that directly or indirectly contributed, on an individual basis, 10% or more of revenue for the years ended December 31, 2003 and 2004:

	2003					2004
	RMB		%			RMB		%
SAIC — Volkswagen Sales Co., Ltd		11,355		73	%		19,978		25%
Red Bull Vitamin Drink Co., Ltd.		—		—			9,946		12%
Shanghai Xintong Media & Culture Development Co. Ltd.		—		—			9,567		12%

       As of December 31, 2004, approximately 56% of the Group’s gross accounts receivable were due from the above customers. As a result, a termination in relationship with or a reduction in orders from any one of these customers would have a material impact on the Group’s results of operations and financial position. The Group performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.

       The accounts receivable due from major customers, as of December 31, 2003 and 2004, were as follows:

	2003		2004
	RMB		RMB
Red Bull Vitamin Drink Co., Ltd.		—		9,946
Shanghai Xintong Media & Culture Development Co. Ltd.		—		8,567
SAIC — Volkswagen Sales Co., Ltd		—		7,276
		—		25,789

       As of August 31, 2005, the Company received subsequent collections of RMB17,576 from the above customers. The Company expects to collect all the remaining outstanding balances from these customers in accordance with the contract terms.

       The Group does not have concentrations of available sources of labor, services, franchises, or other rights that could, if suddenly eliminated, severely impact its operations.

Business and Economic Risks

       The Group operates in a dynamic industry with limited operating history and believes that changes in any of the following areas could have a material adverse effect on the Group’s future financial position, results of operations or cash flows: advances and new trends in new technologies and industry standards; capital market performance and public interest in companies operating in the

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

PRC that are listed in the United States; competition from other competitors; changes in certain strategic relationships or customers relationships; regulatory or other factors; the ability to obtain necessary financial and other resources at commercially viable terms; dependence on revenues generated from operations in the cities of Shanghai, Beijing, Guangzhou and Shenzhen; the ability to attract and retain employees necessary to support the Group’s growth and general risks associated with the advertising industry.

       The Group conducts its principal operations in the PRC and accordingly is subject to special considerations and significant risks not typically associated with investments in equity securities of United States and Western European companies. These include risks associated with, among others, the political, economic, legal environment and social uncertainties in the PRC, government agencies’ influence over certain aspects of the Group’s operations and competition in the advertising industry.

       The Group is currently targeting the PRC market. The Chinese government regulates the provision of advertising services through strict business licensing requirements and other governmental regulations. These regulations include limiting foreign ownership in Chinese companies providing advertising services. Management, after consultation and advice from PRC legal counsel, is of the opinion that the Company’s business structure and contractual agreements with STM comply with existing PRC laws and regulations. However, there are uncertainties regarding the interpretation and application of current PRC laws and regulations and any change in such laws and regulations that renders these business structure and contractual agreements to be non-compliant could have an adverse effect on the Group’s business, financial position and result of operations.

       In addition, the ability to negotiate and implement specific business development projects in a timely and favorable manner may be impacted by political considerations unrelated to or beyond the control of the Group. Although the PRC government has been pursuing economic reform policies for the past two decades, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective and as a result, changes in the rate or method of taxation, and changes in State policies and regulations affecting the advertising industry may have a negative impact on the Group’s operating results and financial position.

Currency Risk

       Substantially all of the revenue generating operations of the Group are transacted in RMB, which is not fully convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted by the People’s Bank of China. However, the unification of the exchange rate does not imply convertibility of RMB into United States dollars or other foreign currencies. All foreign exchange transactions must take place either through the People’s Bank of China or other institutions authorized to buy and sell foreign exchange or at a swap center. Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

       On July 21, 2005, the People’s Bank of China announced that the PRC government reformed the exchange rate regime by adopting a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. The exchange rate of United States dollars against RMB was adjusted to RMB8.11 per United States dollar with effect from July 21,

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

2005. The Group does not believe this reform has a material impact on the Group’s financial position.

(14)     Related Party Transactions

       The principal related party transactions during the years ended December 31, 2003 and 2004 were as follows:

	Note		2003		2004
			RMB		RMB
Provision of advertising services		(a)		—		1,511
Collection of advertising revenues on behalf of STM		(c)		—		4,173
Payments made by a related party on STM’s behalf		(c)		770		1,073
Loan from a shareholder		(d)		—		31,655
Interest expense		(d)		—		348
Lease of office premises		(e)		—		540

       Amounts due from and due to related parties as of December 31, 2003 and 2004 were as follows:

		Note		2003		2004
				RMB		RMB
Due from related parties:
	Huashan Dian Yang Hospital Service Co., Ltd. (“HS DY”)		(a)		—		1,511
	Dian Yang		(c)		—		3,100
					—		4,611
Due to related parties:
	Dian Yang		(b)		10,000		—
	Dian Yang		(c)		770		—
	Shanghai Investment Information Co., Ltd. (“SII”)		(d)		—		10,000
	The Company’s Chief Executive Officer (“CEO”)		(e)		—		33
					10,770		10,033

Notes:

(a)	The Group provided advertising services to HS DY, a company in which the Company’s CEO has an equity interest. Management believes that the advertising services were provided in the normal course of business at prices determined on an arm’s length basis. As of December 31, 2004, the balance due from HS DY was RMB1,511, which was collected in full in August 2005.
(b)	As discussed in note 1, all tangible and intangible assets, assignable business contracts and employees relevant to the flat panel display advertising business were transferred from Dian Yang, an entity controlled by the Company’s CEO and also a 9% shareholder of STM, to STM for a total cash consideration of RMB20,000. As of December 31, 2003, RMB10,000 had been paid and the remaining RMB10,000 was paid in January 2004.
(c)	Subsequent to the Restructuring as described in note 1, Dian Yang makes lease payments and collects advertising revenues on STM’s behalf until the unassignable contracts expire. The unassignable contracts associated with advertising contracts will expire by the end of 2005, and the unassignable contracts associated with display placements will expire by the end of 2008, except for three contracts which will expire in 2009, 2010 and 2011, respectively. The balance as of December 31, 2003, represented payments made by Dian Yang on behalf of STM while the balance as of December 31,

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

	2004, represented the amount of revenue collected by Dian Yang on behalf of STM, less payments made by STM on behalf Dian Yang. The balance is interest free and is settled continuously and periodically.
(d)	SII is a shareholder of the Company and of STM. SII provided short-term loans of RMB30,000 to STM in 2004, of which RMB20,000 was repaid in November 2004 and RMB10,000 was repaid in January 2005. The balance bore interest at a monthly rate of 0.39825%. The interest expense incurred by STM on this loan was RMB348 for the year ended December 31, 2004.

In addition, in August 2004, SII International Holding Limited, a company wholly-owned by SII provided a short-term loan of US$200 (equivalent to RMB1,655) to the Company at a monthly interest rate of 0.02%. Such loan plus interest were repaid in full in September 2004.

(e) The Group leased office premises from the Company’s CEO. An annual rental of RMB540, which was determined with reference to market price, was charged for the year ended December 31, 2004. As of December 31, 2004, the amount due to the CEO was RMB33. The lease agreement with the Company’s CEO will expire in 2006.

(15)     Subsequent Events

(a) Issuance of Series B Redeemable Convertible Preferred Shares

       On July 29, 2005, the Company issued 21,820,243 Series B redeemable convertible preferred shares (“Series B Shares”) to a group of investors at US$0.687435 per share (the “Series B issue price”) for total cash consideration of US$15,000 (RMB124,148). The holders of Series B Shares have the right to require the Company to redeem the shares at any time after the fifth anniversary of the date of issuance at the option of a majority of the holders of the Series B Shares then outstanding. In the event of a redemption under this right, the Company shall redeem all of the outstanding Series B Shares at a redemption price equal to 100% of the Series B issue price, plus an additional amount equal to 15% of the Series B issue price, compounded annually from the date of issuance to the date of redemption, plus all declared but unpaid dividends (the “Series B Preference Amount”). Total direct external incremental costs of issuing the security of RMB436 were charged against the proceeds of the Series B Shares.

       In July 2005, in connection with the issuance of the Series B Shares, the authorized number of the Company’s common shares was increased from 200,000,000 shares to 210,000,000 shares.

       The significant terms of the Series B Shares are as follows:

Conversion

       The holders of Series B Shares have the right to convert all or any portion of their holdings into common shares of the Company at any time after the date of issuance of such preferred shares. In addition, each Series B Share is automatically convertible into one common share at any time after the date of issuance of such preferred shares, subject to the conversion ratio adjustment as described below, upon the consummation of a Qualified Public Offering. A Qualified Public Offering refers to the closing of an underwritten public offering of the common shares of the Company on a reputable international stock exchange approved by the Company’s Board of Directors at a public offering price of at least two times the Series B issue price and with aggregate gross proceeds to the Company (before payment of underwriters’ discounts, commissions and offering expenses) in excess of US$50,000.

       Each Series B Share is convertible into one common share, where the conversion price is equal to the Series B issue price, except in the event that the initial conversion ratio for the Series A Shares is adjusted for the Series A Performance Multiplier as described in note 10, the conversion price for Series B Shares shall immediately be adjusted by multiplying the Series B conversion price

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

then in effect by a fraction, the numerator of which shall be 152,741,679, and the denominator of which shall be the sum of (i) the number of outstanding common shares, and (ii) the number of outstanding Series A Shares multiplied by the Series A Performance Multiplier (the “Series B Performance Multiplier”).

       The conversion price of Series B Shares is subject to adjustment for dilution, including but not limited to share splits, share dividends and recapitalization. In addition, in the event that the Company issues additional common shares other than those specifically excluded under the Series B Share Subscription Agreement at a price per share less than the then prevailing Series B Shares’ respective conversion price (“Additional Common Shares”), the Series B Shares’ respective conversion price shall be reduced, concurrently with such common share issuance, to a price (calculated to the nearest cent) equal to the price per share at which such Additional Common Shares are issued (“Series B Dilution Adjustment”). The impact of the Series B Dilution Adjustment to the conversion price is contingent upon the issuance of Additional Common Shares at an issuance price less than the conversion price of Series B Shares. No issuance of Additional Common Shares was made as of August 31, 2005 which caused the conversion price of Series B Shares to be reduced under this adjustment provision.

       To the extent the initial conversion ratio for Series B Shares is increased by a factor of more than one because of the Series B Performance Multiplier or Series B Dilution Adjustment under the conversion terms described above, the intrinsic value resulting from such contingent beneficial conversion feature would be recognized as an addition to paid-in capital with a corresponding charge to net income available to common shareholders at the earliest conversion date, which is the later of the issuance date or the date the contingency is resolved. The intrinsic value is measured as the difference between the commitment-date fair value of the underlying common shares of the Company issuable upon conversion and the gross proceeds received for or allocated to the Series B Shares. See note 15(d).

Voting Rights

       Each Series B Share has voting rights equivalent to the number of common shares into which it is convertible.

Registration Rights

       Holders of Series B Shares have registration rights similar to the holders of Series A Shares and the common shareholders. These registration rights include demand registration, Form F-3 registration and piggyback registration. Such rights allow the holders of at least 50% of shares having registration rights then outstanding to demand the Company at any time after six months following the closing of a Qualified Public Offering to file a registration statement covering the offer and sales of their securities, subject to certain restrictions and conditions. The Company will pay all expenses relating to any demand, Form F-3 or piggy back registrations, except broker’s commission, underwriting discounts, selling commissions and stock transfer taxes.

Dividends

       Holders of Series B Shares shall be entitled to receive dividends out of any funds legally available for this purpose, when and if declared by the Board of Directors of the Company, at the rate or in the amount as the Board of Directors considers appropriate, prior to any dividend payments to common shares.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

Liquidation Preference

       In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or any Deemed Liquidation Event, the holders of Series B Shares shall receive an amount per share equal to the Series B Preference Amount, as adjusted for any share splits, share dividends and recapitalization. A Deemed Liquidation Event is defined in the Company’s Articles of Association as (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of more than fifty percent of the outstanding voting power of the Company such that its existing shareholders do not retain a majority of the voting power in the surviving entity; or (b) a sale of all or substantially all of the assets of the Company; provided, however, that a Deemed Liquidation Event shall not include any reorganization for tax purposes or for purposes of reincorporating in a different jurisdiction.

(b) Acquisitions

       On June 21, 2005, STM signed a definitive agreement to acquire 70% of the equity interest in Shandong Fu Er Media Ltd. (“Fu Er”) for a total cash consideration of RMB5,080.

       On July 15, 2005, STM signed a definitive agreement to acquire 70% of the equity interest in Shenyang Target Media Ltd. (“Shenyang TM”) for a total cash consideration of RMB2,800.

       On August 25, 2005, STM signed a definitive agreement to acquire 100% of the beneficial interest in Fuzhou Heng Ding United Media Ltd. (“Heng Ding”) for a total cash consideration of RMB1,280.

       Fu Er, Shenyang TM and Heng Ding are regional providers of flat panel display advertising services in Shandong province, Liaoning province and Fujian province of the PRC, respectively. As a result of these acquisitions, the Company is expected to expand its network coverage and enhance its market position in the above regions. The results of Fu Er, Shenyang TM and Heng Ding will be included in the Company’s consolidated financial statements at the dates the respective business combinations are consummated.

       On July 29, 2005, the Company acquired all lease contracts associated with placement of flat panel displays from Wuhan Hai Ming Broadcasting Advertising Ltd. (“Hai Ming”) for a total cash consideration of RMB1,450. Hai Ming operates regional flat panel display advertising networks in the cities of Wuhan and Changsha. As a result of such purchase, the Company is expected to expand its network coverage and enhance its market position in Hubei province and Hunan province of the PRC.

(c) Issuance of Share Options

       In April 2005, upon approval by the Board of Directors of the Company, 678,852 share options were granted to the Company’s executives and employees at an exercise price of US$0.50 with a vesting period of four years.

       In May 2005, upon approval by the Board of Directors of the Company, 100,000 share options were granted to the Company’s executives and employees at an exercise price of US$0.55 with a vesting period of four years.

       Based on a lattice-based option valuation model, the weighted average grant-date fair value of these options was US$0.26 per share. The total compensation expense of RMB1,682 is to be

P-121

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

recognized in the statement of operations over the vesting period of four years from the date of grant. The assumptions used in determining the fair value of the options were as follows: estimated fair market value of underlying common shares of US$0.66, expected dividend yield of 0%, risk free interest rate of 3.7% to 3.85%, expected life of five years, and expected volatility of 45%. The estimated fair value of the underlying common shares on the dates of the above grants was determined based on management valuation of the Company’s common shares which considered the cash issuance price for the Series B Shares paid by a group of unrelated investors (see note 15(a)), the proximity of that issuance to the date of the share option grant and the forecasted profitability and cash flows of the Group.

       In August 2005, upon approval by the Board of Directors of the Company, 2,643,873 share options were granted to the Company’s executives and employees at an exercise price of US$0.68 with a vesting period of four years. The weighted average grant-date fair value of these options was US$0.24 per share, using a lattice-based option valuation model. At the date of grant, the estimated fair value of the Company’s common shares applied in the share option valuation model was US$0.68. The estimate fair value of the Company’s common shares was determined by management and considered the cash issuance price for the Series B Shares paid by a group of unrelated investors (see note 15(a)), the proximity of that issuance to the date of the share option grant and the forecasted profitability and cash flows of the Group.

(d) Conversion of Series A Shares and Series B Shares

       As of August 31, 2005, the Company estimated on a preliminary basis the Series A Performance Multiplier and the Series B Performance Multiplier to be 1.196365 and 0.949186 respectively which resulted in a preliminary conversion ratio of 1.000000 to 1.196365 for Series A Shares and a preliminary conversion ratio of 1.000000 to 1.053535 for Series B Shares. Such estimate was made based on the Group’s unaudited US GAAP consolidated net income for the period from July 1, 2004 to June 30, 2005. Accordingly, on a fully-converted basis, the Series A Shares will be converted to 49,818,647 common shares and the Series B Shares will be converted into 22,988,390 common shares under the conversion terms of the Series A Shares and the Series B Shares. The intrinsic value of the contingent beneficial conversion feature of the Series A Shares of RMB24,378 was recognized as an addition to paid-in capital with a corresponding charge to net income available to common shareholders on June 30, 2005, the date the contingency period ended and the contingency was resolved. In addition, the intrinsic value of the contingent beneficial conversion feature of the Series B Shares of RMB6,508 was recognized as an addition to paid-in capital with a corresponding charge to net income available to common shareholders on July 29, 2005, the date of the issuance of the Series B Shares. The intrinsic values were measured as the difference between the respective commitment-date fair value of the underlying common shares of the Company issuable upon conversion and the respective gross proceeds received for or allocated to the Series A Shares and the Series B Shares. The preliminary conversion ratios of Series A Shares and Series B Shares are subject to change depending on the finalization of the audited US GAAP consolidated net income of the Group for the period from July 1, 2004 to June 30, 2005, which the Company expects that it will be finalized prior to November 15, 2005, and the difference could be material.

       As of October 31, 2005, the audit of the Group’s US GAAP consolidated net income for the period from July 1, 2004 to June 30, 2005 was finalized and the result of such audit did not change the above conversion ratios.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

(e) Proposed Business Combination

       On January 7, 2006, the Company signed a definitive agreement (“the Agreement”) with Focus Media Holding Limited (“Focus Media”) whereby Focus Media will purchase 100% of the Company’s equity interests in exchange for a total consideration of US$94 million in cash and 77 million Focus Media ordinary shares, subject to a working capital adjustment. The cash portion of the purchase price will be paid in three installments. The first installment of US$45 million is to be paid upon closing. The second installment of US$25 million is to be paid on April 28, 2006. The final installment of US$24 million is to be paid on July 31, 2006, and may be increased or decreased based on a calculation of Target Media’s net working capital as of the closing date. All of the Focus Media ordinary shares to be delivered at closing under the Agreement will be in the form of newly issued shares. This proposed business combination is expected to close following the satisfaction or waiver of customary closing conditions provided in the Agreement.

       In addition, in January 2006, the Company entered into an agreement with the Series A and Series B shareholders whereby each of the Series A and Series B shareholders agreed to waive any and all rights with respect to the liquidation preference in the event of the Deemed Liquidation Event (as such term is described in note 10). Further, in January 2006, the Company reached an agreement with the Series A and Series B shareholders, to exclude certain expense items, for the purpose of calculating the conversion ratios, from the audited US GAAP consolidated net income for the period from July 1, 2004 to June 30, 2005. The effect of excluding such expense items reduced the conversion ratios of the Series A and Series B Shares to 1.00000 to 1.05767 and 1.00000 to 1.01572 of the Company’s common shares, respectively, and accordingly, would result in a lower intrinsic value of the beneficial conversion feature of the Series A and Series B Shares. The impact of the adjustment on conversion ratios will be recorded as an adjustment to net income (loss) available to common shareholders in the accounting period when such agreement is executed. All Series A and Series B shareholders will convert the preferred shares into common shares prior to the consummation of the Focus Media business combination and become part of the selling shareholders.

(16)     Target Media Holdings Limited (Parent Company)

       TMM and STM are required under PRC laws to provide for certain statutory reserves, such as a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. TMM and STM are required to allocate at least 10% of their after tax profits as reported in their PRC statutory financial statements to the general reserve and have the right to discontinue allocations to the general reserve if the balance of such reserve has reached 50% of their registered capital. These statutory reserves are not available for distribution to the shareholders (except in liquidation) and may not be transferred in the form of loans, advances, or cash dividends. As of December 31, 2003 and 2004, nil and RMB5,011 were appropriated from retained earnings and set aside for these statutory reserves respectively by TMM and STM. As of December 31, 2004, additional transfers of RMB41,136 are required before the statutory general reserve reaches 50% of the registered capital of TMM and STM. In addition, the net assets of STM as of December 31, 2004 amounting to RMB47,909 are not currently transferable to the Company in the forms of loans, advances or cash dividends due to certain legal restrictions.

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TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

       The following presents condensed unconsolidated financial information of the Parent Company only.

Condensed Balance Sheet as of December 31, 2004

	RMB
Cash and cash equivalents		39,115
Other receivables		920
Investment in subsidiary		133,144
Total assets		173,179
Accounts payable and accrued expenses		400
Series A redeemable convertible preferred shares		130,978
Total shareholders’ equity		41,801
Total liabilities and shareholders’ equity		173,179

       The Company had no contingencies, long-term obligations and guarantees as of December 31, 2004.

Condensed Statement of Operations for the Period from July 28, 2004 (Date of Incorporation) to December 31, 2004

	RMB
General and administrative expenses		(1,892	)
Interest income		26
Loss before income tax and equity in earnings from subsidiary and VIE		(1,866	)
Equity in earnings from subsidiary and VIE		27,642
Net income		25,776
Accretion to Series A redeemable convertible preferred shares redemption value		(8,663	)
Net income available to common shareholders		17,113

P-124

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

DECEMBER 31, 2003 AND 2004

(Amounts in thousands, except share data)

Condensed Statement of Cash Flows for the Period from July 28, 2004 (Date of Incorporation) to December 31, 2004

			RMB
Cash flows from operating activities
Net income				25,776
	Adjustments to reconcile net income to net cash used in operating activities:
	Share-based compensation			1,861
	Equity in earnings from subsidiary and VIE			(27,642	)
	Changes in operating assets and liabilities:
		Other receivables		(920	)
		Accounts payable and accrued expenses		400
Net cash used in operating activities				(525	)
Cash flows from investing activities
Investment in subsidiary				(82,767	)
Net cash used in investing activities				(82,767	)
Cash flows from financing activities
Proceeds from issuance of common shares				92
Proceeds from issuance of Series A redeemable convertible preferred shares, net of issuance costs				122,315
Net cash provided by financing activities				122,407
Net increase in cash and cash equivalents				39,115
	Cash and cash equivalents at beginning of period			—
	Cash and cash equivalents at end of period			39,115

P-125

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2004 AND SEPTEMBER 30, 2005

(Amounts in thousands, except share data)

(Unaudited)

		December 31,		September 30,			September 30,
		2004		2005			2005
		RMB		RMB			US$
Assets
Current assets
	Cash and cash equivalents		103,804		90,393			11,171
	Time deposits		828		12,273			1,517
	Accounts receivable, net		45,505		103,692			12,814
	Due from related parties		4,611		21,700			2,682
	Prepaid expenses and other current assets		5,969		47,445			5,863
	Deferred tax assets		112		112			14
	Total current assets		160,829		275,615			34,061
Rental deposits			202		2,011			249
Property, equipment and software, net			35,586		152,373			18,830
Intangible assets			—		1,185			146
Total assets			196,617		431,184			53,286
Liabilities and shareholders’ equity
Current liabilities
	Accounts and bills payable		5,311		66,205			8,182
	Accrued expenses and other payables		8,052		35,287			4,361
	Due to related parties		10,033		30			4
	Income tax payable		442		442			55
	Total current liabilities		23,838		101,964			12,602
Commitments and contingencies
Series A redeemable convertible preferred shares: US$0.0001 par value; 44,000,000 shares authorized; 41,641,679 shares issued and outstanding as of December 31, 2004 and September 30, 2005			130,978		150,002			18,537
Series B redeemable convertible preferred shares: US$0.0001 par value; 22,000,000 shares authorized; nil and 21,820,243 shares issued and outstanding as of December 31, 2004 and September 30, 2005, respectively			—		124,333			15,365
Shareholders’ equity
	Common shares: US$0.0001 par value; 200,000,000 and 210,000,000 shares authorized as of December 31, 2004 and September 30, 2005, respectively; 111,100,000 shares issued and outstanding as of December 31, 2004 and September 30, 2005		92		92			11
	Paid-in capital		25,045		58,618			7,244
	Statutory reserves		5,011		5,011			619
	Retained earnings (deficit)		11,653		(8,836	)		(1,092	)
Total shareholders’ equity			41,801		54,885			6,782
Total liabilities and shareholders’ equity			196,617		431,184			53,286

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

P-126

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2005

(Amounts in thousands, except per share data)

(Unaudited)

		Nine-month periods ended
		September 30,
		2004			2005			2005
		RMB			RMB			US$
Advertising service revenues			49,478			174,777			21,599
Cost of revenues			(21,036	)		(82,815	)		(10,234	)
Gross profit			28,442			91,962			11,365
Operating expenses:
	Sales and marketing		(9,520	)		(47,897	)		(5,919	)
	General and administrative		(3,005	)		(11,143	)		(1,377	)
	Total operating expenses		(12,525	)		(59,040	)		(7,296	)
Income from operations			15,917			32,922			4,069
Other income (expenses):
	Interest income		30			302			37
	Interest expense		(85	)		(40	)		(5	)
	Exchange loss		—			(614	)		(76	)
Income before income tax expense			15,862			32,570			4,025
Income tax expense			(83	)		—			—
Net income			15,779			32,570			4,025
Accretion to Series A redeemable convertible preferred shares redemption value			(2,387	)		(19,024	)		(2,351	)
Accretion to Series B redeemable convertible preferred shares redemption value			—			(3,149	)		(389	)
Beneficial conversion of Series A redeemable convertible preferred shares			—			(24,378	)		(3,013	)
Beneficial conversion of Series B redeemable convertible preferred shares			—			(6,508	)		(804	)
Net income (loss) available to common shareholders			13,392			(20,489	)		(2,532	)
Basic income (loss) per common share (note 10)			0.12			(0.18	)		(0.02	)
Diluted income (loss) per common share (note 10)			0.12			(0.18	)		(0.02	)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

P-127

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2004 AND

FOR THE NINTH-MONTH PERIOD ENDED SEPTEMBER 30, 2005

(Amounts in thousands, except share data)

(Unaudited)

	Common shares
												Total
	Number of				Paid-in		Statutory		Retained			shareholders’
	shares		Amount		capital		reserves		earnings			equity
			RMB		RMB		RMB		RMB			RMB
January 1, 2004		—		—		23,184		—		(449	)		22,735
Issuance of common shares		111,100,000		92		—		—		—			92
Share-based compensation		—		—		1,861		—		—			1,861
Accretion to Series A redeemable convertible preferred shares redemption value		—		—		—		—		(8,663	)		(8,663	)
Net income		—		—		—		—		25,776			25,776
Appropriation to statutory reserves		—		—		—		5,011		(5,011	)		—
December 31, 2004		111,100,000		92		25,045		5,011		11,653			41,801
Share-based compensation		—		—		2,687		—		—			2,687
Accretion to Series A redeemable convertible preferred shares redemption value		—		—		—		—		(19,024	)		(19,024	)
Accretion to Series B redeemable convertible preferred shares redemption value		—		—		—		—		(3,149	)		(3,149	)
Beneficial conversion of Series A redeemable convertible preferred shares		—		—		24,378		—		(24,378	)		—
Beneficial conversion of Series B redeemable convertible preferred shares		—		—		6,508		—		(6,508	)		—
Net income		—		—		—		—		32,570			32,570
September 30, 2005		111,100,000		92		58,618		5,011		(8,836	)		54,885
September 30, 2005 (US$)				11		7,244		619		(1,092	)		6,782

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

P-128

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2005

(Amounts in thousands)

(Unaudited)

				Nine-month periods ended
				September 30,
				2004			2005			2005
				RMB			RMB			US$
Cash flows from operating activities:
	Net income				15,779			32,570			4,025
	Adjustments to reconcile net income to net cash used in operating activities:
		(Gain)/loss on disposal of equipment			(6	)		5			1
		Depreciation and amortization			2,891			10,052			1,242
		Share-based compensation			1,132			2,687			332
		Changes in operating assets and liabilities:
			Accounts receivable		(29,976	)		(58,187	)		(7,191	)
			Due from related parties		(1,813	)		3,141			388
			Prepaid expenses and other current assets		(4,880	)		(36,556	)		(4,518	)
			Rental deposits		(198	)		(1,809	)		(224	)
			Accounts and bills payable		957			2,480			307
			Accrued expenses and other payables		6,753			27,235			3,366
			Due to related parties		(762	)		(3	)		—
			Net cash used in operating activities		(10,123	)		(18,385	)		(2,272	)
Cash flows from investing activities:
	Purchase of time deposits				(216	)		(11,445	)		(1,414	)
	Initial investment deposits				—			(4,920	)		(608	)
	Purchase of property, equipment and software and intangible assets				(16,556	)		(69,849	)		(8,632	)
	Proceeds from disposal of equipment				43			234			29
			Net cash used in investing activities		(16,729	)		(85,980	)		(10,625	)
Cash flows from financing activities:
	Proceeds from loan from shareholder				31,655			—			—
	Repayment of loan from shareholder				(1,655	)		(10,000	)		(1,236	)
	Proceeds from issuance of common shares				92			—			—
	Proceeds from issuance of redeemable convertible preferred shares, net of issuance costs				122,315			100,954			12,476
	Distributions to shareholders in connection with the Restructuring				(10,000	)		—			—
			Net cash provided by financing activities		142,407			90,954			11,240
Net increase (decrease) in cash and cash equivalents					115,555			(13,411	)		(1,657	)
Cash and cash equivalents at beginning of period					20,680			103,804			12,828
Cash and cash equivalents at end of period					136,235			90,393			11,171
Supplemental disclosures of cash flow and non-cash information:
Cash paid for interest					80			40			5
Accrual for purchase of property, equipment and software					—			58,414			7,219

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

P-129

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share data)

(Unaudited)

(1)     Basis of Presentation

       The accompanying unaudited interim condensed consolidated financial statements consist of the financial statements of Target Media Holdings Limited (the “Company”), its wholly-owned subsidiary, Target Media Multi-Media Technology (Shanghai) Co., Ltd. (“TMM”), and a consolidated variable interest entity (“VIE”), Shanghai Target Media Co., Ltd. (“STM”). The Company and its subsidiary and its consolidated VIE are collectively referred to as the “Group”.

       The accompanying unaudited interim condensed consolidated financial statements as of September 30, 2005, and for the nine-month periods ended September 30, 2004 and 2005, have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with the U.S. generally accepted accounting principles (“US GAAP”) have been condensed or omitted under such rules and regulations. The December 31, 2004 consolidated balance sheet was derived from the audited financial statements of the Company, but does not include all disclosures required by US GAAP. Disclosures have been made in the interim condensed consolidated financial statements where events subsequent to the year ended December 31, 2004 have occurred which required disclosure in accordance with US GAAP. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the years ended December 31, 2003 and 2004.

       In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of September 30, 2005, and the results of operations and cash flows for the nine-month periods ended September 30, 2004 and 2005, have been made. The results of operations for the nine-month period ended September 30, 2005, are not necessarily indicative of the operating results for the full fiscal year or any future periods.

       Translations of amounts from Renminbi (“RMB”) into United States dollars (“US$”) are solely for the convenience of the reader and were calculated at the rate of US$1.00=RMB8.092, on September 30, 2005, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2005, or at any other date.

(2)     Share-based Compensation

       The Company has adopted SFAS No. 123R, “Share-based Payment”, which requires that share-based payment transactions with employees, such as share options, be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period, with a corresponding addition to paid-in capital. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

       In April 2005, upon approval by the Board of Directors of the Company, 678,852 share options were granted to the Company’s executives and employees at an exercise price of US$0.50 with a vesting period of four years.

P-130

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

       In May 2005, upon approval by the Board of Directors of the Company, 100,000 share options were granted to the Company’s executives and employees at an exercise price of US$0.55 with a vesting period of four years.

       In August 2005, upon approval by the Board of Directors of the Company, 2,643,873 share options were granted to the Company’s executives and employees at an exercise price of US$0.68 with a vesting period of four years.

       Based on a lattice-based option valuation model, the weighted-average grant-date fair value of options granted during the nine-month period ended September 30, 2005 was US$0.24 per share. The assumptions used in determining the fair value of the options for the nine-months period ended September 30, 2005 were as follows:

	2005
	April		May		August
Expected volatility		45%		45%		45%
Expected dividends		0%		0%		0%
Expected life		5  years		5  years		5  years
Risk-free interest rate		3.85%		3.77%		4.26%
Estimated fair value of underlying common shares	US$	0.66	US$	0.66	US$	0.68

       The estimated fair value of the underlying common shares on the dates of the above grants was determined based on management valuation of the Company’s common shares which considered the cash issuance price for the Series B redeemable convertible preferred shares (“Series B Shares”) paid by a group of unrelated investors (see note 9), the proximity of that issuance to the date of the share option grant and the forecasted profitability and cash flows of the Group.

       The Company recorded non-cash share-based compensation expense of RMB2,687 for the nine-month period ended September 30, 2005, of which RMB460 was allocated to costs of revenues, RMB1,908 was allocated to general and administrative expenses and RMB319 was allocated to sales and marketing expenses. For the nine-month period ended September 30, 2004, the Company recorded non-cash share-based compensation expense of RMB1,132 of which RMB118 was allocated to costs of revenues and RMB1,014 was allocated to general and administrative expenses. As of September 30, 2005, there was RMB15,361 of unrecognized cost related to nonvested share options that is to be recognized over the next four years. The Company is expected to issue new shares to satisfy share option exercises.

       In November and December 2005, upon approval by the Board of Directors of the Company, 4,586,352 share options were granted to the Company’s executives and employees at an exercise price of US$0.80 with a vesting period of four years.

(3)     Time Deposits

       As of September 30, 2005, time deposits amounting to RMB11,464 have been pledged as security for bank guarantees in respect of RMB59,100 of bills payable issued by the Company to equipment vendors.

P-131

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

(4)     Acquisitions

       On June 21, 2005, STM signed a definitive agreement to acquire 70% of the equity interest in Shandong Fu Er Media Limited. (“Fu Er”) for a total cash consideration of RMB5,080. As of September 30, 2005, an initial cash deposit of RMB 2,540 was paid to Fu Er that will be applied against the purchase price upon consummation of the proposed acquisition. On October 24, 2005, the Company entered into an amendment with Fu Er to acquire all of the assets of Fu Er, including its lease contracts for the placement of flat panel displays, for a total cash consideration of approximately RMB5,082. The Company expects to complete the purchase of assets and lease contracts from Fu Er in early 2006.

       On July 29, 2005 the Company signed a definitive agreement to acquire all lease contracts associated with placement of flat panel displays from Wuhan Hai Ming Broadcasting Advertising Ltd. (“Hai Ming”) for a total cash consideration of RMB1,450. Hai Ming operates regional flat panel display advertising networks in the cities of Wuhan and Changsha. As of September 30, 2005, the Company acquired lease contracts from Hai Ming for RMB1,268 and expects to complete the purchase of remaining lease contracts in early 2006.

       On July 15, 2005, STM signed a definitive agreement to acquire 70% of the equity interest in Shenyang Target Media Ltd. (“Shenyang TM”) for a total cash consideration of RMB2,800. As of September 30, 2005, a refundable initial cash deposit of RMB1,300 was paid to Shenyang TM that will be applied against the purchase price upon consummation of the proposed acquisition. Shenyang TM is a regional provider of flat panel display advertising services in Liaoning province of the PRC.

       On August 25, 2005, STM signed a definitive agreement to acquire 100% of the beneficial interest in Fuzhou Heng Ding United Media Ltd. (“Heng Ding”) for a total cash consideration of RMB1,280. As of September 30, 2005, a refundable initial cash deposit of RMB1,080 was paid to Heng Ding that will be applied against the purchase price upon consummation of the proposed acquisition. Heng Ding is a regional provider of flat panel display advertising services in Fujian province of the PRC.

       The acquisitions of Shenyang TM and Heng Ding were consummated in October 2005. Upon consummation, these acquisitions did not constitute a material or significant business combination as measured by (i) the total purchase price or these entities’ assets to the Company’s total assets or (ii) the pre-tax income of these entities to pre-tax income of the Company.

(5)     Accounts Receivable, Net

       Accounts receivable, net is analyzed as follows:

	December 31,			September 30,
	2004			2005
	RMB			RMB
Billed receivables		20,496			54,032
Unbilled receivables		25,349			50,000
		45,845			104,032
Less: allowance for doubtful accounts		(340	)		(340	)
		45,505			103,692

P-132

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

       There was no movement in the allowance for doubtful accounts for the nine-month period ended September 30, 2005.

(6)     Prepaid Expenses and Other Current Assets

       Components of prepaid expenses and other current assets were as follows:

	December 31,		September 30,
	2004		2005
	RMB		RMB
Prepaid lease rental expenses		4,710		25,692
Advances to employees		470		3,759
Initial investment deposits (note 4)		—		4,920
Prepayments to equipment suppliers		—		869
Tax receivable		655		3,417
Other receivables and deposits		134		2,105
Deferred share offering expenses		—		6,683
		5,969		47,445

       Deferred share offering expenses represent specific incremental direct costs for the preparation of the initial public offering of the Company’s common shares that will be charged against the gross proceeds of the offering or to the statement of operations in the period that the offering is aborted.

(7)     Property, Equipment and Software, Net

       Property, equipment and software, net consist of the following:

	December 31,			September 30,
	2004			2005
	RMB			RMB
Flat panel display equipment		36,826			154,937
Computers and office equipment		1,722			5,028
Leasehold improvements		709			3,404
Motor vehicles		860			1,672
Software		250			1,699
		40,367			166,740
Less: Accumulated depreciation and amortization		(4,781	)		(14,367	)
		35,586			152,373

P-133

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

(8)     Accrued Expenses and Other Payables

       Components of accrued expenses and other payables were as follows:

	December 31,		September 30,
	2004		2005
	RMB		RMB
Accrued payroll and welfare		3,881		10,934
Accrued expenses		1,764		10,802
Business tax and surcharges payable		2,264		11,849
Receipts in advance		143		1,702
		8,052		35,287

(9)     Redeemable Convertible Preferred Shares

(a) Series B Redeemable Convertible Preferred Shares

       On July 29, 2005, the Company issued 21,820,243 Series B redeemable convertible preferred shares (“Series B Shares”) to a group of investors at US$0.687435 per share (the “Series B issue price”) for a total cash consideration of US$15,000 (RMB121,380). The holders of Series B Shares have the right to require the Company to redeem the shares at any time after the fifth anniversary of the date of issuance at the option of a majority of the holders of the Series B Shares then outstanding. In the event of a redemption under this right, the Company shall redeem all of the outstanding Series B Shares at a redemption price equal to 100% of the Series B issue price, plus an additional amount equal to 15% of the Series B issue price, compounded annually from the date of issuance to the date of redemption, plus all declared but unpaid dividends (the “Series B Preference Amount”). The accretion to the redemption value is reflected as a reduction to net income to arrive at net income available to common shareholders and amounted to RMB3,149 for the nine-month period ended September 30, 2005. Total direct external incremental costs of issuing the security of RMB436 were charged against the proceeds of the Series B Shares.

       In July 2005, in connection with the issuance of Series B Shares, the authorized number of the Company’s common shares was increased from 200,000,000 shares to 210,000,000 shares.

       The significant terms of the Series B Shares are as follows:

Conversion

       The holders of Series B Shares have the right to convert all or any portion of their holdings into common shares of the Company at any time after the date of issuance of such preferred shares. In addition, each Series B Share is automatically convertible into one common share at any time after the date of issuance of such preferred shares, subject to the conversion ratio adjustment as described below, upon the consummation of a Qualified Public Offering. A Qualified Public Offering refers to the closing of an underwritten public offering of the common shares of the Company on a reputable international stock exchange approved by the Company’s Board of Directors at a public offering price of at least two times the Series B issue price and with aggregate gross proceeds to the Company (before payment of underwriters’ discounts, commissions and offering expenses) in excess of US$50,000.

       Each Series B Share is convertible into one common share, where the conversion price is equal to the Series B issue price, except in the event that the initial conversion ratio for the Series A

P-134

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

redeemable convertible preferred shares (“ Series A Shares”) is adjusted for the Series A Performance Multiplier, which is equal to US$6,900 divided by the Group’s audited US GAAP consolidated net income for the period from July 1, 2004 to June 30, 2005, the conversion price for Series B Shares shall immediately be adjusted by multiplying the Series B conversion price then in effect by a fraction, the numerator of which shall be 152,741,679, and the denominator of which shall be the sum of (i) the number of outstanding common shares, and (ii) the number of outstanding Series A Shares multiplied by the Series A Performance Multiplier (the “Series B Performance Multiplier”).

       The conversion price of Series B Shares is subject to adjustment for dilution, including but not limited to share splits, share dividends and recapitalization. In addition, in the event that the Company issues additional common shares other than those specifically excluded under the Series B Share Subscription Agreement at a price per share less than the then prevailing Series B Shares’ respective conversion price (“Additional Common Shares”), the Series B Shares’ respective conversion price shall be reduced, concurrently with such common share issuance, to a price (calculated to the nearest cent) equal to the price per share at which such Additional Common Shares are issued (“Series B Dilution Adjustment”). The impact of the Series B Dilution Adjustment to the conversion price is contingent upon the issuance of Additional Common Shares at an issuance price less than the conversion price of Series B Shares. No issuance of Additional Common Shares was made as of December 31, 2005 which caused the conversion price of Series B Shares to be reduced under this adjustment provision.

       To the extent the initial conversion ratio for the Series B Shares is increased by a factor of more than one because of the Series B Performance Multiplier or Series B Dilution Adjustment under the conversion terms described above, the intrinsic value resulting from such contingent beneficial conversion feature would be recognized as an addition to paid-in capital with a corresponding charge to net income available to common shareholders at the earliest conversion date, which is the later of the issuance date, or the date the contingency is resolved.

Voting Rights

       Each Series B Share has voting rights equivalent to the number of common shares into which it is convertible.

Registration Rights

       Holders of Series B Shares have registration rights similar to the holders of Series A Shares and the common shareholders. These registration rights include demand registration, Form F-3 registration and piggyback registration. Such rights allow the holders of at least 50% of shares having registration rights then outstanding to demand the Company at any time after six months following the closing of a Qualified Public Offering to file a registration statement covering the offer and sales of their securities, subject to certain restrictions and conditions. The Company will pay all expenses relating to any demand, Form F-3 or piggy back registrations, except broker’s commission, underwriting discounts, selling commissions and stock transfer taxes.

Dividends

       Holders of Series B Shares shall be entitled to receive dividends out of any funds legally available for this purpose, when and if declared by the Board of Directors of the Company, at the

P-135

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

rate or in the amount as the Board of Directors considers appropriate, prior to any dividend payments to common shares.

Liquidation Preference

       In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or any Deemed Liquidation Event, the holders of Series B Shares shall receive an amount per share equal to the Series B Preference Amount, as adjusted for any share splits, share dividends and recapitalization. A Deemed Liquidation Event is defined in the Company’s Articles of Association as (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of more than fifty percent of the outstanding voting power of the Company such that its existing shareholders do not retain a majority of the voting power in the surviving entity; or (b) a sale of all or substantially all of the assets of the Company; provided, however, that a Deemed Liquidation Event shall not include any reorganization for tax purposes or for purposes of reincorporating in a different jurisdiction.

(b) Conversion of Series A Shares and Series B Shares

       Based on the Group’s audited US GAAP consolidated net income for the period from July 1, 2004 to June 30, 2005, the Company has calculated the Series A Performance Multiplier and the Series B Performance Multiplier to be 1.196365 and 0.949186 respectively, which resulted in a conversion ratio of 1.000000 to 1.196365 for Series A Shares and a conversion ratio of 1.000000 to 1.053535 for Series B Shares. Accordingly, on a fully-converted basis, the Series A Shares will be converted to 49,818,647 common shares and the Series B Shares will be converted into 22,988,390 common shares under the conversion terms of the Series A Shares and Series B Shares. The intrinsic value of the contingent beneficial conversion feature of the Series A Shares of RMB24,378 was recognized as an addition to paid-in capital with a corresponding charge to net income available to common shareholders on June 30, 2005, the date the contingency period ended and the contingency was resolved. In addition, the intrinsic value of the contingent beneficial conversion feature of the Series B Shares of RMB6,508 was recognized as an addition to paid-in capital with a corresponding charge to net income available to common shareholders on July 29, 2005, the date of the issuance of the Series B Shares, as it is the earliest conversion date for Series B Shares. The intrinsic values were measured as the difference between the respective commitment-date fair value of the underlying common shares of the Company issuable upon conversion and the respective gross proceeds received for or allocated to the Series A Shares and the Series B Shares.

(10)     Income (Loss) per Share

       Basic and diluted income (loss) per common share have been calculated in accordance with SFAS No. 128. In August 2004, 111,100,000 common shares were issued in connection with the Company’s formation and incorporation and as part of the reorganization of STM (the “Reorganization”). For the purposes of calculating basic and diluted income (loss) per share as a result of the Reorganization, the number of common shares used in the calculation reflects the issuance of common shares as if it took place on January 1, 2004.

P-136

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

       The computation of basic and diluted income (loss) per share is as follows:

		Nine-month periods ended
		September 30,
		2004		2005
		RMB		RMB
Net income (loss) available to common shareholders			13,392		(20,489	)
Denominator for basic income (loss) per share:
	Weighted average number of common shares outstanding		111,100,000		111,100,000
Basic income (loss) per share			0.12		(0.18	)
Diluted income (loss) per share			0.12		(0.18	)

       The computation of diluted income per share for the nine-month period ended September 30, 2004 did not assume conversion of Series A Shares nor the exercise of outstanding share options because the effect was anti-dilutive. The computation of diluted loss per share for the nine-month period ended September 30, 2005 did not assume conversion of Series A and Series B Shares nor the exercise of outstanding share options because the effect was anti-dilutive.

(11)     Commitments and Contingencies

       The Group has entered into operating lease agreements relating to the placement of flat panel display equipment. The Group has also entered into operating lease arrangements in connection with the lease of the Group’s office premises.

       Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2005 are as follows:

	Flat panel
	Display		Office
	equipment		premises
	RMB		RMB
From October 1, 2005 to December 31, 2005		21,893		1,961
2006		96,249		6,309
2007		76,434		4,035
2008		49,208		2,180
2009		34,059		—
Thereafter		44,308		—
		322,151		14,485

       Rental expenses incurred under operating leases for placement of flat panel display equipment for the nine-month periods ended September 30, 2004 and 2005 amounted to RMB9,519 and RMB45,012, respectively. Rental expenses incurred under operating leases for office premises for the nine-month periods ended September 30, 2004 and 2005 amounted to RMB1,162 and RMB4,094, respectively.

P-137

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

(12)     Concentration of Risks

Credit and concentration risks

       All of the Group’s customers are located in the PRC. The following are the customers that directly or indirectly contributed, on an individual basis, 10% or more of revenue for the nine-month periods ended September 30, 2004 and 2005:

	2004				2005
	RMB		%		RMB		%
SAIC-Volkswagen Sales Co., Ltd.		14,512		29%		22,505		13%
Shanghai Mofei Advertising Co., Ltd.		4,923		10%		13,074		7%
Shanghai Xintong Media & Cultural Development Co., Ltd.		5,060		10%		16,821		10%
Zenith Media		—		—		18,675		11%
Red Bull Vitamin Drink Co., Ltd.		5,591		11%		11,827		7%

       As of December 31, 2004 and September 30, 2005, approximately 74% and 51% of the Group’s gross accounts receivable were due from the above customers. As a result, a termination in relationship with or a reduction in orders from any one of these customers would have a material impact on the Group’s results of operations and financial position. The Group performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.

       The accounts receivable due from the above major customers, as of December 31, 2004 and September 30, 2005, were as follows:

	December 31,		September 30,
	2004		2005
	RMB		RMB
Red Bull Vitamin Drink Co., Ltd.		9,946		16,013
Shanghai Xintong Media & Cultural Development Co., Ltd.		8,567		12,611
SAIC-Volkswagen Sales Co., Ltd.		7,276		5,998
Shanghai Mofei Advertising Co., Ltd.		6,478		13,712
Zenith Media		1,642		5,052
		33,909		53,386

       As of December 31, 2005, the Company received subsequent collections of RMB30,275 from the above customers with respect to outstanding accounts receivable as of September 30, 2005. The Company expects to collect all the remaining outstanding balances from these customers in accordance with the contract terms.

P-138

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

(13)     Related Party Transactions

       The principal related party transactions during the nine-month periods ended September 30, 2004 and 2005 were as follows:

	Note		2004		2005
			RMB		RMB
Collection of advertising revenues on behalf of STM		(b)		3,684		2,094
Payments made by a related party on STM’s behalf		(b)		12,600		3,724
Lease of office premises		(c)		210		630
Proceeds from loan from a shareholder		(e)		31,655		—
Interest expense		(e)		80		40
Repayment of shareholder loan		(e)		1,655		10,000

       Amounts due from related parties as of December 31, 2004 and September 30, 2005 were as follows:

			December 31,		September 30,
	Note		2004		2005
			RMB		RMB
Huashan Dian Yang Hospital Service Co., Ltd. (“HS DY”)		(a)		1,511		—
Shanghai Dian Yang Digital Media Technology Co., Ltd. (“Dian Yang”)		(b)		3,100		1,470
Upper Development Limited (“Upper”)		(e)		—		20,230
				4,611		21,700

       Amounts due to related parties as of December 31, 2004 and September 30, 2005 were as follows:

			December 31,		September 30,
	Note		2004		2005
			RMB		RMB
Shanghai Investment Information Co., Ltd. (“SII”)		(d)		10,000		—
The Company’s Chief Executive Officer (“CEO”)		(c)		33		30
				10,033		30

Notes:
(a)	During 2004, the Group provided advertising services to HS DY, a company in which the Company’s CEO has an equity interest. As of December 31, 2004, the balance due from HS DY was RMB1,511, which was collected in full in August 2005. The Company had not provided any advertising services to HS DY since then.
(b)	Dian Yang, an entity controlled by the Company’s CEO and also a 9% shareholder of STM, makes lease payments and collects advertising revenues on STM’s behalf until the unassignable contracts expire. The unassignable contracts associated with advertising contracts will expire by the end of 2005, and the unassignable contracts associated with display placements will expire by the end of 2008, except for three contracts which will expire in 2009, 2010 and 2011, respectively. The balance as of December 31, 2004 and September 30, 2005, represented the amount of revenue collected by Dian Yang on behalf of STM, less payments made by STM on behalf of Dian Yang. The balance is interest free and is settled continuously and periodically.

P-139

TARGET MEDIA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in thousands, except share data)

(Unaudited)

(c)	The Group leases office premises from the Company’s CEO. A rental of RMB210 and RMB630, which was determined with reference to market price, was charged for the nine-month periods ended September 30, 2004 and 2005, respectively. The lease agreements with the Company’s CEO will expire in 2006. The amount due to the CEO as of September 30, 2005 is in respect of the lease of office premises.
(d)	SII is a shareholder of the Company and of STM. SII provided short-term loans of RMB30,000 to STM in 2004, of which RMB20,000 was repaid in November 2004 and RMB10,000 was repaid in January 2005. The balance bore interest at a monthly rate of 0.39825%. The interest expense incurred by STM on this loan was RMB 80 and RMB40 for the nine-month periods ended September 30, 2004 and 2005, respectively. In addition, in August 2004, SII International Holding Limited, a company wholly-owned by SII, provided a short-term loan of US$200 (equivalent to RMB1,655) to the Company at a monthly interest rate of 0.02%. Such loan plus interest were repaid in full in September 2004.
(e)	Upper is a shareholder of the Company and of STM. The amount due from Upper as of September 30, 2005 represented the consideration for subscription of Series B Shares. Such outstanding balance was fully paid by Upper in December 2005.

(14)     Subsequent Events

(a)     Shareholder Loan

       In December 2005, SII provided a short-term loan of RMB 30,000 to STM. The loan bears interest at a monthly rate of 0.3915% and is due for repayment in June 2006.

(b)     Proposed Business Combination

       On January 7, 2006, the Company signed a definitive agreement (“the Agreement”) with Focus Media Holding Limited (“Focus Media”) whereby Focus Media will purchase 100% of the Company’s equity interests in exchange for a total consideration of US$94 million in cash and 77 million Focus Media ordinary shares, subject to a working capital adjustment. The cash portion of the purchase price will be paid in three installments. The first installment of US$45 million is to be paid upon closing. The second installment of US$25 million is to be paid on April 28, 2006. The final installment of US$24 million is to be paid on July 31, 2006, and may be increased or decreased based on a calculation of Target Media’s net working capital as of the closing date. All of the Focus Media ordinary shares to be delivered at closing under the Agreement will be in the form of newly issued shares. This proposed business combination is expected to close following the satisfaction or waiver of customary closing conditions provided in the Agreement.

       In addition, in January 2006, the Company entered into an agreement with the Series A and Series B shareholders whereby each of the Series A and Series B shareholders agreed to waive any and all rights with respect to the liquidation preference in the event of the Deemed Liquidation Event (as such term is described in note 9). Further, in January 2006, the Company reached an agreement with the Series A and Series B shareholders, to exclude certain expense items, for the purpose of calculating the conversion ratios, from the audited US GAAP consolidated net income for the period from July 1, 2004 to June 30, 2005. The effect of excluding such expense items reduced the conversion ratios of the Series A and Series B Shares to 1.00000 to 1.05767 and 1.00000 to 1.01572 of the Company’s common shares, respectively, and accordingly, would result in a lower intrinsic value of the beneficial conversion feature of the Series A and Series B Shares. The impact of the adjustment on conversion ratios will be recorded as an adjustment to net income (loss) available to common shareholders in the accounting period when such agreement is executed. All Series A and Series B shareholders will convert the preferred shares into common shares prior to the consummation of the Focus Media business combination and become selling shareholders.

P-140

INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL

INFORMATION

	Page
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Information		P-157
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2005
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2004		P-158
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 2005		P-160
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information		P-171

P-141

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

(in U.S. dollars)

Introduction to Unaudited Pro Forma Condensed Consolidated Financial Information

       The following unaudited pro forma condensed consolidated financial information is derived from the historical financial statements of Focus Media Holding Limited, appearing elsewhere in this prospectus, after giving effects to the pro forma adjustments described in the notes thereto. Financial information with respect to the acquisitions are derived from the historical financial statements of Perfect Media Holding Limited, Focus Media Changsha Holding Limited, Focus Media Qingdao Holding Limited, Focus Media Dalian Holding Limited, Capital Beyond Limited, Infoachieve Limited and Target Media Holdings Limited (“Target Media”) appearing elsewhere in this prospectus.

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

       The unaudited pro forma condensed consolidated balance sheet as of September 30, 2005 assumes that the acquisition of Infoachieve Limited and Target Media occurred on September 30, 2005 and reflects the historical consolidated balance sheet of Focus Media Holding Limited giving pro forma effect to the acquired businesses using the purchase method of accounting.

       The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2004 presents adjustments as if the acquisitions of Acquired Businesses had been consummated on January 1, 2004. The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2005 presents adjustments as if the acquisitions of Capital Beyond Limited, Infoachieve Limited and Target Media had been consummated on January 1, 2005.

       The unaudited pro forma condensed consolidated balance sheet and statements of operations should be read in conjunction with historical consolidated financial statements, including the notes thereto, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and other financial information included elsewhere in this prospectus.

       While the unaudited pro forma condensed consolidated financial information is helpful in showing the financial characteristics of the consolidated companies, it is not intended to show how the consolidated companies would have actually performed if the events described above had in fact occurred on the dates assumed or to project the results of operations or financial position for any future date or period. We have included in the unaudited pro forma condensed consolidated statement of operations all the adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the operating results in the historical periods. However, because such adjustments are based on estimates such as the preliminary purchase price allocation and the estimated amortization period for the acquired intangible assets for Infoachieve Limited and Target Media, the actual consolidated balance sheet and results of operations may differ significantly from the pro forma amounts reflected below.

P-142

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

BALANCE SHEET

AS OF SEPTEMBER 30, 2005

(in U.S. dollars)

			Focus Media		Infoachieve
			Holding Limited		Limited		Target Media
			September 30,		September 30,		September 30,		Pro forma
			2005		2005		2005		Adjustments			Note		Pro forma
			Note(a)				Note(b)
Current assets:
	Cash and cash equivalents		$	83,974,044	$	1,459,980	$	11,171,000	$	(24,600,000	)		(1)(2)(6)	$	72,005,024
	Time deposits			—		—		1,517,000		—					1,517,000
	Investment in available-for-sale securities			34,950,969		—		—		—					34,950,969
	Accounts receivable, net			20,306,899		3,160,697		12,814,000		—					36,281,596
	Inventory			370,691		9,101		—		—					379,792
	Prepaid expenses and other current assets			3,717,071		1,186,370		5,863,000		—					10,766,441
	Deferred tax assets-current			—		—		14,000		(14,000	)		(9)		—
	Amounts due from related parties			1,243,800		—		2,682,000		—					3,925,800
	Total current assets			144,563,474		5,816,148		34,061,000		(24,614,000	)				159,826,622
Rental deposits				9,293,819		—		249,000		—					9,542,819
Property and equipment, net				32,909,902		877,951		18,830,000		—					52,617,853
Acquired intangible assets, net				1,231,902		779,563		146,000		59,811,874			(1)(2)		61,969,339
Goodwill				12,823,348		12,703,580		—		290,153,708			(1)(2)		315,680,636
Deferred tax assets				914,922		—		—		—					914,922
		Total assets	$	201,737,367	$	20,177,242	$	53,286,000	$	325,351,582				$	600,552,191
Liabilities and shareholders’ equity
Current liabilities:
	Short-term bank loan		$	3,089,089	$	—	$	—	$	—				$	3,089,089
	Accounts and bills payable			4,787,461		702,690		8,182,000		—					13,672,151
	Accrued expenses and other current liabilities			9,596,839		5,958,361		4,361,000		49,000,000			(2)		68,916,200
	Amounts due to related parties			—		1,738,425		4,000		—					1,742,425
	Short-term loans from shareholders			—		3,048,522		—		—					3,048,522
	Income taxes payable			2,192,123		—		55,000		—					2,247,123
	Total current liabilities			19,665,512		11,447,998		12,602,000		49,000,000					92,715,510
Minority interest				193,143		—		—		—					193,143

Note(a) Excludes the Infoachieve Limited and Target Media acquisitions as they occurred after September 30, 2005.

Note(b) Translations of amounts from Renminbi (“RMB”) into United States dollars (“US$”) are solely for the convenience of the reader and were calculated at the rate of US$1.00=RMB8.092, on September 30, 2005, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2005, or at any other date.

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

P-143

	Focus Media			Infoachieve
	Holding Limited			Limited			Target Media
	September 30,			September 30,			September 30,			Pro forma
	2005			2005			2005			Adjustments			Note		Pro forma
	Note(a)						Note(b)
Mezzanine equity
Series A-1 convertible redeemable preference shares		—			1,484,154			—			(1,484,154	)		(5)		—
Series A-2 convertible redeemable preference shares		—			813,849			—			(813,849	)		(5)		—
Series A convertible redeemable preferred shares		—			—			18,537,000			(18,537,000	)		(5)		—
Series B convertible redeemable preferred shares		—			—			15,365,000			(15,365,000	)		(5)		—
Shareholders equity
Ordinary shares		18,916			12,442			11,000			(17,734	)		(1)(2)(5)(6)		24,624
Additional paid-in capital		178,026,903			25,079,080			7,244,000			292,817,038			(1)(2)(5)(6)		503,167,021
Deferred share based compensation		(813,614	)		—			—			—					(813,614	)
Statutory reserves		—			—			619,000			—					619,000
Retained earnings (accumulated deficit)		3,572,045			(18,567,467	)		(1,092,000	)		19,659,467			(1)(2)		3,572,045
Accumulated other comprehensive income (loss)		1,074,462			(92,814	)		—			92,814			(1)		1,074,462
Total shareholders’ equity		181,878,712			6,431,241			6,782,000			312,551,585					507,643,538
Total liabilities and shareholders’ equity	$	201,737,367		$	20,177,242		$	53,286,000		$	325,351,582				$	600,552,191

Note(a) Excludes the Infoachieve Limited and Target Media acquisitions as they occurred after September 30, 2005.

Note(b) Translations of amounts from Renminbi (“RMB”) into United States dollars (“US$”) are solely for the convenience of the reader and were calculated at the rate of US$1.00=RMB8.092, on September 30, 2005, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2005, or at any other date.

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

P-144

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2004

(in U.S. dollars)

									Focus Media			Focus Media
									Changsha			Qingdao			Focus Media
									Holding			Holding			Dalian Holding
			Focus Media			Perfect Media			Limited For the			Limited For			Limited For
			Holding			Holding			period from			the period			the period						Infoachieve
			Limited For			Limited For			March 11, 2004			from March 22,			from March 24,			Capital Beyond			Limited for			Target Media
			the year			the nine			(date of			2004 (date of			2004 (date of			Limited For			the year			for the year
			ended			months ended			inception) to			inception) to			inception) to			the year ended			ended			ended
			December 31,			September 30,			October 31,			October 31,			October 31,			December 31,			December 31,			December 31,			Pro forma
			2004			2004			2004			2004			2004			2004			2004			2004			Adjustments			Note		Pro forma
																								Note(c)
Revenues:
	Advertising service revenue:
		— Unrelated parties	$	22,896,194		$	86,806		$	13,054		$	12,052		$	36,645		$	276,786		$	4,323,551		$	9,723,000			—				$	37,368,088
		— Related parties		3,424,985			—			—			—			—			—			—			—			—					3,424,985
	Advertising equipment revenue			2,888,720			—			—			—			—			—			—			—			—					2,888,720
	Total revenues			29,209,899			86,806			13,054			12,052			36,645			276,786			4,323,551			9,723,000			—					43,681,793
Cost of revenues:
	Net advertising service cost			6,822,965			27,047			42,590			84,492			73,318			491,673			3,336,840			3,915,000			8,835,809			(3)(7)		23,629,734
	Net advertising equipment cost			1,934,331			—			—			—			—			—			—			—			—					1,934,331
	Total cost of revenues			8,757,296			27,047			42,590			84,492			73,318			491,673			3,336,840			3,915,000			8,835,809					25,564,065
Gross profit				20,452,603			59,759			(29,536	)		(72,440	)		(36,673	)		(214,887	)		986,711			5,808,000			(8,835,809	)				18,117,728
Operating expenses:
	General and administrative			4,015,024			76,637			116,674			59,262			53,470			59,985			543,351			646,000			(201,693	)		(7)		5,368,710
	Selling and marketing			3,426,005			44,591			5,216			15,073			22,452			23,849			821,518			1,971,000			—					6,329,704
	Goodwill impairment loss			58,397			—			—			—			—			—			—			—			—					58,397
	Total operating expenses			7,499,426			121,228			121,890			74,335			75,922			83,834			1,364,869			2,617,000			(201,693	)				11,756,811
Income from operations				12,953,177			(61,469	)		(151,426	)		(146,775	)		(112,595	)		(298,721	)		(378,158	)		3,191,000			(8,634,116	)				6,360,917
	Net interest income (expense)			9,739			42			75			74			55			135			(253,271	)		(34,000	)		—					(277,151	)
	Other income (expense), net			(3,843	)		—			(38	)		(54	)		(53	)		(134	)		36,820			(3,000	)		—					29,698
	Change in fair value of derivative liability associated with Series B convertible redeemable preference shares			(11,692,287	)		—			—			—			—			—			—			—			—					(11,692,287	)
Income (loss) before income taxes and minority interest				1,266,786			(61,427	)		(151,389	)		(146,755	)		(112,593	)		(298,720	)		(594,609	)		3,154,000			(8,634,116	)				(5,578,823	)
Income taxes:
	Current			828,962			4,162			—			—			—			—			3,880			53,446			—					890,450
	Deferred			78,588			—			—			—			—			—			—			(13,446	)		—					65,142
	Total income taxes			907,550			4,162			—			—			—			—			3,880			40,000			—					955,592
Net income (loss) after income taxes before minority interest and equity income				359,236			(65,589	)		(151,389	)		(146,755	)		(112,593	)		(298,720	)		(598,489	)		3,114,000			(8,634,116	)				(6,534,415	)
Minority interest				13,516			—			—			—			—			—			—			—			—					13,516
Net income (loss)				372,752			(65,589	)		(151,389	)		(146,755	)		(112,593	)		(298,720	)		(598,489	)		3,114,000			(8,634,116	)				(6,520,899	)
Accretion to Series A redeemable convertible preferred shares redemption value				—			—			—			—			—			—			—			(1,047,000	)		1,047,000			(5)		—
Deemed dividend on Series A convertible redeemable preference shares				(8,308,411	)		—			—			—			—			—			—			—			—					(8,308,411	)
Deemed dividend on Series B convertible redeemable preference shares				(2,191,442	)		—			—			—			—			—			—			—			—					(2,191,442	)
Deemed dividend on Series C-1 convertible redeemable preference shares				(13,356,087	)		—			—			—			—			—			—			—			—					(13,356,087	)
Premium of Series B convertible redeemable preference shares				12,906,774			—			—			—			—			—			—			—			—					12,906,774
Loss attributable to holders of ordinary shares			$	(10,576,414	)	$	(65,589	)	$	(151,389	)	$	(146,755	)	$	(112,593	)	$	(298,720	)	$	(598,489	)	$	2,067,000		$	(7,587,116	)			$	(17,470,065	)
Loss per share -  basic and diluted			$	(0.07	)																											$	(0.06	)
Shares used in calculating basic and diluted loss per share				160,998,600																													270,751,317

Note(c) The translations of amounts from RMB into United States dollars (“US$”) as of and for the year ended December 31, 2004, are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB8.2765, on December 31, 2004, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2004, or at any other rate.

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

P-145

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005

(in U.S. dollars)

								Infoachieve			Target
								Limited			Media
		Focus Media						For the nine			For the nine
		Holding Limited						months			months
		For the nine			Capital Beyond Limited			ended			ended
		months ended			For the three months			September 30,			September 30,			Pro forma
		September 30, 2005			ended March 31, 2005			2005			2005			Adjustment			Note		Pro forma
											Note(b)
Revenues:
Advertising service revenue:
	— Unrelated parties	$	39,336,775		$	—		$	7,020,592		$	21,599,000			—				$	67,956,367
	— Related parties		3,514,521			—			—			—			—					3,514,521
Advertising equipment revenue			772,414			—			—			—			—					772,414
Total revenues			43,623,710			—			7,020,592			21,599,000			—					72,243,302
Cost of revenues
	Net advertising service cost		16,478,969			122,038			3,618,979			10,234,000			6,428,415			(4)(7)		36,882,401
	Net advertising equipment cost		544,145			—			—			—			—					544,145
Total cost of revenues			17,023,114			122,038			3,618,979			10,234,000			6,428,415					37,426,546
Gross profit			26,600,596			(122,038	)		3,401,613			11,365,000			(6,428,415	)				34,816,756
Operating expenses:
	General and administrative		6,577,974			607			2,437,239			1,377,000			(125,185	)		(7)		10,267,635
	Selling and marketing		6,134,849			—			1,871,706			5,919,000			—					13,925,555
	Total operating expenses		12,712,823			607			4,308,945			7,296,000			(125,185	)				24,193,190
Income loss from operations			13,887,773			(122,645	)		(907,332	)		4,069,000			(6,303,230	)				10,623,566
	Net interest income (expense)		822,163			48			(115,473	)		32,000			—					738,738
	Other income (expense), net		9,894			(29	)		78,645			(76,000	)		—					12,510
Income (loss) before income taxes and minority interest			14,719,830			(122,626	)		(944,160	)		4,025,000			(6,303,230	)				11,374,814
Income tax expense
	Current		758,594			—			1,235			—			—					759,829
	Deferred		(267,527	)		—			—			—			—					(267,527	)
Total income taxes			491,067			—			1,235			—			—					492,302
Net income (loss) after income taxes before minority interest			14,228,763			(122,626	)		(945,395	)		4,025,000			(6,303,230	)				10,882,512
Minority interest			(106,304	)		—									—					(106,304	)
Net income (loss)			14,122,459			(122,626	)		(945,395	)		4,025,000			(6,303,230	)				10,776,208
Deemed dividend — ordinary share			—			—			(15,187,200	)		—			—					(15,187,200	)
Deemed dividend — Series A-1 convertible redeemable preference shares — Redesignation			—			—			(1,136,700	)		—			1,136,700			(5)		—
Deemed dividend — Series A-1 convertible redeemable preference shares — Accretion of redemption premium			—			—			(344,754	)		—			344,754			(5)		—
Deemed dividend — Series A-2 convertible redeemable preference share — Redesignation			—			—			(623,700	)		—			623,700			(5)		—
Deemed dividend — Series A-2 convertible redeemable preference shares — Accretion of redemption premium			—			—			(189,049	)		—			189,049			(5)		—
Accretion to Series A redeemable convertible preferred shares redemption value			—			—			—			(2,351,000	)		2,351,000			(5)		—
Accretion to Series B redeemable convertible preferred shares redemption value			—			—			—			(389,000	)		389,000			(5)		—
Beneficial conversion of Series A redeemable convertible preferred shares			—			—			—			(3,013,000	)		—					(3,013,000	)
Beneficial conversion of Series B redeemable convertible preferred shares			—			—			—			(804,000	)		—					(804,000	)
Income (Loss) attributable to holders of ordinary shares		$	14,122,459		$	(122,626	)	$	(18,426,798	)	$	(2,532,000	)	$	(1,269,027	)			$	(8,227,992	)
Income per share — basic		$	0.07																$	(0.03	)
Shares used in calculating basic income per share			210,377,820															(8)		309,534,823
Income per share — diluted		$	0.06																$	(0.03	)
Shares used in calculating diluted income per share			238,206,610															(8)		309,534,823

Note(b) Translations of amounts from Renminbi (“RMB”) into United States dollars (“US$”) are solely for the convenience of the reader and were calculated at the rate of US$1.00=RMB8.092, on September 30, 2005, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2005, or at any other date.

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

P-146

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL INFORMATION

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

       (1) Reflects the estimated purchase price allocation of the net assets acquired from Infoachieve Limited. The allocation of the purchase price was based on a preliminary internal study and discussions with our independent third party valuation firm and is subject to refinement regarding the intangible assets acquired.

       The aggregate purchase price of $98,847,826 is comprised of the following:

Cash consideration	$	39,600,000
Fair Value of ordinary shares issued		59,247,826
	$	98,847,826

       The fair value of ordinary shares issued for pro forma purchase price allocation purposes was determined using the quoted market price as of September 30, 2005, which assumes the transaction was consummated on this date. Upon recording of this transaction for accounting purposes the market price for a reasonable period before and after the acquisition date, which is October 15, 2005, will be used. Because of the change in the trading price of the ordinary shares since September 30, 2005, the actual value of the ordinary shares to be issued may differ substantially, with the effect that purchase price allocation may differ substantially from these amounts and the effect that acquired intangible assets and goodwill will be higher or lower than the fair value calculated according to September 30, 2005 share price.

       Estimated purchase price allocation:

			Amortization
			period
Net tangible assets acquired	$	8,729,244		—
Acquired intangible assets		14,827,174		7 years
Goodwill		75,291,408		—
Total	$	98,847,826

       The intangible assets include licenses, customer base and employee contracts.

       Upon obtaining the final valuation report from our independent third party valuation firm the preliminary purchase price allocation and the amortization period for the acquired intangible assets may materially be modified. For example if the purchase price allocation relating to intangible assets were to increase by approximately 15% the amortization expense for the nine months ended September 30, 2005 would increase by approximately $214,000 and for the year ending December 31, 2005 would increase by $285,000.

       The total consideration to be paid is determined to be a maximum of $183,000,000 which is comprised of $39,600,000 cash payment, 22,157,003 ordinary shares. The remaining shares to be issued up to a maximum of 35,830,619 will be issued based on an earnout provision of Infoachieve achieves net earnings in 2006 of more than $8,000,000. The number of shares that have been issued and those pursuant to the earnout provision were calculated on a per share price of $2.456 which was the average trading price of Focus Media’s ADS’s for the ten days prior to the signing of the share purchase agreement divided by ten to derive a price per share.

       (2) Reflects the estimated purchase price allocation of the net assets acquired from Target Media. The allocation of the purchase price was based on a preliminary internal study and discussions with our independent third party valuation firm and is subject to refinement regarding the intangible assets acquired.

P-147

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL INFORMATION — (Continued)

       The aggregate purchase price of $299,898,000 is comprised of the following:

Cash consideration	$	45,000,000
Other payables		49,000,000
Fair Value of ordinary shares issued		205,898,000
	$	299,898,000

       The cash portion of the purchase price will be paid in three installments. The first installment of $45 million is to be paid at closing. The second installment of $25 million is to be paid on April 28, 2006. The final installment of $24 million is to be paid on July 31, 2006.

       The fair value of the ordinary shares issued for pro forma purchase price allocation purposes was determined using the quoted market price as of September 30, 2005 assuming the transaction was consummated on this date. Upon recording this transaction for accounting purposes the market price for a reasonable period before and after the acquisition date, which is January 7, 2006, will be used. Because of the increase in trading price of the ordinary shares since September 30, 2005, the actual value of the ordinary shares to be issued may be substantially higher, with the effect that purchase price allocation may differ substantially from these amounts and the effect that acquired intangible assets and goodwill will be higher than the fair value calculated according to September 30, 2005 share price.

       Estimated purchase price allocation:

			Amortization
			period
Net tangible assets acquired	$	40,051,000		—
Acquired intangible assets		44,984,700		7 years
Goodwill		214,862,300
Total	$	299,898,000

       The intangible assets include licenses, customer base and employee contracts.

       Upon obtaining the final valuation report from our independent third party valuation firm the preliminary purchase price allocation and the amortization period for the acquired intangible assets may be materially modified. For example of the purchase price allocation relating to intangible assets were to increase by approximately 15% the amortization expense for the nine months ended September 30, 2005 would be approximately $722,000 and for the year ending December 31, 2005 would increase by $963,000.

       (3) Reflects amortization for the acquired intangible assets recorded as a result of our acquisitions of Perfect Media Holding Limited in September 2004, Focus Media Changsha Holding Limited, Focus Media Qingdao Holding Limited, Focus Media Dalian Holding Limited in October 2004, Capital Beyond Limited in March 2005, Infoachieve Limited in January 2006 and Target Media in February 2006 to reflect amortization for the year ended December 31, 2004. The amortization expense has been classified as part of cost of revenues.

       The amortization expense for Infoachieve Limited and Target Media of $2,118,168 and $6,426,386, respectively, for the year ended December 31, 2004 have been calculated based on a preliminary purchase price allocation and may change materially once the independent third party valuation report is obtained.

       (4) Reflects amortization for the intangible assets recorded as a result of our acquisition of Capital Beyond Limited in March 2005, Infoachieve Limited in January 2006 and Target Media in the

P-148

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL INFORMATION — (Continued)

first quarter of 2006 to reflect amortization for the period ended September 30, 2005. The amortization expense has been classified as part of cost of revenues.

       The amortization expense for Infoachieve Limited and Target Media of $1,588,626 and $4,819,789, respectively, for the period ended September 30, 2005 have been calculated based on a preliminary purchase price allocation and may change materially once the independent third party valuation report is obtained.

       (5) Assumes the conversion upon completion of the acquisitions of all convertible redeemable convertible preference shares of Infoachieve Limited and Target Media. Accordingly, the deemed dividends and redemption value accretion relating to these shares have been reversed.

       (6) Gives effect to the issuance and sale of 15,000,000 ordinary shares for total expected proceeds of $60,000,000.

       (7) Reflects the adjustment relating to the conformity in accounting policy of Target Media for employee stock options from FAS 123(R) to APB 25 which is the accounting policy adopted by Focus Media Holding Limited.

       (8) The following table sets forth the shares used in computing pro forma per share amounts for the periods indicated:

	December 31,			September 30,
	2004			2005
Shares used in calculating basic and diluted income (loss) per share on a pro forma basis:
Weighted average ordinary shares outstanding used in computing basic income (loss) per share for Focus Media Holding Limited		160,998,600			210,377,820
Issuance of ordinary shares for the acquisition of Infoachieve Limited		22,157,003			22,157,003
Issuance of ordinary shares for the acquisition of Target Media		77,000,000			77,000,000
Issuance of ordinary shares for the acquisition of Perfect Media		14,594,200			—
Weighted average ordinary shares for the acquisition of Perfect Media used in computing basic income (loss) per Focus Media Holding Limited		(3,998,486	)		—
		270,751,317			309,534,823

       (9) There have been no pro forma tax adjustments recorded because the Group’s effective rate is approximately 0%.

P-149

          No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

TABLE OF CONTENTS

	Page
Prospectus Summary		1
Risk Factors		17
Forward-Looking Statements		45
Our Corporate Structure		47
Use of Proceeds		53
Dividend Policy		55
Market Price Information for Our ADSs		56
Capitalization		57
Exchange Rates		58
Selected Consolidated Financial and Operating Data		60
Management’s Discussion and Analysis of Financial Condition and Results of Operations		63
Our Industry		95
Business		98
Recent Developments		116
Regulation of Our Industry		123
Management		128
Principal and Selling Shareholders		136
Related Party Transactions		142
Description of Share Capital		150
Description of American Depositary Shares		161
Shares Eligible for Future Sale		171
Taxation		174
Underwriting		179
Enforcement of Civil Liabilities		185
Legal Matters		186
Experts		186
Where You Can Find Additional Information		187
Index to Consolidated Financial Statements		F-1
Index to Financial Statements		P-1

Focus Media Holding Limited

6,787,829

American Depositary Shares

Representing

67,878,290 Ordinary Shares

Goldman Sachs (Asia) L.L.C.

Credit Suisse

Representatives of the Underwriters

Citigroup

Morgan Stanley

Piper Jaffray