Basis of Presentation

On December 22, 2008, the Company announced that it entered into a definitive agreement with SINA Corporation ("SINA") to sell substantially all of the assets of Focus Media's digital out-of-home advertising networks, including the LCD display network, poster frame network and certain in-store networks. The transaction is subject to customary closing conditions and certain regulatory approvals. Under the terms of the agreement, upon closing, SINA will issue 47 million newly issued ordinary shares to the Company as the consideration for the acquired assets. The Company will then distribute the SINA shares to its shareholders shortly after the closing. As a result of the above transaction, these lines of business have been accounted for as discontinued operations in accordance with U.S. GAAP. The assets to be sold to SINA as a business held-for-sale in accordance with US GAAP are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. Therefore, non-GAAP financial measure for discontinued operations in the first quarter of 2009 excluded not only the non-cash share-based compensation, acquired intangible asset amortization expense resulting from acquisitions, impairment charges of goodwill, acquired intangible assets and fixed assets but also depreciation expenses of fixed assets.

   Highlights for First Quarter 2009:    -- Net revenue for continuing operations was $66.7 million, declining 24%      from $87.2 million for the fourth quarter of 2008 and declining 14%      from $78.0 million for the first quarter of 2008 and surpassing the      Company's previous guidance of no less than $55.5 million.   -- Net revenue for discontinued operations was $64.4 million, a sequential      decrease of 39% from $104.9 million for the fourth quarter of 2008 and      decrease of 23% from $83.6 million for the first quarter of 2008 and      slightly below the Company's previous guidance of no less than $65.7      million.   -- Net loss from continuing operations was $17.7 million, compared to net      loss from continuing operations of $424.5 million for the fourth      quarter of 2008 and net income from continuing operations of $1.0      million for the first quarter of 2008.   -- Non-GAAP net income from continuing operations was $3.3 million,      compared to non-GAAP net income from continuing operations of $5.0      million for the fourth quarter of 2008 and non-GAAP net income from      continuing operations of $10.0 million for the first quarter of 2008.   -- Net income from discontinued operations was $12.0 million, compared to      net loss from discontinued operations of $380.3 million for the fourth      quarter of 2008 and net loss from discontinued operations of $54.6      million for the first quarter of 2008.  As explained in "basis of      presentation" above, discontinued operations, as the assets to be sold      to SINA as a business held-for-sale in accordance with US GAAP, are      not depreciated or amortized nor are they subject to the same      impairment analysis as assets held and used in continuing operations.      The Company historically recorded $8.8 million and $5.5 million of      depreciation expenses for the fourth quarter of 2008 and the first      quarter of 2008, respectively, in discontinued operations.   -- Non-GAAP net income from discontinued operations was $15.3 million,      compared to non-GAAP net income from discontinued operations of $42.7      million for the fourth quarter of 2008 and non-GAAP net income from      discontinued operations of $35.0 million for the first quarter of 2008.      As explained in "basis of presentation" above, discontinued operations,      as the assets to be sold to SINA as a business held-for-sale in      accordance with US GAAP, are not depreciated or amortized nor are      they subject to the same impairment analysis as assets held and used in      continuing operations.  The Company has historically recorded $8.8      million and $5.5 million of depreciation for the fourth quarter of 2008      and the first quarter of 2008, respectively, in discontinued operations.   -- Net loss attributable to shareholders was $5.7 million or a loss of      $0.04 per fully diluted ADS, compared to net loss attributable to      shareholders of $802.5 million for the fourth quarter of 2008 or a loss      of $6.24 per fully diluted ADS and net loss attributable to      shareholders of $53.8 million for the first quarter of 2008 or a loss      of $0.42 per fully diluted ADS.   -- Capital expenditures were $6.0 million, all attributable to      discontinued operations.   -- Earn-out payments for continuing operations and discontinued operations      were $1.9 million and $4.5 million respectively.   -- Bad debt provision for continuing operations was $1.8 million and for      discontinued operations was $5.5 million.   -- The Company has decided to cease expansion of its digital poster frame      network in light of uncertain demand for our advertising services.  We      don't expect to renew the expansion of our digital poster frame network      in predictable future.  As part of assets to be sold to SINA, in      accordance with US GAAP, the company did not perform recoverability      test for this asset.  The net book value of the asset amounts to $23.6      million.   -- We plan to cease operation of our advertising platform (a boat owned      and operated by us) on Huang Pu River in compliance to a rule      promulgated by Shanghai Municipal Government.  The net book value of      the boat is $12.4 million.    First Quarter 2009 balance sheet results    -- Cash and cash equivalents for continuing operations were $131.9 million,      a 7% decline from $142.4 million as of December 31, 2008.   -- Cash and cash equivalents for discontinued operations were $271.7      million, a 3% decline from $280.5 million as of December 31, 2008.   -- Accounts receivable for continuing operations was 117.3 million as of      March 31, 2009, a 13% decline from $135.3 million as of December 31,      2008, mainly due to the decline from internet division.   -- Accounts receivable for discontinued operations was 122.1 million as of      March 31, 2009, a 15% decline from $143.6 million as of December 31,      2008, mainly due to the decline from LCD display network.    First Quarter 2009 financial results    1) For Continuing operations:   

Advertising revenue from the movie theater and outdoor traditional billboard network was $19.2 million in the first quarter of 2009, representing a decrease of 11% from 21.6 million for the fourth quarter of 2008 and a 17% increase from $16.4 million for the first quarter of 2008.

Internet advertising service revenue was $47.1 million for the first quarter of 2009, a 25% decline from $62.4 million for the fourth quarter of 2008 and a slight decline of 5% from $49.6 million for the first quarter of 2008.

Non-GAAP gross profit for the movie theater and outdoor billboard networks for the first quarter of 2009 was $6.0 million, representing a 17% decline from $7.2 million for the fourth quarter of 2008 and a 25% increase from $4.8 million for the first quarter of 2008.

Non-GAAP gross profit from our Internet advertising services for the first quarter of 2009 was $10.6 million, representing a 14% decline from $12.3 million for the fourth quarter of 2008 and an 18% decline from $13.0 million for the first quarter of 2008.

Non-GAAP operating expense for continuing operations for the first quarter of 2009 was $12.0 million, representing a 18% decline from $14.6 million for the fourth quarter of 2008 and a 10% increase from $10.9 million for the first quarter of 2008.

2) For Discontinued operations:

Advertising revenue from the LCD display network was $34.4 million for the first quarter of 2009, a 41% decline from $58.6 million for the fourth quarter of 2008 and a 25% decline from $45.9 million for the first quarter of 2008.

Advertising revenue from the in-elevator poster frame network was $23.5 million for the first quarter of 2009, a 40% decline from $39.2 million for the fourth quarter of 2008 and a 20% decline from $29.2 million for the first quarter of 2008.

Advertising revenue from the in-store network was $6.3 million for the first quarter of 2009, a 6% decline from $6.7 million for the fourth quarter of 2008 and an 11% increase from $5.7 million for the first quarter of 2008.

As of March 31, 2009, the total installed base of LCD displays and digital frames in our commercial location network was 131,219 nationwide, including 125,796 displays through our directly owned networks, and 5,423 displays through our regional distributors. The total number of non-digital frames available for sale on our in-elevator poster frame network was 288,423 as of March 31, 2009. In addition, as of March 31, 2009, we had 39,546 digital frames installed in our poster frame network. The total number of displays installed in our in-store network was 42,340 as of March 31, 2009.

Non-GAAP gross profit for the LCD display network for the first quarter of 2009 was $23.2 million, representing a 47% decline from $43.5 million for the fourth quarter of 2008 and a 27% decline from $31.9 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in cost of sales for the LCD display network in the fourth quarter of 2008 and the first quarter of 2008 was $4.8 million and $2.9 million respectively.

Non-GAAP gross profit for the in-elevator poster frame network for the first quarter of 2009 was $11.2 million, representing a 53% decline from $23.8 million for the fourth quarter of 2008 and a 53% decline from $19.8 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in cost of sales for the in-elevator poster frame network in the fourth quarter of 2008 and the first quarter of 2008 was $1.8 million and $0.7 million respectively.

Non-GAAP gross profit for the in-store network for the first quarter of 2009 was $2.3 million, more than tripled $0.5 million for the fourth quarter of 2008 and compared to gross loss of $1.8 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in cost of sales for the in-store network in the fourth quarter of 2008 and the first quarter of 2008 was $1.7 million and $1.6 million respectively.

Non-GAAP operating expense for discontinued operations for the first quarter of 2009 was $22.3 million, representing a 21% increase from $18.4 million for the fourth quarter of 2008 and a 34% increase from $16.6 million for the first quarter of 2008. As explained in "basis of presentation" above, discontinued operations, as the assets to be sold to SINA as a business held-for-sale in accordance with US GAAP, are not depreciated or amortized nor are they subject to the same impairment analysis as assets held and used in continuing operations. The depreciation expense included in operating expense for discontinued operations in the fourth quarter of 2008 and the first quarter of 2008 was $0.5 million and $0.3 million respectively.

The Company historically recorded $8.8 million and $5.5 million of depreciation expenses for the first quarter of 2008 and the fourth quarter of 2008, respectively, in discontinued operations.

Business Outlook for First Quarter 2009

The Company provides the following guidance with respect to the second quarter ending June 30, 2009:

   -- Net revenues from continuing operations are expected to be no less than      $69.0 million;   -- Net revenues from discontinued operations are expected to be no less      than $81.5 million.    Changes of senior management  

On January 26, 2009, the Company announced that Jason Jiang, Focus Media's executive chairman, resumed his position as chief executive officer to replace Dr. Tan Zhi who continued with the Company as an executive director. On the same day, Focus Media further announced the appointment of Alex Deyi Yang as acting chief financial officer to replace Daniel Wu, who resigned to pursue other professional interests.