Focus Media (NASDAQ:FMCN) has a problem.

It's struggling exactly when it seems as though the world's most populous nation is humming along just fine. After posting a charge-riddled loss and a steep drop in year-over-year revenue generation last night, there seems to be more to Focus Media than meets the eye.

Focus Media specializes in out-of-home advertising networks. It powers a fleet of 125,000 LCD monitors that display graphical ads in high-traffic areas, and it runs a network of 262,000 in-elevator poster and digital frames. Focus Media operates 130 outdoor LED billboard displays in Shanghai and Beijing, along with a movie theater commercial platform and Web-based initiatives.

China was quick to bounce back from the global recession, but you wouldn't know it from Focus Media's latest financials. Revenue fell by 26% to $166.6 million, weighed down by a 32% hit in its LCD displays and a whopping 50% haircut on the poster frames.

Focus Media reported a huge loss of $0.99 per share, but there are impairment charges baked into that number. Calling off its deal to sell most of its assets to SINA (NASDAQ:SINA) during the quarter also escalated the depreciation of expenses that were considered discontinued operations earlier in the year. However, even if we strip away the noise, non-GAAP profitability of $7.9 million is 89% lower than last year's production.

In short, Focus Media is a mess.

Advertising has been a surprisingly tough market in China this year. Sohu.com (NASDAQ:SOHU) has been able to pad results with its vibrant online-gaming business. Baidu (NASDAQ:BIDU) is in the sweet spot of paid search. However, out-of-home specialists, including AirMedia Group (NASDAQ:AMCN) in airports and VisionChina Media (NASDAQ:VISN) in mass transportation, are struggling these days.

The silver lining for Focus Media shareholders is that their company's balance sheet is backed by $383.3 million -- or nearly $3 a share -- in cash. However, Focus Media's stock has also tripled off its earlier lows, so the stock gains betray the dimming fundamentals as it leaps higher off its cash mattress.

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