UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 10-K/A




(Amendment No. 1)




[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the fiscal year ended: December 31, 2010




OR




[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the transition period from __________to ____________




Commission File Number: 000-51806




CHINA MARKETING MEDIA HOLDINGS, INC.


(Exact name of registrant as specified in its charter)





Texas
76-0641113(State or other jurisdiction of
(I.R.S. Employer Identification Number)incorporation or organization)




RMA 901


KunTai International Mansion


No. 12 Chaowai Street


Beijing, 10020, China


(Address of principal executive office and zip code)




(86)10-59251090


(Registrant’s telephone number, including area code)




Securities registered pursuant to Section 12(b) of the Act: None.




Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [   ]         No [ x ]




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [   ]         No [ x ]




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes [ x ]         No [   ]




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes [   ]         No [   ]










Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large Accelerated Filer [   ]
Accelerated Filer [   ]Non-Accelerated Filer [   ]

(Do not check if a smaller reporting company)
Smaller reporting company [ x ]




Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]         No [ x ]




As of June 30, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing price of such shares as reported on the Over-the-Counter Bulletin Board) was approximately $15.8 million.




There were a total of 28,686,002 shares of the registrant’s common stock outstanding as of March 23, 2011.




DOCUMENTS INCORPORATED BY REFERENCE




None.





EXPLANATORY NOTE





China Marketing Media Holdings, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment No. 1”) to its Annual Report on Form 10-K for the year ended December 31, 2010 which was originally filed with the Securities and Exchange Commission on March 31, 2011 (the “Original Filing”), to include certain revised and clarified disclosures to its financial and non-financial presentations set forth in the Original Filing in response to review comments made by the staff of the Securities and Exchange Commission in its comment letters dated September 6, 2011, September 28, 2011 and October 28, 2011.





Specifically, the Amendment  No. 1 provides revisions and clarifications to  Item 8. Financial Statements and Supplementary Financial Data (Note 2. Summary of Significant Accounting Policies; Note 6. Related Party Transactions with An Affiliate; Note 9. Income Taxes; and Note 11. Segment Information)  of Notes to Consolidated Financial Statements for the Years Ended December 31, 2010 and 2009.





In addition, the Amendment also revises and amends discussions of changes in Operating Expenses, Other Income (Expenses), Liquidity and Capital Resources and Critical Accounting Policies set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Original Filing.





The Amendment No. 1, with the exception of the foregoing changes, does not make any other changes to the Original Filing; nor does it purport to update or modify disclosures contained in the Original Filing to reflect events that occurred following the filing date thereof. Accordingly, the Amendment No. 1 should be read in conjunction with the Original Filing and other filings made with the Securities and Exchange Commission subsequent thereto.





Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the certifications pursuant to Section 302 and Section 906 of the Sarbanes- Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original Filing have been re-executed and re-filed as of the date of this Amended Report and are included as exhibits hereto.


CHINA MARKETING MEDIA HOLDINGS, INC.




Annual Report on FORM 10-K


For the Fiscal Year Ended December 31, 2010





Number

PagePART IItem 1.
Business.
2Item 1A.
Risk Factors.
10Item 2.
Properties.
13Item 3.
Legal Proceedings.
16Item 4.
[Removed and Reserved].
16PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
17Item 6.
Selected Financial Data.
18Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
18Item 8.
Financial Statements and Supplementary Financial Data.
25Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
26Item 9A.
Controls and Procedures.
26Item 9B.
Other Information.
27PART IIIItem 10.
Directors, Executive Officers and Corporate Governance.
28Item 11.
Executive Compensation.
30Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
32Item 13.
Certain Relationships and Related Party Transactions, and Director Independence.
33Item 14.
Principal Accountant Fees and Services.
33PART IVItem 15.
Exhibits, Financial Statements Schedules.
35








INTRODUCTORY NOTE




Except as otherwise indicated by the context, references to “we,” “us,” “our,” or “the Company” are to China Marketing Media Holdings, Inc. and its subsidiaries. References to “Media Challenge” are references to Media Challenge Holdings Limited, a British Virgin Islands company. Unless the context otherwise requires, all references to (i) “Shenzhen New Media” are to Shenzhen New Media Consulting Co., Ltd.; (ii) “Shenzhen Media” are to Shenzhen Media Investment Co., Ltd.; (iii) “BVI” are to the British Virgin Islands; (iv) “PRC” and “China” are to the People’s Republic of China; (v) “U.S. dollar,” “$” and “US$” are to United States dollars; (vi) “RMB” are to Renminbi, the legal currency of China; (vii) “Securities Act” are to the Securities Act of 1933, as amended; and (viii) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.




FORWARD-LOOKING STATEMENTS




Statements contained in this annual report include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by such forward-looking statements not to occur or be realized. Forward-looking statements made in this Report generally are based on our best estimates of future results, performances or achievements, predicated upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “should,” “project,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” “potential,” “opportunity” or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions. Potential risks and uncertainties include, among other things, such factors as:




o
the recent credit crisis and turmoil in the global financial system




o
strong competition in our industry;




o
our significant reliance on the operation and management right agreement between us and Sale and Marketing Publishing House, or CMO; and




o
significant deficiency in our internal controls over our financial reporting.




Additional disclosures regarding factors that could cause our results and performance to differ from results or performance anticipated by this annual report are discussed in Item 1A. “Risk Factors.” Readers are urged to carefully review and consider the various disclosures made by us in this annual report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this annual report speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.




1


PART I




ITEM 1.           BUSINESS




Overview




We were originally organized under the laws of the State of Texas on October 29, 1999 under the name Brazos Strategies, Inc. We changed our name to Infolife, Inc. on July 16, 2003 and finally to China Marketing Media Holdings, Inc. on February 7, 2006. We are a holding company and we have no operations other than administrative matters and the ownership of our direct and indirect operating subsidiaries. Through our indirect Chinese subsidiaries, we are engaged in the business of selling magazines and advertising space in our magazines, providing sales and marketing consulting services and online sales of various consumer products. All of our operations, assets, personnel, officers and directors are located in China. Currently, we publish China Marketing magazine in China. We publish three issues of China Marketing per month, including a sales edition, case edition and channel edition. In October 2010, we added a new issue called “Career Development Edition”. In June 2009, we began to publish eight special issues of China Marketing , which include cosmetic edition, food edition, gift edition, tobacco edition, finance edition, sporting goods edition, edition for agricultural resources and edition for entrepreneurs in Henan province. In December 2009, we discontinued the special issue of finance edition. Therefore, we currently have 4 main issues and 7 special issues. Currently, the distribution network of our magazines consists of over 60 major distribution agencies and 30,000 bookstores and news stands covering over 300 cities throughout China.




Our magazines are Chinese publications tailored to the sales and marketing industry. The magazines were originally published by Sale and Marketing Publishing House, or CMO, under the Light Industrial Ministry of the Henan Provincial Government. On October 22, 2003, the Henan Provincial Government, Shenzhen Niu Si Tai Asset Management Limited Corporation, and CMO incorporated Shenzhen Media under the laws of China. On October 23, 2003, Shenzhen Media entered into a ten year operation and management right agreement with CMO or Operation and Management Right Agreement, pursuant to which from November 1, 2003 to October 31, 2013, Shenzhen Media is obligated to market the magazines, sell the magazines and advertising space, provide strategic planning for the magazines, and train the professional staff of CMO. The agreement was amended on January 8, 2004. Under the terms of the agreement, as amended, Shenzhen Media agreed to pay a lump sum deposit of RMB 10,109,300 (approximately US$1,220,930) and bear all of the operating costs relating to the publishing of the magazines in exchange for the right to all revenues generated from selling the magazines and their advertising space.




On November 20, 2004, Shenzhen Media and Shenzhen New Media entered into an entrust agreement or Entrust Agreement, under which Shenzhen Media transferred all of its rights under the Operation and Management Right Agreement to Shenzhen New Media. Shenzhen New Media agreed to pay Shenzhen Media US$1.45 million in connection with this transfer of rights. Shenzhen New Media agreed to pay this amount over the 9 year term of the agreement, which is for the full remaining term of the assigned contract. Thereafter, on December 21, 2005, our indirect subsidiary, Shenzhen New Media acquired Shenzhen Media.




We had to enter into the Operation and Management Right Agreement and the Entrust Agreement instead of acquiring CMO outright as a result of restrictions under Chinese law that prohibit foreign persons from engaging in certain publishing activities in China. CMO is an affiliate of the Administration of Press and Publication of Henan Provincial Government and was established under the laws of China. Because of its ownership of the national publishing codes of China Marketing , CMO is the owner of the magazine. Although our Chief Executive Officer, Yingsheng Li, and other members of our executive team are also executive officers and/or directors of CMO, it is only through these two above agreements that we have obtained a right to oversee the operation and strategic planning of advertising, publishing, and staff training for the magazines that are published by CMO. Under these agreements, we are also entitled to collect advertising revenues from clients already existing at the time of the agreements, in addition to any new clients that we can solicit and retain. As a result, we derive the economic benefits and incur the economic burdens that we would otherwise have as the owner of CMO or the owner of CMO’s assets while still complying with Chinese law.




2


The Entrust Agreement and the Operation and Management Right Agreement between Shenzhen New Media and Shenzhen Media and between Shenzhen Media and CMO, respectively, are both protected by the laws of China and these agreements cannot be amended or terminated without the written consent of all parties involved.




To increase our revenue stream, our management began exploring the feasibility of engaging in new business lines in July 2007. Management considered the potential costs and benefits of launching another magazine or acquiring other publishing or advertising assets and determined that such actions require capital outlays that are greater than the company can currently afford and would take several months or years to implement. As a result, management investigated other business types to increase our revenues with lower capital expenditures and shorter ramp up times. During the search for new business opportunities, management noted that credit cards are the fastest-growing consumer credit product in China, and it is widely expected in China that card usage and profitability will experience explosive growth over the next decade. According to Shanghai Daily (June 25, 2008), China had more than 104.73 million credit cards in circulation at the end of March of 2008, up 92.9 percent since two years ago. While cash is still the main form of payment in China, the use of credit cards is becoming a popular alternative to carrying banknotes. As a result of, or possible contributing to the increasing popularity of credit cards, many consumers in China are choosing to shop online and pay with credit cards. Consumers in China are realizing that online shopping allows consumers to browse through many items and categories without leaving their homes, to compare prices of multiple suppliers or stores, and to arrange for convenient shipping of products by the supplier. Our management decided that the company should enter into the online sales and marketing business to take advantage of this marketplace trend. Management believes that engaging in online business is beneficial and suitable for small businesses like us as it requires significantly lower capital outlay compared with traditional business approaches.




In July 2008, we began our new business of online marketing and sales of consumer products by entering into various cooperation arrangements with Chinese banks. These banks’ existing consumer communication channel allows us to spend a limited amount of money as the startup cost for advertisement. We have been able to market and sell our products by sending marketing brochures with the banks' monthly statements to their credit card customers and receive payments through the banks' already developed online payment mechanism.




In June 2010, we launched a new business platform called “Easy Buy” that connects businesses, banks and customers on a single platform. With the innovative Invisible Printing Optical Identification Technology(IP-OIT), this sales and marketing platform helps the advertising clients to further promote their products and enhance their sales distribution channel. At the same time, we will be able to market and sell our products by sending the special catalog to the gold and platinum card holders through various banks, thus, bringing in more advertising revenues for the company.




We do not maintain a corporate website, but we utilize http://www.cmmo.com.cn for the sale and promotion of the magazines we publish.




History and Corporate Structure




We were originally organized under the laws of the State of Texas on October 29, 1999 under the name Brazos Strategies, Inc. We changed our name to Infolife, Inc. on July 16, 2003 and finally to China Marketing Media Holdings, Inc. on February 7, 2006. When we operated under the name Brazos Strategies, Inc., we were an Internet service provider. Thereafter, when we changed our name to Infolife, Inc. we continued our business as an Internet service provider in Tomball, Texas. This business was later sold back to the original shareholders of Infolife, Inc.




On December 31, 2005, we entered into a share exchange agreement with Media Challenge, a BVI corporation, and the shareholders of Media Challenge. Pursuant to the share exchange agreement, we acquired 121,000 shares of Media Challenge, constituting all of the issued and outstanding capital stock of Media Challenge, in exchange for convertible promissory notes in the principal amount of $441,600. These convertible promissory notes were convertible into 22,808,002 shares of our common stock, but only after the completion of a 1-for-10 reverse split of our common stock that we became obligated to effect pursuant to the share exchange agreement. Thereafter, on January 25, 2006, we completed a 1-for-10 reverse split of our common stock as contemplated by the share exchange agreement. At that time, the convertible note issued to Media Challenge also converted into 22,808,002 shares of our common stock and the former shareholders of Media Challenge, Yingsheng Li, Xiaofeng Ding, and Dongsheng Ren became our controlling stockholders. Collectively, they became the owners of about 82% of our outstanding common stock. Media Challenge thereby became our wholly-owned subsidiary and the former shareholders of Media Challenge became our controlling stockholders. Immediately prior to the stock split, we had 47,780,000 shares of common stock outstanding, and immediately following the stock split and the issuance of our common stock pursuant to the share exchange agreement, there were 27,586,002 shares of common stock outstanding.




3







_________________________


(1) Beijing Media Management Consultation Company was incorporated in China in October 2004 to carry on consultation, professional training and provide relevant sales and marketing services to business enterprises in China.




(2) Shenzhen Keungxi Technology Company Ltd., or SKTC, was incorporated in China in October 2005. Its business scope includes, among others, sales and development of computer software, computers, and communication systems. It also provides information system consulting services.




(3) Sale and Marketing Publishing House, or CMO, is the owner of the “China Marketing” magazine. It is currently responsible for providing and editing the contents of the magazine.




(4) Beijing Orient Converge Human Resources Management Center Co. Ltd., or Beijing Orient, was incorporated in China in November 2007. It is engaged in the business of vocational training, employment recommendation and services. It also conducts sales and marketing professional training. On August 2, 2008, Shenzhen Media sold 42% ownership of Beijing Orient to Shanghai Cheng Mei Biotechnology Co., Ltd. (“Shanghai Cheng Mei”) for a cash price of $141,831 (equivalent to RMB 987,461). After the sale, Shenzhen Media owns 10% of Beijing Orient.




4


(5) Shanghai Zhiduo Network Technology Company Limited, or Shanghai Zhiduo, was incorporated in China on July 18, 2008. Shenzhen New Media owned 51% of Shanghai Zhiduo, which was engaged in the business of management consulting services and brand name consulting services. On March 18, 2010, SZNT discontinued its operations and applied for liquidation process with the local government. The liquidation process was completed and finalized on August 27, 2010.




(6) Shenzhen Directory Marketing Management Co. Ltd, or SDMM, was incorporated in China in June 2010 and is mainly engaged in providing advertising services, business enterprises marketing planning services, and information system consulting services. The Company, through Shenzhen Media, holds 30% of the equity interest of SDMM and one individual shareholder, Ge Zhihong, owns the remaining 70% equity interest of SDMM, respectively, and accounts for the investment using the equity method.




Our Products




China Marketing was first published by CMO in April 1994 as a monthly magazine. Thereafter, in September 2001, CMO began publishing two issues of this magazine per month. In May 2004, after the establishment of the operation and management rights agreement, we started to publish three issues of this magazine per month. In June 2003, the first issue of China Business & Trade was published. In January 2007, we decided to stop publishing China Business & Trade by combining the content of China Business & Trade into the Case edition of China Marketing . In October 2010, we published a new issue of Career Development edition. In June 2009, we began to publish eight special issues of China Marketing , which include cosmetic edition, food edition, gift edition, tobacco edition, finance edition, sporting goods edition, edition for agricultural resources and edition for entrepreneur in Henan. In December 2009, we discontinued to publish the Finance edition. The special editions are published from time to time based upon market conditions.




The dimension of China Marketing is 210mm x 285mm. The magazine is published in color. We use double-side offset paper within the magazine and 157g double-side halftone paper for the covers of Sales edition and Channel edition of the magazine and 200g double-side halftone paper for the covers of Case edition. All editions of the magazine are published in Chinese and circulated within the greater China area, which includes mainland China and Hong Kong.




Each issue of China Marketing focuses on specific topics. The first monthly issue of the magazine, the Sales edition, is a blend of overall discussion on sales and marketing for executives who need to keep track of the latest developments in their industries. This issue also introduces creative and successful marketing strategies and analyzes market trends of different industries and new business opportunities. It offers the readers a macro view of the developments and trends in various industries across China. Competitive and sales strategies are proposed to readers who need advice on formulating an appropriate strategy for their products. Practical methodologies are also presented to facilitate the readers in managing their business operations. The second issue of the magazine, the Case edition, features sales and marketing case studies. This edition includes detailed reports by industry experts that explain different sales and marketing techniques and theories underlying the featured case study. These cases focus mainly on business sales and marketing events that have occurred in China. These case studies offer our Chinese readers some insight into particular sales and marketing approaches used by the companies who are the subject of the case study. The third issue, the Channel edition, is tailored to supply chain management executives. This edition provides information on the supply chain management process including, manufacturers, distributors, and logistics management. The fourth issue, the Career Development edition, assists recent graduates and individuals start and manage a career in the sales and marketing field.




Each of the seven special editions we published in 2010 focuses on different sales and marketing strategies for a specific industry.




CMO’s editorial department is solely responsible for providing the editorial content of the magazines. The content of our magazines can be broken down into three categories consisting of topics of interest, case studies and management practice. Topics of interest are identified by CMO’s editors and articles are prepared by CMO editors based upon publicly available information about the particular topic. Case studies on actual sales and marketing events are identified by CMO’s editors, who also provide commentary and analysis on these case studies. Freelance writers are retained to write articles on management practices in the sales and marketing industry. These management practice articles are designed to utilize real life experiences to provide readers with solutions to their sales and marketing problems and general sales and marketing guidance.


5


The physical printing, assembling and production of our magazines have been outsourced to independent third party printers. The printers are responsible for typesetting the articles, proof reading, plate-making, paper supplying, binding and packaging. Specifically, the printing works of the publication of Sales edition and Case edition were contracted to Henan Xinhua Printing Factory. The printing works of the publication of Channel edition were contracted to Henan Ruiguang Printing Co., Ltd.




Under these outsourcing agreements, the paper cost accounts for a large proportion of the quoted price. The printing price is equal to the quantity of units multiplied by the unit price, which is a fixed price under the agreement. This fixed price remains constant during the term of the agreement. Therefore, the printer assumes the risk of increasing paper costs.




We outsource the production of our magazines to independent third party printers because we are not in the printing business. We believe it is commercially beneficial for us to hire the independent printers who have more professional knowledge of printing than we do.




Advertising




In addition to generating revenues through sales of our magazines, we also generate revenues through the sale of advertising that is placed in our magazines.




Based on the market position of each edition of the magazines, our marketing team identifies the sort of potential clients that would be interested in advertising in our magazines and offers them an advertising package within the magazines. Also, our magazines have built up a base of clients that regularly advertise in the magazines.




Advertising Consulting Services




We also provide advertising consulting services to our customers through our subsidiary, Shenzhen Caina Brand Consultant Company. The services that we currently offer mainly focus on assisting our customers on the promotion of brand awareness.




Online Sales




In July 2008, we began our new business of online marketing and sales of consumer products. These products mainly consist of notebook computer hardware. We currently sell our computer products through our website www.91ap.com , on which we offer a complete line of our products to our consumers 24 hours a day, seven days a week. In order to attract customers, we have entered into various cooperation arrangements with Chinese banks, including Bank of China, China Construction Bank, Hua Xia Bank and China Minsheng Bank, through which we are able to market our products by sending marketing brochures with the banks’ monthly statements to credit card customers. Our brochures include information about our computer hardware products as well as purchase methods. The banks’ credit card customers can either purchase our products directly by visiting our online sales website or call the purchase hotline provided in the brochures; however, they must use their credit cards issued by the banks with which we have a cooperation arrangement. We procure all of the notebook computers that we sell from the sales agents of ASUSTek Computer Inc. The two largest suppliers of our goods are Shanghai Hua Jie United Information Co. Ltd. and Digital China Holding Limited Beijing Office. After consumers make orders online, we process these orders and ship and deliver the products to consumers in China through our subsidiary Shenzhen Media. Currently, the sales of computer hardware contribute approximately 95% of our total revenue from online sales. In June 2010, we launched a new business platform called “Easy Buy” that connects businesses, banks and customers on a single platform. With the innovative Invisible Printing Optical Identification Technology (IP-OIT), this sales and marketing platform helps the advertising clients to further promote their products and enhance their sales distribution channel. At the same time, we will be able to market and sell our products by sending the special catalog to the gold and platinum cardholders through various banks, thus, generating more advertising revenues for the company.




Our Distribution Channels of Our Magazines




Currently, the distribution network of our magazines consists of over sixty major distribution agencies and 30,000 bookstores and news stands covering over 300 cities throughout China. We plan to develop a more comprehensive distribution network for our magazines that we hope will eventually reach all major cities in China.


6


There are three main distribution channels for our magazines in China:





(1)
postal subscription based distribution;(2)
direct order distribution; and(3)
agency based distribution.




Our first distribution channel, postal subscription based distribution, involves the distribution of our magazines by Chinese post offices. Unlike the United States, subscribers of our magazines and other magazines published in China can request a subscription directly from the post offices in China who arrange delivery of the magazines to the address requested by the subscriber. Direct order based distribution involves a direct request from a subscriber to us for a single issue or multiple issues of our magazines that do not involve an ongoing subscription. Upon receipt of this request, we deliver the ordered issues to the address requested by the subscriber. Finally, agency based distribution, involves the delivery by us of our magazines to distribution agents who then distribute the magazines to retail sales agents who sell the magazines from various locations throughout China.




As of December 31, 2010, the annual circulation of our magazines during the 2010 fiscal year was 2,474,338 units, among which approximately 54.98% of sales were made through retail agents such as newsstands, airports, subways and bookstores throughout China. These retail agents obtained our magazines from our distribution agents who operate throughout China. The remaining sales were through postal subscriptions 32.68% and direct orders 12.34% . As of December 31, 2009, the annual circulation of our magazines during the 2009 fiscal year was 2,669,715 units, among which approximately 62.8% of sales were made through retail agents such as news stands, airports, subways and bookstores throughout China. These retail agents obtained our magazines from our distribution agents who operate throughout China. The remaining 37.2% of our sales were through postal subscriptions 26.4% and direct orders 10.8% .




The following table lists the annual circulation of our magazines during the fiscal year ended December 31, 2010:





China

Marketing

(Sales

edition)
China

Marketing

(Case edition)
China

Marketing

(Channel

edition)
China

Marketing

(Career

Development

edition)
Special

Editions
TotalDistribution

agents
393,985
305,773
432,215
34,950
193,493
1,360,416Subscriptions

through post

offices
265,568
265,575
277,643
0
50,034
858,820Direct

subscriptions
28,831
28,177
44,933
0
153,161
255,102Total
688,384
599,525
754,791
34,950
396,688
2,474,338




The following table lists our principal distribution agents and their distribution areas:





Names of Distribution Agents
Distribution AreaBeijing Luopan Zhengzhang Books Co., Ltd
Beijing, HebeiNanjing Raotian Cultural Development Co., Ltd.
Jiangsu Province




7




Names of Distribution Agents
Distribution AreaGuangzhou Rutu Culture Development Co., Ltd
Guangdong ProvinceWuhan Dagong Books Co., Ltd
Hubei ProvinceHengyang Post Office Books Retail Co., Ltd
Hunan Province




We have entered into a distribution agreement with each of these principal distributors. The distribution agreement has a one year term that is automatically renewed for an additional year unless either party provides the other with notice of termination one month prior to the end of the term. Pursuant to the agreement, the distributor has the obligation, at its own expense, to sell and deliver our magazines to retail agents and readers within the distributor’s authorized distribution territory. Our distributors receive sales commissions on the distribution of our magazines ranging from 40-45% of total proceeds generated by their sales.




Prices of Our Products




The fixed retail price of the Sales edition and the Case edition of China Marketing is RMB 10 per issue (approximately $1.49); the fixed retail price of the Channel edition of China Marketing is RMB 8 per issue (approximately $1.19); the fixed retail price of the seven special issues is RMB 20 per issue (approximately $2.99) . Subscribers who subscribe to our magazines directly pay this same fixed retail price per issue on an issue by issue basis.




Subscribers who subscribe through post offices in China are charged through an annual payment arrangement where they pay for the annual subscription fees at the beginning of each year based upon the number of issues that will be published during the year.




Competition




Both local and overseas publishers issue business related magazines in China. Business Week, Harvard Business Review, Forbes, and Fortune are some of the well-known international business magazine titles that have Chinese versions published in China. These magazines publish translated articles from the English version and develop some local stories with the editorial staff hired by the local publishing houses.




Our local competition consists of three sub-titles, namely New Selling , Successful Selling , and Contemporary Selling . We compete with our competitors based upon the price of our magazines, the quality of the articles and information that we publish, and the design features of our magazines. We believe that prices of our magazines are lower than the prices of our international competitors such as Business Week , Harvard Business Review , Forbes and Fortune and our local competitors, such as New Selling , Successful Selling and Contemporary Selling . We also believe that the quality and design features of our magazines are superior to the quality and design features of New Selling , Successful Selling and Contemporary Selling but not as good as our international competitors.




Our Intellectual Property




We believe that our business is dependent in part on our ability to establish and maintain the copyright of the content and titles of our magazines.




Our magazines have been registered with the General Administration of Press & Publication of China and CMO has obtained the national publishing code CN41-1210/F for China Marketing . In addition, CMO has obtained international standard code for China Marketing , which is ISSN1005-3530. These codes, respectively, are printed on the last page of each publication.




We have registered our magazine’s title “China Marketing” as trademark with the Trademark Office of the State Administration for Industry and Commerce of China. We use our trademark for the sales and marketing of our magazines.




8


We have registered our www.cmmo.com.cn Internet domain name. The articles and other contents of our magazines are protected under copyright laws of China.




Our Employees




We currently have 375 full-time employees and we do not expect any significant changes in the number of our employees during the next 12 months.




We believe that our relationship with our employees is good. The remuneration payable to employees includes basic salaries and allowances.




We have not experienced any significant problems or disruption to our operations due to labor disputes, nor have we experienced any difficulties in recruitment and retention of experienced staff.




Our employees in China participate in a state pension plan organized by Chinese municipal and provincial governments. Currently, each month we are required to contribute to the plan with approximately $91 for each of our employees and approximately $140 for each of our executive officers and directors. The compensation expenses related to this plan were approximately $231,590 and $245,917 for the fiscal years 2010 and 2009, respectively.




In addition, we are required by Chinese law to cover employees in China with various types of social insurance. We have purchased social insurances for all of our employees.




Government Regulation




General




The media and advertising industry in China is governed by the State Council, which is the highest authority in the executive branch of China’s central government, and several ministries and agencies under its authority, including the State Administration for Industry and Commerce, the State Administration of Radio, Film and Television, the General Administration of Press and Publication , the Ministry of Culture and the State Council News Office.




Regulations Regarding Foreign Investment in the Chinese Media Sector




On July 6, 2005, the Chinese government promulgated Certain Opinions on the Introduction of Foreign Investment in Cultural Fields, which provide an overall framework with respect to foreign investments in Chinese media and other cultural sectors. This document specifies the areas in which foreign investments are permitted or prohibited in accordance with China’s commitments regarding its entry into the World Trade Organization or WTO. Under the document, foreign investment in the media sector is permitted in the areas of printing of packaging and decorating materials, redistributing books, newspapers, periodicals, producing of recordable disks, duplication of read only disks, and engaging in works of art and the construction and operation of performance sites, cinema, event brokerage agencies and movie technology. In addition, pursuant to the Administrative Measures on Foreign-Invested Enterprises in Redistribution of Books, Newspapers and Periodicals issued by the General Administration of Press and Publication and the Ministry of Commerce, effective May 2003, foreign investors are permitted to establish wholly foreign owned redistribution companies that redistribute and sell, on the wholesale or retail level, books, newspapers or periodicals that have already been published by a licensed content-oriented company in China.




Censorship of Advertising Content by the Chinese Government




The advertising industry in China is governed by the Advertising Law which came into effect in February 1995. In addition, principal regulations governing advertising services in China include: (1) the Advertising Administrative Regulations, effective December 1987; and (2) the Implementing Rules for the Advertising Administrative Regulations, effective January 2005. Chinese 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, the supernatural, violence, discrimination or infringement of the public interest. There are specific restrictions and requirements regarding advertisements that relate to matters such as patented products or processes, pharmaceuticals, medical instruments, agrochemicals, veterinary pharmaceuticals, foodstuff, alcohol, cosmetics and others. In addition, all advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals advertised through radio, film, television, newspaper, periodical 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.


9


Advertisers, advertising operators and advertising distributors are required by Chinese advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute are true and in full compliance with applicable laws. In providing advertising services, advertising operators and advertising distributors must review the prescribed supporting documents in connection with any advertisements and verify that the content of such advertisements comply with applicable Chinese laws and regulations. In addition, prior to distributing advertisements for certain commodities that are subject to government censorship and approval, advertising distributors are required to ensure that governmental review has been performed and approval obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the relevant administrative authorities may order violators to cease their 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. At the present time, we are not subject to any of the penalties mentioned above.




ITEM 1A.           RISK FACTORS




You should carefully consider the risks described below, together with all of the other information included in this report. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline. You should also refer to the other information about us contained in this report, including our financial statements and related notes.




RISKS RELATING TO OUR BUSINESS




The recent financial crisis could negatively affect our business, results of operations, and financial condition.




The recent credit crisis and turmoil in the global financial system may have an impact on our business and our financial condition, and we may face challenges if conditions in the financial markets do not improve. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise capital, which could have an impact on our flexibility to react to changing economic and business conditions. In addition, these economic conditions also impact levels of consumer spending, which have recently deteriorated significantly and may remain depressed for the foreseeable future. Consumer purchases of discretionary items, including our magazines and electronic products, generally decline during recessionary periods and other periods where disposable income is adversely affected. In addition, a substantial portion of our revenues is derived from the sale of advertising space. In a down economy, advertising budgets are usually the first budgets to be cut. Also, even slight downturns in the economy may cause our advertising customers to advertise less or negotiate lower rates with us. If demand for our products fluctuates as a result of economic conditions or otherwise, our revenue and gross margin could be harmed.




Our holding company structure may limit the payment of dividends to our stockholders.




We have no direct business operations, other than our ownership of our subsidiaries and their contractual relationship with CMO and the business incident to such contractual relationship. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below. If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.


10


Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after tax profits according to Chinese accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.




We face strong competition from both local and foreign competitors and increased competition could negatively affect our financial results.




Our magazines compete with a number of other magazine publishers. Both local and overseas publishers issue business related magazines in China, some of which may have substantially greater financial resources than us that may enhance their ability to compete in the publication of sales and marketing periodicals. In addition, we face broad competition for audiences and advertising revenue from other media companies that produce magazines, newspapers and online content. Overall competitive factors include product positioning, editorial quality, circulation, price and customer service. Competition for advertising dollars is primarily based on advertising rates, the nature and scope of readership, reader response to advertisers’ products and services and the effectiveness of the sales team. Increased competition could force us to lower our prices or offer services at a higher cost to us, which could reduce our operating income.




Fluctuations in the cost of paper, which can result in increases in the price we pay to third parties to print our magazines, can have a significant effect on our operating results.




The physical printing, assembling and production of the magazines are outsourced to independent third party printers pursuant to outsourcing agreements that we have entered into with these printers. Under these outsourcing agreements, the paper cost accounts for a large proportion of the quoted price. The printing price is equal to the quantity of units multiplied by the unit price, which is a fixed price under the agreement. This fixed price remains constant during the term of the agreement. Therefore, the printer assumes the risk of increasing paper costs during the term of the agreement. However, these agreements generally have a term of one year and, therefore, increases in paper costs could result in increased outsourcing costs for us from year to year. Unexpected or significant increases in paper prices may have an adverse effect on our future results of operations. We may not be able to recoup paper cost increases by passing them through to our advertisers and readers and, accordingly, such cost increases could have a material adverse effect on our results of operations.




Our success is dependent on our ability to modify our magazines and develop new media products to address current trends in our industry. The development of new products is costly and time consuming with no guarantee that the new product will generate our intended results.




Our success depends, in large part, on our ability to monitor the sales and marketing community in China and market trends, and to adapt our magazines and any new media products that we develop to the evolving information needs of existing and emerging target audiences. Our future success will depend in part on our ability to continue offering new publications and services that successfully gain market acceptance by addressing the needs of specific audience groups within our target markets. The process of internally researching and developing, launching, gaining acceptance and establishing profitability for a new publication or service, is inherently risky and costly with no guarantee of success. New publications typically require several years and significant investment to achieve profitability. We cannot guarantee that our efforts to introduce new, or assimilate acquired, publications or services will be successful or profitable. Costs related to the development of new publications are expensed as incurred and, accordingly, our profitability from year to year may be adversely affected by the number and timing of new product launches.




We are currently significantly dependent on an operation and management right agreement between us and CMO and our failure to extend this agreement may have a material negative effect on our results of operations, financial condition and cash flow.




We obtained our rights to market the magazines, sell the magazines and advertising space, pursuant to an operation and management right agreement that runs through October 31, 2013. Therefore, our relationship with CMO is critically important to us. Our failure to extend the contractual relationship with CMO on commercially reasonable terms may make it difficult for us to continue to operate our business unless and until we find a comparable replacement publishing house. It would be very difficult for us to find a comparable replacement publishing house and we are not at all certain that we would be able to do so.




11


We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.




Our future business and results of operations depend in significant part upon the continued contributions of our key editorial staff and senior management personnel, including our Chief Executive Officer, Yingsheng Li, who has over 15 years of experience in the publication business. They also depend in significant part upon our ability to attract and retain additional qualified management, editorial staff, marketing and sales and support personnel for our operations. If we lose a key employee or if a key employee fails to perform in his or her current position, or if we are not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key employees in managing the publication, marketing and sales aspects of our business, any part of which could be harmed by further turnover.




Since we publish our magazines in China, we are subject to the Chinese Advertising Law, which imposes upon us restrictions regarding the content of our publication and our ability, as a foreign corporation, to own media assets in China.




The advertising industry in China is governed by the Advertising Law which came into effect in February 1995. Advertisers, advertising operators and distributors, including entities such as ourselves, which engage in advertising activities are required to comply with applicable procedures and provisions under the Advertising Law. If our operations are determined to be in breach of the Advertising Law, penalties may be imposed which include fines, confiscation of advertising fees, orders to cease dissemination of the relevant advertisement and orders to publish an advertisement with corrective information.




Investor confidence and the market price of our shares may be adversely impacted if we are unable to correct significant deficiency in our internal controls over our financial reporting identified by our management.




During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2010, management identified significant deficiencies related to our U.S. GAAP expertise, internal audit functions and the absence of Audit Committee, as of that date. The current staff in the accounting department of the subsidiaries is relatively new to U.S. GAAP and internal control procedures and needs substantial additional training so as to meet with the higher demands of being a U.S. public company. The significant deficiency in internal audit function is also due to the Company’s lack of sufficient qualified resources to perform internal audit functions. We have taken steps to address these deficiencies, however, if any of these deficiencies remains, then our financial condition could be adversely affected.




RISKS RELATED TO THE MARKET FOR OUR STOCK




Our common stock is quoted on the Over-the-Counter Bulletin Board which may have an unfavorable impact on our stock price and liquidity.




Our common stock is currently quoted on the Over-the-Counter Bulletin Board. The Over-the-Counter Bulletin Board are significantly more limited markets than any national securities exchange. The market for our securities is very limited, volatile and characterized by very low trading volumes. The quotation of our shares on the Over-the-Counter Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.


12


We are subject to penny stock regulations and restrictions, which may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.




The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. As of March 22, 2011, the closing price for our common stock was $0.55 per share and therefore, it is designated a “penny stock.” As a “penny stock”, our common stock may become subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.




For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.




There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.




Certain of our stockholders hold a significant percentage of our outstanding voting securities and accordingly may make decisions regarding our daily operations, significant corporate transactions and other matters that other stockholders may believe are not in their best interests .




Our major stockholder, Yingsheng Li, owns 32.07% of our outstanding voting securities. As a result, he possesses significant influence, giving him the ability, among other things, to elect a majority of our Board of Directors and to authorize or prevent proposed significant corporate transactions. His ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer. Other stockholders may believe that these future decisions made by the major stockholder are not in their best interests.




ITEM 2.           PROPERTIES




All land in China is owned by the State or collectives. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, the land use rights are granted for a period of 50 years. This period may be renewed at the expiration of the initial and any subsequent terms according to the relevant Chinese laws. Granted land use rights are transferable and may be used as security for borrowings and other obligations.




Our main executive office is located at Unit 901, KunTai International Mansion, No. 12 Chaowai Street, Beijing, 100020, China. We have land use rights relating to the land and physical office space within the building where our offices are located. These land use rights initially expire in 2056. This location has a total of 630 square feet of working space including 150 square feet open working area, two large conference rooms, six small meeting rooms and eight offices.




We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.




RISKS RELATED TO DOING BUSINESS IN CHINA




Changes in China’s political or economic situation could harm us and our operational results.




Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of the things that could have this effect are:




13


o
Level of government involvement in the economy;




o
Control of foreign exchange;




o
Methods of allocating resources;




o
Balance of payments position;




o
International trade restrictions; and




o
International conflict.




The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries.




Our business is largely subject to the uncertain legal environment in China and the legal protection could be limited.




The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which precedents set in earlier legal cases are not generally used. The overall effect of legislation enacted over the past 20 years has been to enhance the protections afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively recent and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold licenses and permits such as requisite business licenses. In addition, all of our executive officers and our directors are residents of China and not of the U.S., and substantially all the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.




The Chinese government exerts substantial influence over the manner in which we must conduct our business activities that could have negative effect on our business operations in China.




China only recently has permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.




We may be unable to negotiate or complete a business combination transaction due to complicated merger and acquisition regulations that became effective on September 8, 2006.




On August 8, 2006, six PRC regulatory agencies promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006. This new regulation, among other things, governs the approval process by which a PRC company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction, the new regulation will require the PRC parties to make a series of applications and supplemental applications to the government agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the new regulations is likely to be more time consuming and expensive than in the past and the government can now exert more control over the combination of two businesses. Accordingly, due to the new regulation, our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.




14


The new regulation allows PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to the Ministry of Commerce and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. The regulation also limits our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.




We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.




We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations, agreements with third parties and we make sales in China. Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents or distributors of our Company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.




Government regulation of currency conversion and the fluctuation of RMB may materially and adversely affect our operations and financial results.




We receive substantially all of our revenues in RMB, which currently is not a freely convertible currency. We will have to convert a portion of these revenues into other currencies in order to make payments to those of our service providers and others who do not transact business in RMB. Under the PRC’s existing foreign exchange regulations, we will be able to make payments to parties that do not transact business in RMB without prior approval from the State Administration on Foreign Exchange, or SAFE, by complying with various procedural requirements. The Chinese government, however, may, at its discretion, restrict access in the future to foreign currencies for current account transactions. If this were to occur, we may not be able to pay service providers or others whom we work with that transact business in currencies other than RMB. The value of RMB against the US dollar and other currencies fluctuates and is affected by, among other things, changes in China’s political and economic conditions. Since 1994, the conversion of RMB into foreign currencies, including US dollars, has been based on rates set by the People’s Bank of China , which are set daily based on the previous day's interbank foreign exchange market rates and current exchange rates on the world financial markets. Any devaluation of RMB, however, may materially and adversely affect the value of our assets and our financial results, since we will receive substantially all of our revenues, and express our profits, in RMB.


15


ITEM 3.           LEGAL PROCEEDINGS




From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.




ITEM 4.           [REMOVED AND RESERVED]




16


PART II




ITEM 5.           MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.




Market for Our Common Stock




Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “CMKM”. Trading in our common stock has been limited and sporadic.




The following table sets forth, for the periods indicated, the high and low bid prices of our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.





Closing Bid Prices (1)High


LowYear Ended December 31, 2010First Quarter

$
0.95


$
0.95Second Quarter

$
0.87


$
0.87Third Quarter

$
0.80


$
0.80Fourth Quarter

$
0.95


$
0.90Year Ended December 31, 2009First Quarter

$
0.02


$
0.01Second Quarter

$
0.02


$
0.02Third Quarter

$
0.02


$
0.02Fourth Quarter

$
0.02


$
0.02




________________________


(1) The above tables set forth the range of high and low closing prices per share of our common stock as reported by www.quotemedia.com for the periods indicated.




Approximate Number of Holders of Our Common Stock




As of March 4, 2011, there were approximately 271 stockholders of record of our common stock.




Dividends




During fiscal years 2009 and 2010, we did not declare or pay a cash dividend. Any future decisions regarding dividends will be made by the board of directors of the company. The Company currently intends to retain and use any future earnings for the development and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.




Securities Authorized for Issuance Under Equity Compensation Plans




We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding stock options.




Recent Sales of Unregistered Securities




We have not sold any equity securities during the fiscal year ended December 31, 2010 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 2010 fiscal year.




Purchases of Equity Securities




No repurchases of our common stock were made during the fourth quarter of 2010.




17


ITEM 6.           SELECTED FINANCIAL DATA




Not applicable.




ITEM 7.           MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward Looking Statements” above for certain information concerning those forward looking statements.




General




We generate revenues through sales of our magazines, sales of advertising space in our magazines, providing sales and marketing consulting services and online sales of electronic products. During the fiscal year ended December 31, 2010, we generated $1,646,740 in revenues from the sale of our magazines, $9,376,304 in revenues from the sale of advertising space in these magazines, $3,384,896 in revenues from providing consulting services and $20,563,361 in revenues from online sales of consumer products. During the fiscal year ended December 31, 2009, we generated $1,638,966 in revenues from the sale of our magazines, $4,504,651 in revenues from the sale of advertising space in these magazines, $3,344,962 in revenues from providing consulting services and $15,411,781 in revenues from online sales of consumer products.




In July 2008, we began our new business of online marketing and sales of consumer products. This new business generated $20,563,361 in revenue in 2010, which constitutes 58.80% of total revenues. In early 2010, we expanded our online sales business by offering additional products including cell phones, jewelries, watches, apparel, beauty products and home appliances. Because we just launched this new business recently, we are still in the stage of investigating the market and evaluating potential opportunities to increase our revenues from this business line. However, we intend to sell more types of products online and expect that our online marketing and sales in China well generate a significant part of annual revenues for the Company over the next five years.




Industry Overview




We believe that the media and advertising industry in China is one of the fastest growing in the world and presents numerous opportunities for consolidation and growth. Based on a new forecast by ZenithOptimedia, the world’s largest media services group, China, now the world’s fourth largest advertising economy, will overtake Germany as the world’s third-largest advertising market after the United States and Japan. And markets in developing countries are predicted to grow much faster than developed markets, accounting for almost 36 per cent of all advertising spending by 2013, up from 31.5 per cent in 2010. China’s fast-growing economy would result in an increase in advertising spending of more than 50 per cent, from 22.6 billion dollars in 2010 to 34.2 billion dollars in 2013.




With respect to our online sales business, accompanying the rapid development of Internet in China, more and more Chinese begins to favor online shopping for its convenience, quick delivery and less cost. According to an article on September 10, 2010 by Reuters, MasterCard Inc. predicted that, “China will likely surpass the United States to become the world’s top credit card market by number of cards in a decade, as rising wealth and urbanization enable Chinese consumers to spend more using plastic.” Therefore, we believe that the business of online sales is an important new business line that we should engage to increase our revenue stream.




18


Results of Operations




Fiscal Year Ended December 31, 2010 Compared with Fiscal Year Ended December 31, 2009




The following table summarizes the results of our operations during the fiscal years ended December 31, 2010 and 2009. It provides information regarding the dollar and percentage increase or (decrease) from 2009 fiscal year to 2010 fiscal year:





Year Ended December 31, 2010Item

2010


2009


Increase


% Increase(Decrease)


(% Decrease)Revenue

$
34,971,301


$
24,900,360


$
10,070,941



40.4
%Cost of Sales

$
23,474,919


$
17,652,056


$
5,822,863



33.0
%Gross Profit

$
11,496,382


$
7,248,304


$
4,248,078



58.6
%Operating Expenses

$
7,154,034


$
5,917,937


$
1,236,097



20.9
%Other Income (expense)

$
32,592


$
140,426


$
(107,834
)


(76.8
% )Provision for Taxes

$
56,950


$
27,328


$
29,622



108.4
%Net income attributable to China Marketing Media Holding, Inc.

$
4,310,264


$
1,505,774


$
2,804,490



186.2
%




Revenue




Our revenues in fiscal year 2010 amounted to approximately $35.0 million , which is $10.1 million or approximately 40.4% more than that of fiscal year 2009, when we had revenues of approximately $24.9 million. The overall increase in our revenues for the fiscal year 2010 is due to the significant expansion of our online sales of consumer products, which began in July 2008. Compared to 2009, our revenues attributable to sales of magazines increased by $7,774 in 2010 and advertising revenues in 2010 increased by $4,871,653. Our revenues attributable to consulting services increased by $39,934 in 2010, and revenues generated from selling consumer products in 2010 increased by approximately $5.15 million as compared to 2009. The company’s new online business has been growing rapidly, which resulted in an increase of revenue in consumer product sales and advertising space sales.




Components of Revenues




The following table shows the different components comprising our total revenues during each of the past two fiscal years.





Increase


% IncreaseRevenue Category

2010


2009


(Decrease)


(% Decrease)Magazine Sales

$
1,646,740


$
1,638,966


$
7,774



0.5
%Advertising Sales

$
9,376,304


$
4,504,651


$
4,871,653



108.1
%Consulting Services

$
3,384,896


$
3,344,962


$
39,934



1.2
%Consumer products

$
20,563,361


$
15,411,781


$
5,151,580



33.4
%Total

$
34,971,301


$
24,900,360


$
10,070,941



40.4
%




19


Cost of Sales




Our cost of sales in fiscal years 2010 and 2009 was $23,474,919 and $17,652,056, respectively, which accounts for approximately 67.13% and 70.89%, respectively, as a percentage of total revenues. The dollar amount of the cost of sales increased with the growth of annual sales. Cost of goods sold as a percentage of annual revenues decreased by about 3.8% in 2010 as compared with 2009. The decrease in cost of goods sold was primarily driven by an increase in selling price of our online consumer products as the relatively new business has reached to a mature stage. The dollar amount of the costs of goods sold increased mainly because of the increase in total sales.




Operating Expenses




Our operating expenses, which consist of payroll, goodwill impairment loss and other general and administrative expenses, increased by $1,236,097 or 20.9% in the 2010 fiscal year compared to the 2009 fiscal year. The increase was due to a goodwill impairment loss of $446,543 or 7.6% . A goodwill impairment test was conducted using three scenarios compared to the implied fair value of the reporting unit Shenzhen Caina’s goodwill with its carrying amount of that goodwill. The company’s evaluation of goodwill completed during the year resulted in an impairment loss of $446,543. (refer to Note 2 under Goodwill). The other 13% of the increase in operating expenses was mainly due to the fact that we hired additional employees and paid more commissions for our online consumer products selling business.




We generally conduct our annual impairment evaluation to its acquired goodwill, usually in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the business climate. The recoverability of acquired goodwill is measured at the reporting unit level.




For 2010 fiscal year, we performed a goodwill impairment test using a discounted cash flow method to calculate and compare to the fair value of the reporting unit, Shenzhen Caina against its carrying amount of the acquired goodwill. This method is based on our own market assumptions and estimates, which are considered reasonable and inherent in the discounted cash flow analysis. Based on the result of this testing, we recognized an impairment loss of $446,543 and allocated its impairment charge to Magazine Advertising Business Segment.




In accordance with the same methodology in this discounted cash flow method, we used projections of future cash flow and other assumptions which are considered reasonable and inherent in the undiscounted cash flow analysis. The projections are based on the historical performance and anticipated growth rate in 2011 and onwards in the business to be generated by Shenzhen Caina. After an assessment of the assumptions and projections, the management believes no further impact of the impairment on the business prospectively and reasonably believes similar trends to impact income from continuing operation is unlikely to occur in the near future.




Other Income (Expenses)




Interest income




Interest income represents interest earned from bank accounts with PRC financial institutions, totaling $33,809. A decrease in interest income of $21,958 or 39.4% was due to the decrease in the average balance of cash and cash equivalents.




Investment loss




Investment loss (equity method) represents investment in unconsolidated entities over which the Company has significant influence (20% to 50). The investment loss (equity method) was $42,256 in fiscal year 2010 as compared to $55,369 for the same period in 2009. A decrease of $13,113 or 24% was due to a disposition of Shanghai Qiyu information Technology Co.(SQIT), which the Company had 30% of the equity interest. SQIT was liquidated on January 19, 2010.




Subsidy income




Subsidy income is received at a discretionary amount as determined by the local PRC government, which represents government grant or incentive award accredited to the Company for is contribution in the promotion and development of culture and media industry in the PRC. We had $40,586 subsidy income in fiscal year 2010 as compared to $140,028 for the same period in 2009. The Company received only one discretionary award from the local government in fiscal year 2010 as compared to two awards in 2009. As compared to 2009, the Company received only one discretionary award from the local government during fiscal year of 2010.




We had other income of $453 and 0 for the fiscal year 2010 and 2009, respectively.




Income taxes




United States




China Marketing Media Holdings, Inc. is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as we had no U.S. taxable income for the period presented.




20




British Virgin Islands




Media Challenge was incorporated in the BVI, and, under the current laws of the BVI, is not subject to income taxes.




PRC




Before the implementation of the enterprise income tax (“EIT”) law (as discussed below), Foreign Invested Enterprises (“FIE”) established in the PRC are generally subject to an EIT rate of 33.0%, which includes a 30.0% state income tax and a 3.0% local income tax. On March 16, 2007, the National People’s Congress of China passed the new Corporate Income Tax Law (“EIT Law”), and on November 28, 2007, the State Council of China passed the Implementing Rules for the EIT Law (“Implementing Rules”) which took effect on January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Therefore, nearly all FIEs are subject to the new tax rate alongside other domestic businesses rather than benefiting from the old tax laws applicable to FIEs, and its associated preferential tax treatments, beginning January 1, 2008.




Despite these pending changes, the EIT Law gives the FIEs established before March 16, 2007 (“Old FIEs”) a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. During this five-year grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under the original EIT Law shall gradually increase their EIT rate by 2% per year until the tax rate reaches 25%. In addition, the Old FIEs that are eligible for the “two-year exemption and three-year half reduction” or “five-year exemption and five-year half-reduction” under the original EIT Law, are allowed to remain to enjoy their preference until these holidays expire. The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse effect on any organization’s business, fiscal condition and current operations in China.




In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to a EIT of 25.0% on its global income. The Implementing Rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then the organization’s global income will be subject to PRC income tax of 25.0% .




21




Under the income tax law and the related implementing rules, FIEs engaging in manufacturing businesses with a term of operation exceeding ten years may, subject to approval from local taxation authorities, be entitled to a two-year tax exemption from PRC EIT starting from the year they become profitable and a 50.0% tax reduction for the three years thereafter.




We are currently subject to income taxes according to applicable tax laws in the PRC. The tax rates are 15% for NMA, 15% for Shenzhen New Media and Shenzhen Media and 0% for CMO. CMO is exempt from PRC income tax as a part of the government supporting program from year 2009 to 2013.




We incurred income taxes of $56,950 and $27,328 in 2010 and 2009, respectively, or an increase of 108.4% . The increase in income tax expense was the result of a catch-up payment of $29,000 of tax liability from 2009 by Shenzhen Caina to the Chinese tax authority.




Net income attributable to China Marketing Media Holdings, Inc. (profit after taxes)




We earned net income of $4,310,264 in fiscal year 2010. This is an increase of $2,804,490 or approximately 186.2% from the net income of $1,505,774 in fiscal year 2009. The increase was mainly due to the expansion of online consumer products sales.




Liquidity and Capital Resources




As of December 31, 2010, we had cash and cash equivalents of approximately $7.18 million. We had no bank loans during the period. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.





Cash Flow(All amounts in thousands of U.S. dollars)Fiscal Years EndedDecember 31,2010


2009Net cash provided by (used in) operating activities

$
3,611,065


$
(480,937
)Net cash provided by (used in) investing activities


(2,218,610
)


4,718,816Net cash provided by (used in) financing activities


-



(849,398
)Net cash inflow


1,631,018



3,385,522




Operating Activities:




Net cash provided in operating activities was approximately $3.61 million in the fiscal year ended December 31, 2010 which is an increase of approximately $4.09 million from approximately $0.48 million net cash used in operating activities in fiscal year ended December 31, 2009. Such increase of the net cash provided by operating activities was primarily attributable to the following (1) an increase in net income, (2) increase in accounts payable and accrued expenses approximately $0.71 million due to an increase in operating cost in relation to advertising sales, and (3) an increase in deferred revenues of approximately $0.74 million, which increase was primarily attributable to advanced payment collected from the customers, but partially offset by (i) a goodwill impairment loss of approximately $0.47 million against Shenzhen Caina in 2010 which we allocated as an impairment charge to Magazine Advertising Business Segment, (ii) a decrease in Accounts Receivable of approximately $0.56 million, (iii) an increase in prepaid expenses approximately of $3.2 million, which included a deposit of approximately $2.9 million for purchase prepayment of the Invisible Printing Optical Identification (IP-OIT) for a newly launched business platform called “Easy Buy” and (iv) an increase in inventory of approximately $0.36 million such increase was related to the purchase of (IP-OIT) during the 4th quarter of 2010.




Investing Activities:




Our main uses of cash for investing activities are payments relating to the acquisition of property, plant and equipment.




22


Net cash provided by investing activities was approximately $(2.22) million in fiscal year 2010, a decrease of approximately $6.94 million from approximately $4.72 million net cash used in operating activities in fiscal year 2009. Such decrease of net cash provided by investing activities was primarily attributable to a $5.97 million refund from investment deposit to us after we terminated the operating and management agreement with Shanghai Longcom Telecom Co. Ltd in the first quarter of 2009.




Financing Activities




There was no net cash used in financing activities for the fiscal year ended December 31, 2010 as compared to approximately $(0.85) million used in financing activities in fiscal year 2009. The difference was mainly attributable to repayment of related party payables in 2009.




We believe that our current cash on hand and continuing revenue from operations is sufficient to maintain operations at current levels for at least the next twelve months. However, in order to expand operations, management believes that it will be necessary for us to raise additional capital either through the sale of equity securities or through a long-term debt financing. Full implementation of the current expansion plans will include an acquisition of other magazines and/or advertising businesses that requires approximately $10 million of additional capital. We can provide no assurances that we will be able to obtain additional capital on terms favorable to the Company, if at all.




Off-Balance Sheet Arrangements




We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.




Inflation




Our results of operations have not been affected by inflation and management does not expect that inflation risk would cause material impact on its operations in the future.




Seasonality




Our results of operations are not materially affected by seasonality and we do not expect seasonality to cause any material impact on our operations in the future.




Currency Fluctuations




Our operating subsidiaries are located in China. All expenses of the subsidiary and revenue received from customers are incurred in China denominated in RMB as the functional currency. Based on Chinese government regulation, all foreign currencies under the category of current accounts are allowed to be freely exchanged with hard currencies. During the past years of operation through July of 2005, there were no significant changes in exchange rates. On July 21, 2005, the Chinese government changed its foreign currency exchange policy from a fixed RMB/USD exchange rate into a flexible rate under the control of the Chinese government. From August 2005 through December 2010, the value of RMB against US dollars appreciated by 18.52%, from RMB 8.1/ $1 to RMB 6.6/ $1.




Critical Accounting Policies




The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:




23


Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.




Cash and Cash Equivalents. For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and demand deposits held by banks. Deposits held in financial institutions in China are not insured by any government entity or agency.




Trade Accounts Receivable. Trade accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount becomes questionable.




Revenue Recognition . In accordance with ASC Topic 605, "Revenue Recognition", the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured. Revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:





(a)
The seller's price to the buyer is substantially fixed or determinable at the date of sale.(b)
The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.(c)
The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.(d)
The buyer acquiring the product for resale has economic substance apart from that provided by the seller.(e)
The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.(f)
The amount of future returns can be reasonably estimated. Estimated returns are based on historical data but require significant judgment on the part of management.




Foreign Currency and Comprehensive Income. The financial statements are presented in US dollars. The functional currency is the RMB of the PRC. The financial statements are translated into US dollars from RMB using exchange rates at the end of the period for assets and liabilities and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.




On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/USD exchange rate into a flexible rate under the control of the PRC's government. We use the Closing Rate Method in currency translation of the financial statements of the Company.




RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.




Restrictions on Transfer of Assets Out of the PRC. Dividend payments by Shenzhen New Media and its subsidiary are limited by certain statutory regulations in China. No dividends may be paid by Shenzhen New Media without first receiving prior approval from the State Administration of Foreign Exchange. Dividend payments are restricted to 85% of profits, after tax. Net assets restricted as of December 31, 2010 and 2009 amounted to $19,685,527 and $14,707,602, respectively.




24


Recent Changes in Accounting Standards




The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.




In April 2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial porting of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.




In July 2010, the FASB issued Accounting Standards Update 2010-20 which amends “Receivables” (Topic 310). ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. While ASU 2010-20 will not have a material impact on our consolidated financial statements, we expect that it will expand our disclosures related to Loans receivable.




In December 2010, the FASB issued Accounting Standards Update 2010-28 which amend “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.




In December 2010, the FASB issued Accounting Standards Update 2010-29 which addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact of this ASU and expects the adoption of this ASU will have an impact on its future business combinations.




ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA




The full text of our audited consolidated financial statements as of December 31, 2010 and 2009 begins on page F-1 of this annual report.




25


ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.




None.




ITEM 9A.        CONTROLS AND PROCEDURES.




Evaluation of Disclosure Controls and Procedures




Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Certifying Officers have concluded that, because of the deficiencies in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2010. The details of the management analysis are provided below.




Management’s annual report on internal control over financial reporting




Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:





(1)
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;(2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and(3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.




Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal controls over financial reporting as of December 31, 2010 were not effective in some areas. During our assessment, management identified the significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our internal audit functions and (iii) the absence of an Audit Committee.




Because the knowledge of our current accounting department staff of the U.S. GAAP and related internal control procedures is limited, our management has determined that they require additional training and assistance in U.S. GAAP matters. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions. Finally, management determined that the lack of a stand alone Audit Committee of the Board also contributes to insufficient oversight of our accounting and audit functions.




26


In order to correct the foregoing significant deficiencies, we have taken and/or continue to work on the following remediation measures:




o
We are in the process of (i) arranging necessary training for our accounting department staff and (ii) enageing external professional accounting or consulting firm(s) to assist us in the preparation of the US GAAP accounts. We intend to complete these steps no later than June 30, 2011;




o
We continue to search for qualified personnel. As of the end of this fiscal period, we estimate that we additionally require at least one individual to bolster our internal audit function. However, due to the scarcity of qualified candidates with extensive experience in U.S. GAAP reporting and accounting in the PRC, in general, and in the province where the Company maintains its operations, we were not able to hire such additional personnel in a timely fashion before the end of our reporting period. We will continue our search for such personnel with assistance form recruiters and through referrals and intend to complete this process no later than March 31, 2011;




o
We have allocated significant financial and human resources to strengthen the internal control structure. We have been actively working with external consultants to assess our data collection, financial reporting, and control procedures and to strengthen our internal controls over financial reporting; and




o
We have and continue to search for suitable candidates to serve as independent directors on our Board of Director and on the Audit (or other standing committee thereof) Committee, who are financially literate, and to contain at least one member who is a “financial expert” as that term is defined in the SCE’s rules. We intend to have our Audit Committee to meet at least once every quarter, prior to the release of that periods’ financial statements, to, among other things, discuss, with management and our independent auditors, prior to the release of each periods’ financial statements, the financial statements themselves, significant accounting policies and estimates, our internal controls, and the scope and findings of the work performed by our independent auditor in its audit or review of the financial statements. We estimate that we need to at lease two additional directors that meet the independence requirements and intend to complete this search in the near future.




We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.




This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.




Changes in internal control over financial reporting




As described above, during the fourth quarter of the fiscal year ended December 31, 2010, we have taken certain remediation measures that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In order to remediate this weakness, we are increasing the number of our accounting staff and professionals. Until we are able to hire professionals to help the Company implement a more efficient internal control system to remediate this weakness, management chose to address the above-described weakness frequently to its staff.




ITEM 9B.         OTHER INFORMATION.




None.


27


PART III




ITEM 10.           DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.




Directors and Executive Officers




The following table sets forth the name, age and position of each of our current executive officers and directors:





Name
Age
PositionYingsheng Li
53
President, Chief Executive Officer and ChairmanBin Li
49
Executive DirectorXiaofeng Ding
42
DirectorDongsheng Ren
39
DirectorWengao Luo
37
Chief Operating OfficerZhen Zhen Peri
55
Chief Financial Officer




Yingsheng Li has been our Chief Executive Officer, President and Chairman since December 31, 2005. Mr. Li has more than 15 years of experience in Magazine Publishing and has worked in various positions, including Senior Editor, Chief Editor and Chief Marketing Correspondent. Mr. Li was awarded one of the top ten publishers by the Henan Provincial Government in 2002. Mr. Li’s substantial experience in the publishing industry and his day to day leadership of the Company provides him with intimate knowledge of our business and operations. Mr. Li holds a Bachelor’s degree in Commerce and a postgraduate degree in Economics from Zhengzhou University.




Xiaofeng Ding has been our Director and the Senior Manager of our publishing house since December 31, 2005. Mr. Ding has been working for the organization for more than 10 years and became the distribution manager of CMO in 2000. Mr. Ding handles negotiations for distribution contracts and plays a major role in maintaining and establishing relationships with the advertising agencies. Mr. Ding has brought to the company extensive publishing experience and keeps up to date with industry information and finds potential business opportunities for the company. Mr. Ding graduated from He Fei Industry University of China with a Bachelor’s degree in Material Science and Engineering and a Master’s degree in National Economics at Zhengzhou University.




Dongsheng Ren has been our Director since December 2005. Prior to joining the Company in March 2003, Mr. Ren held a General Manger position at Bank of Nanfang. Mr. Ren has more than 7 years of experience in asset management and investment banking. He received a bachelor’s degree in Electronic Engineering and a Master’s degree in International Economics from Xi’an Jiao Tong University in 1993 and 1996, respectively.




Bin Li has been our Executive Director since December 31, 2005. Mr. Li worked as the Vice President of Henan Huayan Corporation from 1996 to 2000. Under the leadership of Mr. Li, the company launched a new business of online marketing and sales of consumer products and built an internet/online publishing and advertisement platform. The new platform has brought measurable revenue and net income for the company. Mr. Li received his PhD in Management in 2004 from the School of Management of Xi’an Jiao Tong University.




Wengao Luo has been our Chief Operating officer since September 6, 2010. Mr. Luo has 10 years of employment with CMKM in various positions, including Manager in the Beijing office, as well as Chief Editor and General Manager of “Channel Edition.” Mr. Luo has contributed his editing and publishing experience to CMKM and has been a great asset for the Company ever since. Mr. Luo has a Bachelor’s degree in Management from Xi’an Jiao Tong University and an MBA form China People University.




28


Zhen Zhen Peri joined the Company in July 2010 and has served as Chief Financial Officer since September 6, 2010. Mrs. Peri has more than 20 years of financial reporting experience in both private and public held companies in the United States. Mrs. Peri worked as a Senior Accountant at Thrifty Oil Company from 1995 to 1997; Senior Cost Accountant at CTX Int’l from 1997 to 1999; Tax and Fixed Assets Analyst at Avery Dennison Corporation from 1999 to 2003; Assistant Controller at California Expanded Metal from 2003 to 2005; and Accounting Manager at the Hill Phoenix division of Dover Corporation from 2005 to 2009, where she also served on the Internal Control Committee. Mrs. Peri holds a Bachelor of Science in Business degree from California State University, Fresno with a major in Accounting.




There are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.




Directors are elected until their successors are duly elected and qualified.




Board Composition and Committees




The board of directors is currently composed of four members, Yingsheng Li, Xiaofeng Ding, Dongsheng Ren and Bin Li, none of whom is independent for the purposes of the federal securities law. All board action requires the approval of a majority of the directors in attendance at a meeting at which a quorum is present. We may increase the size of our board of directors in the future but have not determined the approximate time to take such action. Notwithstanding the fact that the Company’s securities are not listed on a U.S. securities stock exchange, the Board has determined to adhere to the “independence” standards set forth in the Nasdaq Stock Market.




We currently do not have standing audit, nominating or compensation committees. Our board of directors handles the functions that would otherwise be handled by each of the committees. We intend, however, to establish an audit committee, a nominating committee and a compensation committee of the board of directors as soon as practicable.




Our board of directors has not made a determination as to whether any member of our board can fulfill the functions of an Audit Committee financial expert. Upon the establishment of an audit committee, the board will determine whether any of the directors qualify as an audit committee financial expert.




Family Relationships




Except as described below, there are no family relationships among our directors or officers:




Mr. Bin Li, our Executive Director is the brother of our Chief Executive Officer, Mr. Yingsheng Li.




Involvement in Certain Legal Proceedings




There were no material changes to the procedures by which shareholders may recommend nominees to the Board since the Company’s last disclosure of such policies.




No director or officer of the Company has, during the last 10 years, has been subject to or involved in any legal proceedings described under Item 401(f) of Regulation S-K, been convicted of any criminal proceeding (excluding traffic violations or similar misdemeanors), or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, United States federal or state securities laws or finding any violations with respect to such laws.




Section 16(a) Beneficial Ownership Reporting Compliance




29


Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based solely on our review of copies of such reports filed with the SEC and written representations of our directors and executive officers, we believe that all persons subject to reporting (except Forms 3 for Zhen Zhen Peri and Wengao Luo were inadvertently filed late and has been filed as of the date hereof) filed the required reports on time in the 2010 fiscal year.




Code of Ethics




On December 28, 2006, our board of directors adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. The code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of the code of ethics has been filed as Exhibit 14 to our registration statement on Form 10-SB/A on January 3, 2007. We are in the process of building up the Company website. Once our website is available, we will make the code of ethics available on the website. Thereafter, any amendments or waivers to the code of ethics will be posted on our website within four business days of such amendment or waiver. Until such time, however, any amendments or waivers to our code of ethics will be filed with the SEC in a Current Report on Form 8-K.




ITEM 11.           EXECUTIVE COMPENSATION




Summary Compensation Table – 2010 and 2009




The following summary compensation table sets forth the aggregate compensation we paid or accrued to Yingsheng Li, our Chief Executive Officer and Chairman, Bin Li, our Executive Director and Zhen Zhen Peri, our Chief Financial Officer for services rendered in all capacities during the fiscal years 2010 and 2009. No other executive officers received total compensation in excess of $100,000 in either year.





Name and Principal Position
Year
Salary ($)
Bonus ($)
Total ($)(1)Yingsheng Li, Chief Executive Officer and

Chairman
2010
19,964
3,181
23,1452009
14,470
7,588
22,058Bin Li, Executive Director
2010
35,821
-
35,8212009
29,411
-
29,411Zhen Zhen Peri, Chief Financial Officer
2010
35,821
1,866
37,687




(1) The compensations of Mr. Yingsheng Li, Mr. Bin Li and Ms. Zhen Zhen Peri were paid by the Company in RMB. The dollar amounts in the above table were calculated on the base that $1= RMB 6.8 and $1= RMB 6.7 for years 2009 and 2010, respectively.




Employment Agreements




We entered into an employment agreement with Mr. Yingsheng Li, our named executive officer. This agreement was signed on March 26, 2009 for a two-year term ending April 1, 2011. We expect that this agreement will be automatically renewed for an additional year by the parties upon its expiration. Under the terms of the agreement, as renewed, we are obligated to pay Mr. Li a monthly salary of RMB 8,079 (approximately $1,664). This agreement does not include the termination or severance provisions.




30


We entered into an employment agreement with our Executive Director, Bin Li, on March 1, 2004. This agreement was renewed on March 26, 2010 for a one-year term ending April 1, 2011. We expect that this agreement will be automatically renewed for an additional year by the parties upon its expiration. Under the terms of the agreement, as renewed, we are obligated to pay Mr. Li a monthly salary of RMB 20,000 (approximately $2,985). This agreement does not include the termination or severance provisions.




We entered into an employment agreement with Mr. Wengao Luo, our Chief Operating officer. This agreement was signed on March 26, 2010 for a two-year term ending March 25, 2012. We expect that this agreement will be automatically renewed for an additional year by the parties upon its expiration. Under the terms of the agreement, as renewed, we are obligated to pay Mr. Luo a monthly salary of RMB 10,000 (approximately $1,493). This agreement does not include the termination or severance provisions.




We entered into an employment agreement with Ms. Zhen Zhen Peri, our Chief Financial Officer. This agreement was signed on July 19, 2010 for a one-year term ending July 18, 2011. We expect that this agreement will be automatically renewed for an additional year by the parties upon its expiration. Under the terms of the agreement, as renewed, we are obligated to pay Ms. Zhen Zhen Peri a monthly salary of RMB 20,000 (approximately $2,985). This agreement does not include the termination or severance provisions.




Outstanding Equity Awards at Fiscal Year End




None of our executive officers received any equity awards, including, options, restricted stock or other equity incentives, during the fiscal year ended December 31, 2010.




Director Compensation




The following table provides information on the compensation paid by us to our directors for the fiscal years ended on December 31, 2010 only. Bonus compensation that Mr. Yingsheng Li, our Chairman and Chief Executive Officer, received for his services as a director is reflected in the summary compensation table above.





Name
Year
Fees earned or paid in Cash
Total($)
($)(1)Xiaofeng Ding
2010
-

-
-

-Dongsheng Ren
2010
-

-
-

-Bin Li
2010
$35,821
$35,821




(1) Each of the persons listed in the above table received compensation from the Company in RMB. The dollar amounts in the above table were calculated on the base that $1= RMB 6.8 and $1= RMB 6.7 for years 2009 and 2010, respectively.




During 2010 and 2009, we did not pay our directors retainer fees or fees for attending meetings of our board of directors, but we do reimburse directors for reasonable travel expenses related to attendance at board meetings. In the future, we may adopt a policy of paying independent directors a fee for their attendance at board and committee meetings. No stock or stock options or other equity incentives were awarded to our directors during the fiscal year ended December 31, 2010. We do not have non-equity incentive or a deferred compensation plan that our directors may participate in.




31


ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.




Security Ownership of Certain Beneficial Owners and Management




The following table sets forth information regarding beneficial ownership of our common stock as of March 23, 2010 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Except as otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power as to such shares. No person listed below has any options, warrants or other rights to acquire additional securities of the Company except as may be otherwise noted.




Address of each of the persons set forth below is in care of China Marketing Media Holdings, Inc. RMA 901, KunTai International Mansion, No. 12 Chaowai Street, Beijing, 100020, China.





Name of Beneficial Owner
Office
Amount of

Beneficial

Ownership
Percent of ClassYingsheng Li
President, Chief

Executive Officer,

and Chairman
9,198,271
32.07%Xiaofeng Ding
Director
147,172
0.51%Dongsheng Ren
Director
5,535,316
3.13%Bin Li
Executive Director
0
*Wengao Luo
Chief Operating

Officer
238,197
0.83%All officers and directors as a group

(5 persons named above)

15,118,956
36.54%




* Less than 1%




32


1 Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.




2 A total of 28,686,002 shares of our common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of March 23, 2011. For each beneficial owner above, any options or warrants exercisable within 60 days have been included in the denominator.




ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.




Transactions with Related Persons




The following includes a summary of transactions since the beginning of the 2009 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under Item 11, “Executive Compensation”).




Our Chief Executive Officer, Yingsheng Li, and our director, Xiaofeng Ding are also executive officers and/or directors of Sale and Marketing Publishing House (“CMO”). We are parties to the Operation and Management Right Agreement with CMO. This agreement is material to the operation of our business. Under this agreement, from November 1, 2003 to October 31, 2013, our subsidiary, Shenzhen Media, is obligated to market the magazines, sell the magazines and advertising space, provide strategic planning for the magazines, and train the professional staff of CMO. Under the terms of the contract, Shenzhen Media bears all of the operating costs relating to the publishing of the magazines and is entitled to all revenues generated from selling the magazines and its advertising space.




Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.




Director Independence




Notwithstanding the fact that the Company’s securities are not listed on a U.S. securities stock exchange, the Board has determined to adhere to the “independence” standards set forth in the Nasdaq Marketplace Rules. Under the foregoing standards, the Board determined that none of our current director meets “independence” requirements. The Company will seek to add members to its Board and the Board committees (once they are established) as soon as practicable.




ITEM 14.         PRINCIPAL ACCOUNTANT FEES AND SERVICES.




The following is a summary of the fees billed to the Company by our independent auditor, Child Van Wagoner & Bradshaw, PLLC, for professional services rendered for the fiscal years ended December 31, 2010 and 2009:





2010


2009Audit fees (1)

$
155,000


$
130,000Audit-related fees (2)


183



0Tax fees (3)


10,500



10,500All other fees


0



0Total

$
165,683


$
140,500




33




(1)
Consists of fees billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.(2)
Consists of fees billed for all out-of-pocket expenses associated with performing audit and review services.(3)
Consists of fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.




Pre-Approval Policies and Procedures




Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our Board to assure that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our Board pre-approved the audit and non-audit services performed by Child Van Wagoner & Bradshaw, PLLC for our consolidated financial statements as of and for the year ended December 31, 2010.




34


PART IV




ITEM 15.        EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.





(a)
The following documents are filed as part of this report:(1)
Financial Statement are set forth beginning on page F-1 of the Report•
Report of Independent Registered Public Accounting Firm
F-2•
Consolidated Balance Sheets
F-3•
Consolidated Statement of Operations
F-4 - 5•
Consolidated Statement of Cash Flows
F-6 - 7•
Consolidated Statement of Stockholders’ Equity
F-8•
Notes to Consolidated Statements
F-9 - F-25(2)
Financial Statement Schedules: All Schedules are omitted because the information called for is not applicable, is not required, or because the financial information is set forth in the financial statements or notes thereto.(3)
Exhibits





Exhibit

Number
Description of Exhibit2.1
Share Exchange Agreement by and among the Company, Media Challenge Holdings Limited and certain shareholders thereof, dated as of December 31, 2005 [Incorporated by reference to Exhibit 2.1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on February 14, 2006, in file number 0-51806]2.2
Convertible Promissory Note [Incorporated by reference to Exhibit 2.2 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]3.1
Articles of Incorporation, as amended [Incorporated by reference to Exhibit 3.1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on February 14, 2006, in file number 0-51806]3.2
Amended and Restated Bylaws [Incorporated by reference to Exhibit 3.2 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.1
Operation and Management Right Agreement, dated October 23, 2006, by and between CMO and Shenzhen Media [Incorporated by reference to Exhibit 10.1 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.2
Amendment to Operation and Management Right Agreement, dated January 8, 2004, by and between CMO and Shenzhen Media [Incorporated by reference to Exhibit 10.2 to the




35





Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.3
Description of Verbal Amendment to Operation and Management Right Agreement, dated January 8, 2004, by and between Sale and Marketing Publishing House and Shenzhen Media Investment Co., Ltd. [Incorporated by reference to Exhibit 10.3 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 17, 2007, in file number 0-51806]10.4
Entrust Agreement, dated November 20, 2004, by and between Shenzhen New Media and Shenzhen Media [Incorporated by reference to Exhibit 10.3 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.5
Equity Transfer Agreement, dated October 10, 2006, by and between Zhu Yu Tong and Shenzhen New Media. [Incorporated by reference to Exhibit 10.5 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 17, 2007, in file number 0- 51806]10.6
Outsourcing Agreement, dated December 30, 2006, by and between Henan Xinhua Printing Factory and CMO. [Incorporated by reference to Exhibit 10.6 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 17, 2007, in file number 0-51806]10.7
Outsourcing Agreement, dated December 30, 2006, by and between Henan Xinhua Printing Factory and CMO. [Incorporated by reference to Exhibit 10.6 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 17, 2007, in file number 0-51806]10.8
Outsourcing Agreement, dated December 16, 2006, by and between Henan Ruiguang Printing Co., Ltd. and CMO. [Incorporated by reference to Exhibit 10.6 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 17, 2007, in file number 0-51806]10.9
Employment Agreement, dated March 1, 2004, by and between Bin Li and Shenzhen New Media [Incorporated by reference to Exhibit 10.7 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]**10.10
Employment Agreement, dated December 15, 2006, by and between Yifang Fu and China Marketing [Incorporated by reference to Exhibit 10.8 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]**10.11
Agreement of Share Transfer, dated March 7, 2005, by and among Yingsheng Li, Xiaofeng Ding, Dongsheng Ren and Shenzhen New Media [Incorporated by reference to Exhibit 10.9 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.12
Agreement of Share Transfer, dated March 7, 2005, by and between CMO and Shenzhen New Media [Incorporated by reference to Exhibit 10.10 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]




36





10.13
Distribution Agreement, dated February 8, 2006, by and between Shenzhen New Media and Guangzhou Qiankuntai Bookstore [Incorporated by reference to Exhibit 10.11 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.14
Distribution Agreement, dated April 3, 2006, by and between Shenzhen New Media and Huadao Consulting Co., Ltd. [Incorporated by reference to Exhibit 10.12 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.15
Distribution Agreement, dated February 8, 2006, by and between Shenzhen New Media and Nanjing Cultural Development Co., Ltd. [Incorporated by reference to Exhibit 10.13 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.16
Distribution Agreement, dated February 8, 2006, by and between Shenzhen New Media and Shandong Qianyan Culture Dissemination Co., Ltd. [Incorporated by reference to Exhibit 10.14 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.17
Distribution Agreement, dated February 28, 2006, by and between Shenzhen New Media and Changsha Youyou Reading Group [Incorporated by reference to Exhibit 10.15 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.18
Distribution Agreement, dated February 9, 2006, by and between Shenzhen New Media and Zhengzhou Huanghe Culture Group [Incorporated by reference to Exhibit 10.16 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.19
Distribution Agreement, dated February 8, 2006, by and between Shenzhen New Media and Hangzhou Tianyi Books Co., Ltd. [Incorporated by reference to Exhibit 10.17 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]10.20
Operation and Management Agreement, dated December 13, 2007, by and beween Shenzhen New Media and Shanghai Longcom Telecom Co., Ltd. [Incorporated by reference to Exhibit 10.20 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 18, 2008, in file number 0-51806]10.21
Termination Agreement, dated December 12, 2008, by and between Shenzhen New Media and Shanghai Longcom Telecom Co., Ltd. [Incorporated by reference to Exhibit 10.1 to the Current Report of the Company on Form 8-K, filed with the SEC on December 17, 2008, in file number 0-51806]14
Code of Ethics [Incorporated by reference to Exhibit 14 to the Amendment No. 1 to the Registration Statement of the Company on Form 10-SB, filed with the SEC on January 3, 2007, in file number 0-51806]21
List of Subsidiaries of the Registrant (Previously filed in the Company’s Annual Report on For m10-K for the period ended December 31, 2010)31.1
Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes- Oxley Act of 2002*




37




31.2
Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes- Oxley Act of 2002*32.1
Certifications of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2
Certifications of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*





*
Filed herewith.**
Represents management contract or compensatory plan or arrangement.




38


SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





China Marketing Media Holdings, Inc.By: /s/Yingsheng LiYingsheng LiChief Executive Officer(Principal Executive Officer)Date: November 29, 2011




Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.




Each person whose signature appears below hereby authorizes Yingsheng Li as attorneys-in-fact to sign on his behalf, individually, and in each capacity stated below, and to file all amendments and/or supplements to this annual report on Form 10-K.





Signature

Capacity
Date/s/ Yingsheng Li

President, Chief Executive Officer and
November 29, 2011Yingsheng Li

Chairman/s/ Xiaofeng Ding

Director
November 29, 2011Xiaofeng Ding/s/ Dongsheng Ren

Director
November 29, 2011Dongsheng Ren/s/ Bin Li

Executive Director
November 29, 2011Bin Li/s/ Wengao Luo

Chief Operating Officer
November 29,  2011Wengao Luo/s/ Zhen Zhen Peri

Chief Financial Officer (Principal Financial and
November 29, 2011Zhen Zhen Peri

Accounting Officer)











CHINA MARKETING MEDIA HOLDINGS, INC.Consolidated Financial StatementsFor The Years Ended December 31, 2010 and 2009
   
 CHINA MARKETING MEDIA HOLDINGS, INC.
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 PageConsolidated Balance Sheets
F-3Consolidated Statements of Operations And Comprehensive Income
F-4 – F-5Consolidated Statements of Cash Flows
F-6 – F-7Consolidated Statements of Changes in Equity
F-8Notes to Consolidated Financial Statements
F-9 – F-25
   F-1
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To The Board of Directors and Stockholders of



China Marketing Media Holdings, Inc.



Beijing, China



We have audited the accompanying consolidated balance sheets of China Marketing Media Holdings, Inc. (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income, cash flows, and changes in equity for the years ended December 31, 2010 and 2009. 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 of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 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 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 China Marketing Media Holdings, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years ended December 31, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America.













Child, Van Wagoner & Bradshaw, PLLC

Salt Lake City, Utah

March 31, 2011
 F-2
  CHINA MARKETING MEDIA HOLDINGS, INC.CONSOLIDATED BALANCE SHEETSAS OF DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  As of December 31,2010


2009ASSETSCurrent assets:Cash and cash equivalents

$
7,177,767


$
5,546,749Accounts receivable


2,295,022



2,780,489Prepaid expenses


3,846,569



578,652Inventory


653,857



279,807Total current assets


13,973,215



9,185,697Non-current assets:Loan receivable


-



1,170,070Long-term investments


2,716,212



456,180Related party receivables – affiliates


3,020,402



2,685,944Related party receivables


366,133



354,063Other receivable


828,181



489,356Investment held to maturity


907,468



-Goodwill


382,345



812,465Property, plant and equipment


1,824,157



1,765,843Less: accumulated depreciation


(667,574
)


(510,772
)License agreement


1,533,373



1,482,823Less: accumulated amortization


(1,077,588
)


(883,746
)Total non-current assets


9,833,109



7,822,226TOTAL ASSETS

$
23,806,324


$
17,007,923LIABILITIES AND EQUITYCurrent liabilities:Accounts payable

$
828,692


$
152,104Accrued expenses and levies


153,582



90,117Deferred revenues


1,113,735



342,126Taxes payable


197,433



91,770Other payable


521,480



375,000Total current liabilities


2,814,922



1,051,117Long-term liabilities:Deferred tax liability


28,329



-Total liabilities


2,843,251



1,051,117Commitments and contingenciesEquity:China Marketing Media Holdings, Inc. stockholders’ equity:Common stock, no par value, 100,000,000 shares authorized,28,686,002 shares issued and outstanding, respectively


1,112,546



1,112,546Additional paid-in capital


165,000



165,000Retained earnings


17,070,517



12,760,253Accumulated other comprehensive income


2,615,010



1,947,349Total China Marketing Media Holdings, Inc. stockholders’ equity


20,963,073



15,985,148Non-controlling interests


-



(28,342
)Total equity


20,963,073



15,956,806TOTAL LIABILITIES AND EQUITY

$
23,806,324


$
17,007,923
 
 See accompanying notes to consolidated financial statements.
  F-3
  CHINA MARKETING MEDIA HOLDINGS, INC.CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Years ended December 31,2010


2009Revenue, netMagazine advertising

$
14,407,940


$
9,488,579Consumer products


20,563,361



15,411,781Total operating revenue, net


34,971,301



24,900,360Cost of revenueMagazine advertising


3,634,990



3,151,729Consumer products


19,839,929



14,500,327Total cost of revenue


23,474,919



17,652,056Gross profit


11,496,382



7,248,304Operating expenses:Impairment loss on goodwill


446,543



-General and administrative


6,707,491



5,917,937Total operating expenses


7,154,034



5,917,937Income from operations


4,342,348



1,330,367Other income (expense):Interest income


33,809



55,767Investment loss (equity method)


(42,256
)


(55,369
)Subsidy income


40,586



140,028Other income


453



-Total other income


32,592



140,426Income from continuing operations before income taxes


4,374,940



1,470,793Income tax expense


(56,950
)


(27,328
)Income from continuing operations, net of tax


4,317,990



1,443,465Discontinued operations, net of tax


20,616



-NET INCOME

$
4,338,606


$
1,443,465(Subtract) add: net (income) loss attributable to non-controlling interests


(28,342
)


62,309Net income attributable to China Marketing Media Holdings, Inc.

$
4,310,264


$
1,505,774Earnings per share – basic and diluted:Income from continuing operations attributable to ChinaMarketing Media Holdings, Inc. common stockholders

$
0.15


$
0.05Discontinued operations attributable to China Marketing MediaHoldings, Inc. common stockholders


0.00



-Net income attributable to China Marketing Media Holdings,Inc. common stockholders

$
0.15


$
0.05Weighted average common stock outstanding – basic and diluted


28,686,002



28,686,002
  See accompanying notes to consolidated financial statements.
  F-4
  CHINA MARKETING MEDIA HOLDINGS, INC.CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE INCOME (CONTINUED)FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Years ended December 31,2010


2009NET INCOME

$
4,338,606


$
1,443,465Other comprehensive income:- Foreign currency translation gain


667,661



42,210COMPREHENSIVE INCOME

$
5,006,267


$
1,485,675Comprehensive income (loss) attributable to non-controlling interests

$
28,342


$
(62,309
)Comprehensive income attributable to China Marketing Media Holdings, Inc.

$
4,977,925


$
1,547,984
  See accompanying notes to consolidated financial statements.
  F-5
 
 CHINA MARKETING MEDIA HOLDINGS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Years ended December 31,2010


2009Cash flows from operating activities:Net income

$
4,338,606


$
1,443,465Net (income) from discontinued operations


(20,616
)


-Net income from continuing operations


4,317,990



1,443,465Adjustments to reconcile income from continuing operations to netcash provided by (used in) operating activities:Amortization and depreciation


332,251



316,947Loss on disposal of property, plant and equipment


11,129



-Investment loss (equity method)


35,691



55,369Impairment loss on goodwill


446,543



-Changes in operating assets and liabilities:Accounts receivable


565,965



(2,671,113
)Prepaid expenses


(3,168,193
)


(431,055
)Inventory


(355,534
)


142,643Other receivable


(314,348
)


(298,283
)Due from major sales agents


-



717,466Accounts payable and accrued expenses


713,773



(223,162
)Deferred revenues


741,230



156,005Taxes payable


100,009



74,903Other payable


166,615



235,878Deferred tax liability


27,632



-Net cash provided by (used in) operating activities – continuing operations


3,620,753



(480,937
)Net cash used in discontinued operations


(9,688
)


-Net cash provided by (used in) operating activities


3,611,065



(480,937
)Cash flows from investing activities:Purchase of property, plant and equipment


(47,610
)


(57,396
)Purchase of intangible assets


-



(11,184
)Receipt of loan advances from a third party


1,180,159



-Payment on loan advances to a third party


-



(1,169,440
)Refund from investment deposit


-



5,978,763Purchase of investments


(2,216,337
)


(21,927
)Purchase of investment held to maturity


(885,119
)


-Related party receivables - affiliates


(245,467
)


-Net cash (used in) provided by investing activities – continuing operations


(2,214,374
)


4,718,816Net cash used in discontinued operations


(4,236
)


-Net cash (used in) provided by investing activities


(2,218,610
)


4,718,816
  See accompanying notes to consolidated financial statements.
  F-6
  CHINA MARKETING MEDIA HOLDINGS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Years ended December 31,2010


2009Cash flows from financing activities:Repayment of related party payables


-



(849,398
)Net cash used in financing activities – continuing operations


-



(849,398
)Net cash used in discontinued operations


-



-Net cash used in financing activities


-



(849,398
)Effect of exchange rate changes in cash and cash equivalents


238,563



(2,959
)NET CHANGE IN CASH AND CASH EQUIVALENTS


1,631,018



3,385,522BEGINNING OF YEAR


5,546,749



2,161,227END OF YEAR

$
7,177,767


$
5,546,749SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for income taxes

$
26,881


$
25,987Cash paid for interest

$
-


$
125,704
  See accompanying notes to consolidated financial statements.
  F-7
  CHINA MARKETING MEDIA HOLDINGS, INC.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Stockholders’ equityAccumulatedotherCommon stock


Retained


Additional


comprehensive


Non-controlling


TotalNo. of shares


Amount


earnings


paid-in capital


income


interest


equityBalance at January 1, 2009


28,686,002


$
1,112,546


$
11,254,479


$
165,000


$
1,905,139


$
33,967


$
14,471,131Net income (loss) for the year


-



-



1,505,774



-



-



(62,309
)


1,443,465Foreign currency translation adjustment


-



-



-



-



42,210



-



42,210Balance as of December 31, 2009


28,686,002


$
1,112,546


$
12,760,253



165,000



1,947,349



(28,342
)


15,956,806Net income for the year


-



-



4,310,264



-



-



28,342



4,338,606Foreign currency translation adjustment


-



-



-



-



667,661



-



667,661Balance as of December 31, 2010


28,686,002


$
1,112,546


$
17,070,517


$
165,000


$
2,615,010


$
-


$
20,963,073
  See accompanying notes to consolidated financial statements.
  F-8
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  1.
ORGANIZATION AND BUSINESS BACKGROUND
  China Marketing Media Holdings, Inc. ("China Marketing", “CMKM” or the "Company") was incorporated under the laws of the State of Texas on October 29, 1999.
  The Company engages in the sale of its magazines and advertising space within its magazines, which are sold throughout China; and provides consulting services to clients concerning advertising and marketing matters. The Company also conducts online sales of electronic products through Shenzhen Media Investment Co., Ltd. ("Shenzhen Media").
  Recapitalization and restructuring
  On December 31, 2005, China Marketing completed a share exchange (the "Exchange") with the stockholders of Media Challenge Holdings Limited ("Media Challenge") pursuant to the terms of an Agreement for Share Exchange dated December 31, 2005. In the Exchange, China Marketing acquired all of the issued and outstanding stock of Media Challenge in exchange for a convertible promissory note in the amount of $441,600 that was converted into 22,808,002 shares of China Marketing common stock upon the completion of a one for ten reverse stock split. The Exchange resulted in the previous controlling shareholders of Media Challenge becoming the controlling shareholders of China Marketing. Consequently, the Exchange is accounted for as a reverse merger, whereby the accounts of Media Challenge are recapitalized to show the adopted capital structure of China Marketing.
  Media Challenge was incorporated on August 12, 2004, under the laws of the Territory of the British Virgin Islands (BVI). Media Challenge is a holding company and has no operations other than operations that it conducts through its direct and indirect subsidiaries. One of Media Challenge's subsidiaries, Shenzhen New Media Consulting Co., Ltd. ("Shenzhen New Media") was incorporated on November 15, 2004 under the laws of the People's Republic of China ("PRC").
  According to an agreement, dated March 7, 2005, Shenzhen New Media acquired 100% of Shenzhen Media, an entity controlled by six common owners of Media Challenge. Shenzhen Media was formed on October 22, 2003, under the laws of the PRC. China Marketing completed the acquisition of Shenzhen Media on December 21, 2005, and Shenzhen Media is now a wholly-owned subsidiary of Shenzhen New Media. The transaction was accounted for as a transfer of entities under common control.
  In October 2004, Shenzhen Media formed a new wholly-owned subsidiary in the PRC known as Beijing Media Management and Consulting Co., Ltd. ("Beijing Media").
  In November 2005, Shenzhen New Media formed a new wholly-owned subsidiary in the PRC known as Shenzhen New Media Advertising Co., Ltd. ("NMA"). The registered capital of NMA is one million RMB (approximately $122,100).
  In November 2007, Shenzhen Media formed a new 52% owned subsidiary in the PRC known as Beijing Orient Converge Human Resources Management Center Co. Ltd. ("BJOC"). The registered capital of BJOC is RMB 5,000,000 (approximately $684,500).
  On July 18, 2008, Shenzhen New Media formed a new 51% owned subsidiary, Shanghai Zhiduo Network Technology Company Limited ("SZNT") under the laws of the PRC. The registered capital of SZNT is RMB 1,000,000 (approximately $142,879). SZNT is engaged in the business of management consulting services and brand name consulting services.
  F-9
 
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  On August 2, 2008, Shenzhen Media sold 42% ownership of BJOC to Shanghai Cheng Mei Biotechnology Co., Ltd. ("Shanghai Cheng Mei") for a cash price of $141,831 (equivalent to RMB 987,461). After the sale, Shenzhen Media owns 10% of BJOC.
  On March 18, 2010, the Company’s 51%-owned subsidiary, SZNT, discontinued its operations and applied for liquidation process with the local government. The liquidation process was completed and finalized on August 27, 2010.
  The consolidated entity is hereafter referred to as "the Company".
 
 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
Basis of presentation
  These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
 
 
Use of estimates
  In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
 
 
Basis of consolidation
  The consolidated financial statements reflect the consolidated operations of CMKM and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
 
 
Cash and cash equivalents
  For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and demand deposits held by banks. Deposits held in financial institutions in the PRC are not insured by any government entity or agency.
 
 
Accounts receivable
  Accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. 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 Company does not have any off-balance-sheet credit exposure related to its customers.
 
 
Inventory
  Inventories mainly consist of the electronic products purchased from third parties, which are stated at the lower of cost, as determined on a first-in, first-out basis, or market. Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value, if lower.
 F-10
 
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
Property, plant and equipment
  Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
 
 Expected useful life

Residual valueBuildings
20 years

5%Motor vehicles
5 years

5%Furniture and equipment
5 years

5%Computer equipment
5 years

5%
  Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.
 
 As of December 31,2010


2009Buildings

$
1,114,923


$
1,078,168Motor vehicles


356,669



328,074Furniture and equipment


136,685



158,059Computer equipment


215,880



201,5421,824,157



1,765,843Less: accumulated depreciation


(667,574
)


(510,772
)Property, plant and equipment, net

$
1,156,583


$
1,255,071
  Depreciation expense for the years ended December 31, 2010 and 2009 was $172,640 and $174,746, respectively.
  Long-lived assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in the Accounting Standards Codification ("ASC") Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets”. No impairment of assets was recorded during the years reported.
 
 
Goodwill
  Goodwill represents the excess of cost over fair value of assets of businesses acquired. Goodwill acquired in a business combination is not amortized. The Company evaluates the carrying amount of goodwill for impairment annually on December 31 and whenever events or circumstances indicate impairment may have occurred.
  When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value.
  Due to inability to meet with the anticipated sales growth in marketing consulting service, the Company assessed the acquired goodwill associated with the related business units for impairment as of December 31, 2010. Based on the discounted cash flows model utilizing estimated future earnings and cash flows, the fair value of the reporting unit is less than the carrying value of the acquired goodwill. The Company’s evaluation of goodwill completed during the year resulted in an impairment loss of $446,543 and allocated to Magazine Advertising Business.
  F-11
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
Intangible assets
  In accordance with ASC Topic 350-50, “General Intangibles Other Than Goodwill”, goodwill amounts are not amortized, but rather are tested for impairment at least annually. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives, which is the ten years of the "license agreement." The carrying amount of the asset is reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. No intangible asset impairment charges are deemed necessary for the years ended December 31, 2010 and 2009.
  Amortization expense of the license agreement included in cost of revenue for the years ended December 31, 2010 and 2009 was $159,611 and $142,201, respectively.
  As of December 31, 2010, estimated future annual amortization expense related to the license agreement in the next three years is as follows:
 
 Years ending December 31:2011

$
151,9282012


151,9282013


151,929Total:

$
455,785
  
Long-term investments
  Long-term investments represent cost and equity method investments in the PRC. Equity method investments are recorded at original cost and adjusted to recognize the Company’s proportionate share of the investee’s net income or losses and additional contributions made and distributions received. The Company recognizes a loss if it is determined that other than temporary decline in the value of the investment exists. The Company also accounts for investments, other than marketable securities, with ownership less than 20% using the cost method.
 
 (a)
Shenzhen Keungxi Technology Company Ltd. ("SKTC")
  SKTC was incorporated in China in October 2005. Its business scope includes, among others, sales and development of computer software, and computer and communication systems. It also provides information system consulting services. The Company, through Shenzhen Media, holds 48% of the equity interest of SKTC and three individual shareholders, Wengao Luo, Xi Chen and Bin Li own the remaining 21.5%, 21.5% and 9% equity interest of SKTC, respectively and accounts for the investment using the equity method.
  F-12
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))Balance as of December 31, 2005

$
78,555Investment loss (48%)


(41,835
)Advances made to SKTC


166,031Balance as of December 31, 2006


202,751Investment loss (48%)


(49,916
)Advances made to SKTC


217,541Balance as of December 31, 2007


370,376Investment loss (48%)


(47,908
)Advances made to SKTC


22,123Balance as of December 31, 2008


344,591Investment loss (48%)


(33,455
)Advances made to SKTC


71,915Balance as of December 31, 2009


383,051Foreign translation difference


425Investment loss (48%)


(2,952
)Advances made to SKTC


21,331Balance as of December 31, 2010

$
401,855
  (b)
Shanghai Qiyu Information Technology Co., Limited (“SQIT”)
  SQIT was incorporated in China in November 2007 and is mainly engaged in the provision of network services. In January 2009, the Company, through Shenzhen Media, holds 30% of the equity interest of SQIT and accounts for the investment using the equity method. The investment was liquidated on January 19, 2010.
 
 (c)
Beijing Orient Converge Human Resources Management Center Co. Ltd (“BJOC”)
  BJOC was incorporated in China in October 2004 and is mainly engaged in providing consultation, professional training and relevant sale and marketing services to business enterprises in China. In November 2007, the Company, through Shenzhen Media, held 52% of the equity interest of BJOC and accounted for the investment in consolidation.
  On August 2, 2008, the Company’s subsidiary, Shenzhen Media, sold 42% ownership of BJOC to Shanghai Cheng Mei Biotechnology Co., Ltd. ("Shanghai Cheng Mei") for a cash consideration of $141,831 (equivalent to RMB 987,461). As of December 31, 2010, the Company, through Shenzhen Media owns the remaining 10% of BJOC amounting to $75,622 and records this investment using the cost method.
 
 (d)
Shenzhen Directory Marketing Management Co. Ltd (“SDMM”)
  SDMM was incorporated in China in June 2010 and is mainly engaged in providing advertising services, business enterprises marketing planning services and information system consulting services. The Company, through Shenzhen Media, holds 30% of the equity interest of SDMM and one individual shareholder, Ge Zhihong, owns the remaining 70% equity interest of SDMM, respectively and accounts for the investment using the equity method.
  F-13
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Purchases of investment

$
2,268,671Foreign translation difference


(2,344
)Investment loss (30%)


(92,812
)Balance as of December 31, 2010

$
2,173,515
  (e)
Beijing Guangrun Lingzhi International Advertising Co. Ltd. (“BJGL”)
  BJGL was incorporated in China in November 2010 and is mainly engaged in providing advertising services. The Company, through Beijing Media, holds 40% of the equity interest of BJGL and one corporate shareholder, Highlight Consulting Co., Ltd., and two individual shareholders, Tianyou Cai and Tieying Luo, own the remaining 40%, 10% and 10% equity interest of BJGL, respectively and accounts for the investment using the equity method.
 
 Purchases of investment

$
3,630Foreign translation difference


(2
)Investment loss (40%)


(82
)Balance as of December 31, 2010

$
3,546
  (f)
Beijing Kang Pusen Media Consultation Planning Co., Ltd. (“BJKP”)
  BJKP was incorporated in China in March 2008 and is mainly engaged in providing sales training services. The Company, through Shenzhen New Media, holds 20% of the equity interest of BJKP and four individual shareholders, Xiaofang Wang, Yi Rong, Qiang Zhao and Lijie Wang, own the remaining 50%, 10%, 10% and 10% equity interest of BJKP, respectively and accounts for the investment using the equity method.
 
 Purchases of investment

$
-Foreign translation difference


1,519Investment loss (20%)


60,155Balance as of December 31, 2010

$
61,674
  
Investment held to maturity
  Investment in unit trusts in the PRC, which the Company has the intent and ability to hold to maturity are reported at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
 
 
Non-controlling interest
  Non-controlling interest represents non-controlling owners 49% of equity in SZNT for the years ended December 31, 2010 and 2009. SZNT discontinued its operations and applied for liquidation process with the local government. The liquidation process was completed and finalized on August 27, 2010.
 
 
Revenue recognition
  In accordance with ASC Topic 605, "Revenue Recognition" , the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.
 
 (a)
Magazine advertising
  The Company publishes three issue magazines each month, (namely Sale edition, Channel edition and Case edition) of "China Marketing" and other special editions periodically, for example, "China Business & Trade" – (Training edition).
  F-14
 
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  The Company recognizes revenues for the advertising sales and consulting service ratably over the periods when the customer's advertisements are published and services are provided. Total revenue from the advertising sales is $9,376,304 and $4,504,651 for the years ended December 31, 2010 and 2009, respectively. Total revenue from marketing consulting service is $3,384,896 and $3,344,962 for the years ended December 31, 2010 and 2009, respectively.
  The Company recognizes revenue from the publishing of the above magazines when the risks and rewards of ownership of the goods have transferred to the customer, which is usually on delivery or when title passes. Total revenue from the publishing business is $1,646,740 and $1,638,966 for years ended December 31, 2010 and 2009, respectively.
 
 (b)
Consumer products
  Since the fourth quarter of 2008, the Company commenced the business line of selling consumer products on the internet portal www.ipinipin.com, which attributed $20,563,361 and $15,411,781 of revenue for the years ended December 31, 2010 and 2009, respectively.
  The Company derives the major revenues from the trading of consumer products. The Company recognizes its revenues net of value-added taxes (“VAT”) when the products are delivered to the customers, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectibility is reasonably assured.
  An analysis of the Company’s revenues by products is as follows:
 
 Years ended December 31,2010


2009Magazine advertising:Advertising pages sales

$
9,376,304


$
4,504,651Marketing consulting service


3,384,896



3,344,962Publishing


1,646,740



1,638,966Total magazine advertising


14,407,940



9,488,579Consumer products


20,563,361



15,411,781Total revenue

$
34,971,301


$
24,900,360
  
Cost of revenue
  (a)
Magazine advertising
  Cost of revenue includes printing, labor costs and amortization incurred by the Company in the production of its magazines. Cost of revenue also includes labor cost, subcontracting fee and direct operating cost incurred by the Company in rendering of the consulting service to the customers.
  The Company records the estimated cost of returned magazines at the date we delivered the magazines to our customers. Our sales are based on three main distribution channels throughout China: (1) postal subscription base distribution; (2) direct order distribution; and (3) agency base distribution.
  First, postal subscription channel involves the distribution of our magazines by Chinese post offices. Magazine subscribers can request their subscriptions delivered from the post offices in China. Returns are not allowed for magazines sold through postal subscription.
  F-15
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Second, order distribution involves requests made by a subscriber to us for a single or multiple issues of magazines that do not involve an ongoing subscription. Upon receipt of order requests and payment, we deliver the ordered issues to the address requested by the subscriber. Returns are not permitted for magazines sold through direct request subscription.
  Third, agency distribution involves delivery of our magazines to sales agents who in turn distribute the magazines to retail agents at various locations throughout China. The Company granted sales agents a two-month return privilege. Average return rate for the years ended December 31, 2010 and 2009 was 17% and 11%, respectively.
  In accordance with the provisions of ASC Topic 605-15-25-1, “ Sales of Product when Right of Return Exists ” (“ASC 605-15-25-1”), an enterprise sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:
 
 a.
The seller's price to the buyer is substantially fixed or determinable at the date of sale.b.
The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.c.
The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.d.
The buyer acquiring the product for resale has economic substance apart from that provided by the seller.e.
The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.f.
The amount of future returns can be reasonably estimated.
  The Company recognizes magazine sales revenue in accordance with the provisions of ASC 605-15-25-1: first, our price to the sales agent is fixed; second, the sales agent has to pay us fully upon order request and the payment is not contingent on resale of the magazines; third, the Company is not responsible in the event of theft or physical destruction or damage of the product after delivery; fourth, our sales agents include bookstores, reading groups, and culture groups, etc.; fifth, the Company has no obligations to resell the magazines distributed to sales agents; and finally, the amount of returns can be reasonably estimated and are included in accrued liabilities.
 
 (b)
Consumer products
  Cost of revenue consists primarily of purchase cost of consumer products, direct labor and other overheads, which are directly attributable to the sale of consumer products. Shipping and handling cost, associated with the delivery of consumer products to the customers, are recorded in cost of revenue and are recognized when the related product is delivered to the customer.
 
 
Advertising expenses
  Advertising costs are expensed as incurred under ASC Topic 720-35, “ Advertising Costs ”. The Company incurred advertising costs of $85,659 and $57,180 for the years ended December 31, 2010 and 2009.
 
 
Earnings per share
  Basic earnings per common share ("EPS") are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive securities, such as stock options and warrants. The numerators and denominators used in the computations of basic EPS are presented in the following table:
  F-16
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))Years ended December 31,2010


2009Numerator for basic and diluted EPSIncome from continuing operations attributable to China Marketing Media Holdings, Inc. common stockholders

$
4,317,990


$
1,505,774Discontinued operations attributable to China Marketing Media Holdings, Inc. common stockholders


(7,726
)


-Net income attributable to China Marketing Media Holdings, Inc. common stockholders

$
4,310,264


$
1,505,774Denominator for basic and diluted EPS- Weighted average shares of common stock outstanding


28,686,002



28,686,002Earnings per share – basic and dilutedIncome from continuing operations attributable to China Marketing Media Holdings, Inc. common stockholders

$
0.15


$
0.05Discontinued operations attributable to China Marketing Media Holdings, Inc. common stockholders

$
0.00


$
-Net income attributable to China Marketing Media Holdings, Inc. common stockholders

$
0.15


$
0.05
  
Foreign currency translation and comprehensive income
  The accompanying financial statements are presented in United States Dollars (“US$”). The functional currency is Renminbi Yuan ("RMB") of the PRC. The financial statements are translated into US$ from RMB at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
  On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC's government. The Company uses the Closing Rate Method in currency translation of the financial statements of the company.
  RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US$ at rates used in translation.
 
 
Income taxes
  The Company adopted ASC Topic 740, “Income Taxes” regarding accounting for uncertainty in income taxes, which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.
  F-17
 
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  For the years ended December 31, 2010 and 2009, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2010, the Company did not have any significant unrecognized uncertain tax positions.
  The Company conducts major businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.
 
 
Retirement plan costs
  Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the consolidated statements of operation and comprehensive income as and when the related employee service is provided.
 
 
Related parties
  Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
 
 
Segment reporting
  ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in the financial statements. The Company operates in two reportable operating segments: Advertising and marketing matters and online sales of consumer products.
 
 
Fair value of financial instruments
  The Company adopts ASC Topic 825, “ Financial Instruments ” to make disclosures about fair value of financial instruments. The carrying value of the Company’s financial instruments include cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and levies, deferred revenues, taxes payable and other payables. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature. The fair value of related party receivables is not determinable due to its related party nature.
  Investment held to maturity is determined using Level 2, which is carried at fair value, with quoted prices in markets that are not active, determined by the financial institution who sold the unit trust.
  The Company also follows the guidance of the ASC Topic 820-10, “ Fair Value Measurements and Disclosures ” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in  measuring fair value as follows:
  F-18
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  
Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
  
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
  
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
  Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
 
 
Restrictions on transfer of assets out of the PRC
  Dividend payments by Shenzhen New Media and its direct and indirect subsidiary are limited by certain statutory regulations in the PRC. No dividends may be paid by Shenzhen New Media without first receiving prior approval from the State Administration of Foreign Exchange or its local offices. Dividend payments are restricted to 85% of profits, after tax. Net assets restricted as of December 31, 2010 and 2009 amounted to $19,685,527 and $14,707,602, respectively.
 
 3.
DISCONTINUED OPERATIONS
  On March 18, 2010, the Company’s 51%-owned subsidiary, SZNT discontinued its operations and applied for liquidation process with the local government. The liquidation process was completed and finalized on August 27, 2010.
  No revenues were generated from the discontinued operations for the years ended December 31, 2010 and 2009. The results of operations were reclassified as loss from discontinued operations in the consolidated statements of operations for the years presented.
 
 4.
PREPAID EXPENSES
  Prepaid expenses consist primarily of prepayments made to an unrelated company in advance for financial and legal consultation services to be rendered. As of December 31, 2010 and 2009, prepaid expenses consist of the following:
 
 As of December 31,2010


2009Prepayments for financial and legal consultation services

$
490,774


$
578,652Prepaid operating expense


3,355,795



-$
3,846,569


$
578,652
  F-19
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  The Company launched the new business called Easy Buy in June 2010, but not until the 4th quarter of 2010, did the big orders for the Pens (IP-OIT) start to arrive, so the Company had to place the large orders to satisfy the demand. 77% of the prepaid operating expense was for purchasing the Pens and the remaining balance was for other advances to suppliers.
 
 5.
LOAN RECEIVABLE
  In 2009, the Company, through Shenzhen New Media, entered into a loan and investment option agreement (“the Agreement”) with Beijing Kang Pusen Management Consultants Co., Ltd (“Kang Pusen”). Kang Pusen is mainly engaged in sales training services in the PRC.
  Under the Agreement, the Company provides a loan advance of $1,170,070 (equivalent to RMB8,000,000) to Kang Pusen, which is non-interest bearing, secured by 100% equity interest of Kang Pusen and repayable by cash in full or conversion to equity, subject to the fulfillment of performance requirements in 2010 results. Based on the agreed conditions, when Kang Pusen achieves its revenue up to RMB10 million before May 2010, the loan advances at the discretion of the Company may be converted into common stock at the conversion price equal to 20% ownership in Kang Pusen. Additionally, when Kang Pusen achieves 2010 full year’s performance milestone, whereas annual revenue is RMB30 million and net income is RMB12 million, together with the profit commitment of not less than 30% annual growth in the next three years, the Company may agree to increase its equity interest in Kang Pusen up to 45%-55%, at the conversion price of not exceeding 6 times of its earnings per share. The note automatically matured on December 24, 2010 in full repayment and the Company did not exercise the conversion option.
 
 6.
RELATED PARTY TRANSACTIONS WITH AN AFFILIATE
  Sale and Marketing Publishing House ("CMO"), an affiliate owned by the PRC government, is controlled and directed by a common director and major shareholder of the Company. CMO is not a direct or indirect subsidiary of the Company. Transactions with CMO are listed as follows:
  Operation and Management Right Agreement
  On October 23, 2003, Shenzhen Media entered into a 10-year agreement with CMO. The agreement calls for the payment of $1,220,930 to CMO in exchange for a right to oversee the operation and strategic planning of advertising, publishing, and staff training for the magazines that are published by CMO. Under this agreement, Shenzhen Media is entitled to collect advertising revenues from customers already existing at the time of the contract, in addition to any new clients that Shenzhen Media can solicit and develop. Shenzhen Media shall bear all the operating costs and receive all the revenues from the contracted businesses. CMO has generated the following revenue as part of the agreement.
  Years ended December 31,2010


2009Magazine advertising:Advertising pages sales

$
7,611,633


$
3,427,573Publishing


1,646,740



1,638,966Total magazine advertising sales generated from CMO, included in consolidated total

$
9,258,373


$
5,066,539
  As of December 31, 2010 and 2009, related party receivables represented loans receivable from CMO totaling $3,020,402 and $2,685,944, which are unsecured, and non-interest bearing. These loans have no fixed repayment schedule and are receivable on demand.
 
 7.
RELATED PARTY RECEIVABLES
  As of December 31, 2010 and 2009, related party receivables represented advances totaling $366,133 and $354,063, which are unsecured, and bear no interest. These related party receivables have no fixed repayment schedule and are receivable on demand.
  F-20
 
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))8.
INVESTMENT HELD TO MATURITY
  As of December 31,2010


2009Investment in unit trust in the PRC, held to maturity:- Maturity in 18 months with interest rate of 9% per annum

$
756,223


$
-- Maturity in 24 months with interest rate of 9% per annum


151,245



-$
907,468


$
-
  9.
INCOME TAXES
  United States
  The Company was incorporated in the United States of America and is subject to U.S. tax law. No provisions for income taxes have been made as the Company has no U. S. taxable income for the periods presented. The applicable income tax rates for the Company for the years ended December 31, 2010 and 2009 are 34%.
  British Virgin Islands
  The Company’s subsidiary, Media Challenge was incorporated in the British Virgin Islands and is not subject to income taxes under the current laws of the British Virgin Islands.
  PRC
  The Company’s subsidiaries in the PRC are currently subject to income taxes ranging from 15% to 25% according to applicable tax laws in the PRC. The tax rates are 15% for NMA, 15% for Shenzhen New Media and Shenzhen Media and 0% for CMO. The provision for income taxes for the years ended December 31, 2010 and 2009 was $56,950 and $27,328, respectively.
  Pursuant to the laws and regulations in the PRC, NMA, as a wholly-foreign-owned enterprise ("WFOE") in the PRC, is entitled to an exemption from the PRC corporate income tax for two years commencing from its first profitable year in 2006. CMO accounts for most of the revenue during the periods presented and its operating profit is entitled to a full tax exemption under the specialized industry tax rules. Other subsidiaries income tax rates range from 15% to 25%. A reconciliation of income before income taxes to the effective tax rate as follows:
 
 Years ended December 31,2010


2009Income before income taxes from the PRC operation

$
4,374,940


$
1,470,793PRC income tax rate


15
%


15
%Income tax expense computed


656,241



220,619Tax effect of non-deductible items


147,400



66,514Effect of tax exemption credit on CMO


(813,672
)


(259,805
)Tax effect of goodwill impairment


66,981



-Income tax expense at effective rate

$
56,950


$
27,328
 
 F-21
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  (a)
Provision for income taxes
  Years ended December 31,2010


2009Current income tax

$
29,318


$
27,328Deferred income tax


27,632



-Total

$
56,950


$
27,328
  (b)
Reconciliation of effective income tax rate
 
 Years ended December 31,2010


2009Statutory U.S. tax rate


34
%


34
%Impact of foreign tax differential


(19
)


(19
)PRC income tax rate


15



15Tax effect of non-deductible items


3



5Effect of tax exemption, credit on CMO


(19
)


(18
)Tax effect of goodwill impairment


2



-Income tax expense at effective rate


1
%


2
%
  (c)
Deferred tax liabilities
  As of December 31,2010


2009Expenses items

$
28,329


$
-
  There is no material unrecognized tax benefit as of December 31, 2010 and 2009.
 
 10.
CONCENTRATIONS AND RISK
  The Company is exposed to the following concentrations of risk:
 
 (a)
Business risk with CMO
  As discussed in Note 6, the Company's operations are conducted through an agreement with CMO, a company owned by the PRC government. The revenues are generated through production of the magazines owned by CMO. The current contract will terminate in 2013, and it is unknown whether the contract will be renewed. A change in the political climate in the PRC could also have a material adverse effect on the Company's business.
 
 (b)
Major customers
  For the year ended December 31, 2010, there is no single customer who accounts for 10% or more of revenues.
  For the year ended December 31, 2009, one customer represents more than 10% of the Company’s revenues amounting to $2,560,948, with $490,441 of accounts receivable at that date.
  F-22
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))(c)
Major vendors
  For the years ended December 31, 2010 and 2009, there is no single vendor who accounts for 10% or more of purchases.
 
 (d)
Major distribution agents for the publishing business
  For the years ended December 31, 2010 and 2009, approximately 47% and 26% of the Company’s sales are generated from its 4 major sales agents in the PRC, respectively. The representatives solicited advertising from the general public in their designated geographic territory.
  The Company’s magazines are believed to be well established and recognized by the general public. In this regard, management believes no severe impact would occur on the Company’s sales if any of the distributing agents were lost.
 
 (e)
Economic and political risks
  The Company faces a number of risks and challenges as a result of having primary operations and marketing in the PRC. Changing political climates in the PRC could have a significant effect on the Company's business.
 
 (f)
Control by principal stockholders
  The directors, executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the common stock of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company's assets.
 
 11.
SEGMENT INFORMATION
  The Company’s business units have been aggregated into two reportable segments: Advertising and marketing matters and online sales of consumer products. The Company, through its subsidiaries operates these segments in the PRC. All the identifiable assets of the Company are located in the PRC during the years presented.
  The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company had no inter-segment sales for the years ended December 31, 2010 and 2009. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.
  Summarized financial information concerning the Company’s reportable segments is shown in the following table for the years ended December 31, 2010 and 2009:
  F-23
  CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))
  Year ended December 31, 2010Magazine


Consumeradvertising


products


Corporate


TotalRevenue, net

$
14,407,940


$
20,563,361


$
-


$
34,971,301Cost of revenue


3,634,990



19,839,929



-



23,474,919Gross profit


10,772,950



723,432



-



11,496,382Depreciation and amortization


160,775



171,476



-



332,251(Loss) income from continuing operations, net of tax


5,052,483



(678,311
)


(56,182
)


4,317,990Discontinued operations, net of tax


20,616



-



-



20,616Net (loss) income


5,073,099



(678,311
)


(56,182
)


4,338,606Total assets


23,152,467



653,857



-



23,806,324Expenditure for long-lived assets

$
22,345


$
25,265


$
-


$
47,610
  Year ended December 31, 2009Magazine


Consumeradvertising


products


Corporate


TotalRevenue, net

$
9,488,579


$
15,411,781


$
-


$
24,900,360Cost of revenue


3,151,729



14,500,327



-



17,652,056Gross profit


6,336,850



911,454



-



7,248,304Depreciation and amortization


157,373



159,574



-



316,947Net (loss) income


1,361,926



91,568



(10,030
)


1,443,465Total assets


16,728,116



279,807



-



17,007,923Expenditure for long-lived assets

$
26,363


$
31,033


$
-


$
57,396
  All of the Company’s revenues were derived from customers located in the PRC.
 
 12.
COMMITMENTS AND CONTINGENCIES(a)
Operating lease commitments
  The Company is committed to lease various office spaces under several non-cancelable operating agreements in a term ranging from 1 to 4 years, with fixed monthly rentals, expiring between December 2010 and December 2012. Costs incurred under these operating leases are recorded as rent expense and totaled approximately $315,100 and $359,880 for the years ended December 31, 2010 and 2009.
  As of December 31, 2010, the Company has future minimum rent payments due under various non-cancelable operating leases in next two years, as follows:
 
 Year ending December 31:2011

$
227,6662012


171,955Total:

$
399,621
  (b)
Contingencies
  The Company has not, historically, carried any property or casualty insurance. No amounts have been accrued for any liability that could arise from the lack of insurance. Management feels the chances of such an obligation arising are remote.
  F-24
 
 CHINA MARKETING MEDIA HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Currency expressed in United States Dollars (“US$”))13.
RECENT ACCOUNTING PRONOUNCEMENTS
  The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
  In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-14 to amend ASC 605 “Revenue Recognition.” The amendments in this update change the accounting model for revenue arrangements that include both tangible products and software elements. The amendments in ASU 2009-14 will be effective for the fiscal years beginning January 1, 2011. The Company believes that ASU 2009-13 will not have a material impact on its consolidated financial statements.
  In October 2009, the FASB issued ASU 2009-13 amending ASC 605 related to revenue arrangements with multiple deliverables. Among other things, ASU 2009-13 provides guidance for entities in determining the accounting for multiple deliverable arrangements and establishes a hierarchy for determining the amount of revenue to allocate to the various deliverables. The amendments in ASU 2009-13 will be effective for the fiscal years beginning January 1, 2011. The Company believes that ASU 2009-13 will not have a material impact on its consolidated financial statements
  In January 2010, the FASB issued further guidance under ASC No. 820, “ Fair Value Measurements and Disclosures ” ("ASC 820"). ASC 820 requires disclosures about the transfers of investments between levels in the fair value hierarchy and disclosures relating to the reconciliation of fair value measurements using significant unobservable inputs (level 3 investments). ASC 820 is effective for the fiscal years and interim periods beginning after December 15, 2010. The Company will adopt the update on January 1, 2011 and expects that ASC 820 will not have a material impact on its consolidated financial statements.
  Management has reviewed the ASU’s up through 2011-01 and does not believe that any other recently issued, but not yet effective, updates, if adopted, would have a material effect on the accompanying financial statements.
 
 14.
SUBSEQUENT EVENTS
  In accordance with ASC Topic 855, “ Subsequent Events ”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after December 31, 2010 up through the date the Company issued the audited consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.