UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

FORM 10-KSB/A

(Mark One) 
[X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 
For the fiscal year ended: December 31, 2006

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
For the transition period from ____________ to _____________

Commission File No. 000-51806

CHINA MARKETING MEDIA HOLDINGS, INC.

|TEXAS                                                | 76-0641113                              
|---------------------------------------------------- | ----------------------------------------
|(State
    or other jurisdiction of incorporation or | (I.R.S.
    Employer Identification No.)
|organization)                                        |                                         

RMA 901 
KunTai International Mansion 
No. 12 Chaowai Street 
Beijing, 100020, China 
-------------------------------------------------------------------------------------------------------

(Address of Principal Executive Offices)

(86) 10-59251090 
------------------------------------------------- 
(Registrant's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the
Exchange Act: NONE

Securities registered under Section 12(g) of the
Exchange Act: Common stock, no par value

Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or 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

Check if no disclosure of delinquent
filers in response to Item 405 of Regulation S-B is contained in this form, and
no disclosure will 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-KSB or any amendment to this Form 10-KSB.

Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes___ No X

The issuer's revenues for its most recent fiscal year
are $8,383,087.

As of April 16, 2007, the aggregate
market value of such shares held by non-affiliates of the registrant's common
stock (based upon the average bid and asked price of $0.20 of such shares as
reported on the pink sheets) was approximately $955,600. Shares of the
registrant's common stock held by each executive officer and director have been
excluded in that such persons may be deemed to be affiliates of the registrant.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.



Documents incorporated by reference: NONE.

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Explanatory Note



This Amendment No. 1 to our Form 10-KSB for the fiscal year ended December 31, 2006 is being filed to restate the financial statements contained in our annual report on Form 10-KSB for the 2006 fiscal year, filed with the Securities and Exchange Commission on April 17, 2007 (the "Original Filing").  Our board of directors determined, on July 31, 2007, that the original financial statements for the fiscal year in question should no longer be relied upon due to certain errors in such financial statements.  We have stated our intention to amend our Annual Report for the year ended December 31, 2006 in our Quarterly Report for the quarterly period ended September 30, 2007, filed on November 14, 2007.



For the adjustments made as a result of the restatement, see Note 19-Restatement of Notes to Consolidated Financial Statements included in Item 7 Financial Statements."  We have restated ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION, ITEM 7. Financial Statements, ITEM 11. EXECUTIVE COMPENSATION and ITEM 13. EXHIBITS in their entirety in this Amendment No. 1 to Annual Report on Form 10-KSB/A.



No other information in the Original Filing has been amended or modified hereby. This Form 10-KSB/A continues to describe conditions as of the date of the Original Filing, and accordingly,
we have not updated the disclosures contained herein to reflect events that occurred after the Original Filing.



As required by Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, as amended, this Form 10-KSB/A includes currently dated certifications from
our Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.



Use of Term



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 United States Securities Act of 1933, as amended; and (viii) "Exchange Act" are to the United States Securities Exchange Act of 1934, as amended.



Effective January 25, 2006, we implemented a 1-for-10 reverse stock split in issued and outstanding shares of our common stock which reduced the number of our issued and outstanding shares from 47,780,000 to 4,778,000 shares. Unless otherwise indicated, all share and per share information contained herein has been adjusted to give effect to such reverse stock split.



Forward-looking Statements



This report contains forward-looking statements, which reflect our views with respect to future events and financial performance.  The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report.  These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements.  These uncertainties and other factors include, but are not limited to: changes in economic conditions, a fluctuation of RMB, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, uncertainties related to China's legal system and economic, political and social events in China, a general economic downturn, a downturn in the securities markets, Securities and Exchange Commission regulations which affect trading in the securities of penny stocks, and other risks and uncertainties.  We assume no obligation or duty to update any such forward-looking statements, except as required by law.

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ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.



Overview



General



We generate revenues through sales of our magazines and through sales of advertising space in our magazines.  During the fiscal year ended December 31, 2005, we generated $1,633,092 in revenues from the sale of our magazines and $5,033,019 in revenues from the sale of advertising space in these magazines.  During the fiscal year ended December 31, 2006, we generated $1,450,494 in revenues from the sale of our magazines and $6,932,593 in revenues from the sale of advertising space in these magazines.



Although Media Challenge became our wholly-owned subsidiary following the reverse acquisition transaction, because this transaction resulted in a change of control, the transaction was recorded as a reverse merger whereby Media Challenge was considered to be the accounting acquirer of Infolife Inc. (our previous name).



The following analysis discusses changes in the financial condition and results of operations as of and for years ended on December 3, 2006 and 2005, and should be read in conjunction with our audited consolidated financial statements and the notes thereto include elsewhere in this report.



Industry Wide Factors that are Relevant to Our Business



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.  According to the press release issued by ZenithOptimedia on ZenithOptimedia's April 2006 Advertising Expenditure Forecasts, advertising spending in China is expected to increase by $6.44 billion from 2005 to 2008 with a growth rate of 66% over the three-year forecast period.  In 2008, China would become the 5th largest advertisement market in the world while it was the 7th largest advertisement market in the world in 2005.  In addition, we believe China's hosting of the Olympic Games in Beijing in 2008 and the International World Exposition in Shanghai in 2010 will benefit its advertising industry.  In light of China's growing number of consumers with rising income and increasing consumer spending, we believe that the media and advertising industry in China represents an attractive area where we could generate more revenues in the future.



Recent Development



On October 10, 2006, our wholly owned subsidiary Shenzhen New Media entered into an equity transfer agreement or Equity Transfer Agreement with Yutong Zhu, the sole owner of Shenzhen Caina Brand Consultant Company or Shenzhen Caina, pursuant to which Shenzhen New Media agreed to purchase 100% ownership of Shenzhen Caina from Mr. Zhu.  Incorporated in the PRC, Shenzhen Caina engages in the business of advertisement design, brand, sales and marketing consulting and other related services.



Under the Equity Transfer Agreement, Shenzhen New Media had the obligation to pay RMB 8 million (approximately $1.03 million) to Mr. Zhu within 30 business days following the date of execution of this agreement.  Shenzhen New Media paid RMB 8 million to Mr. Zhu on November 24, 2006.  The acquisition of Shenzhen Caina was completed in March 2007.



Results of Operations



Fiscal Year Ended December 31, 2006 Compared with Fiscal Year Ended December 31, 2005



The following table summarizes the results of our operations during the fiscal years ended December 31, 2006 and 2005.  It provides information regarding the dollar and percentage increase or (decrease) from the 2005 fiscal period to the 2006 fiscal period:



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|Year Ended December 31,
|-----------------------
|Item                   
|Revenue                
|Cost of Sales          
|Gross Profit           
|Operating Expenses     
|Other Income (Expense) 
|Provision for Taxes    
|Net Income             



Revenue



Our revenues in fiscal year 2006 amounted to $8,383,087, which is approximately $1.72 million or 26% more than that of fiscal year 2005, when we had revenues of $6,666,111.  Revenues attributable to sales of our magazines decreased $182,598 during the fiscal year 2006 as compared to the fiscal year 2005 while advertising revenues for the fiscal year 2006 increased by $1,899,574 as compared to the fiscal year 2005.  The overall increase in our revenues is attributable to the increased advertising revenues.  Sales of our magazines decreased during the fiscal year 2006 because of the rapid development of online newspaper and magazines that reduced readership generally; however, the circulation volume of our magazines has been maintained at levels that are consistent with our historic experience.  As a result, instead of being adversely affected by the decrease in the circulation volume of our magazines, advertising revenues generated in the 2006 fiscal year increased during such period.  During the three month period ended December 31, 2006, in addition to our monthly four regular issues, we published two special issues for the Shenzhen Pharmaceutical Trade Conference and the Beijing Commercial Fair, respectively.  These two supplemental issues generated advertising revenues of $1,222,247 in aggregate for us.



Components of Revenues



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



|Revenue Category  | 2006       | 2005      
|----------------- | ---------- | ----------
|                  |            |           
|Magazine Sales    | $1,450,494 | $1,633,092
|                  |            |           
|Advertising Sales | $6,932,593 | $5,033,019
|                  |            |           
|Total             | $8,383,087 | $6,666,111



Cost of Sales



Our cost of sales in fiscal years 2006 and 2005 was $3,057,859 and $2,462,412, respectively, which accounts for approximately 36.5% and 36.9%, respectively, as a percentage of total revenues.  The dollar amount of the costs of goods sold increased with the growth of annual sales, while its percentage of annual sales declined each year by about 0.4%.



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Expenses



Our expenses consist of payroll and other general and administrative expense.  Payroll expense was $899,556 in the 2006 fiscal year compared to $178,616 in the 2005 fiscal year.  The difference of $720,940 in payroll expense is mainly due to the fact that $640,450 paid out dividends were reclassified as bonuses to directors to compensate their performances for year 2005.  During 2006, we also paid higher compensation to our employees for advertising sales.



Our other general and administrative expenses were $679,173 (8.1% of total sales) and $582,705 (8.8% of total sales) in fiscal years 2006 and 2005, respectively.  The increase of other general and administrative expenses are mainly due to increased rent of our current offices, increased postage expenses and leasing expenses of our new offices.



Income taxes



We are currently subject to income taxes according to applicable tax laws in the PRC. The tax rates are 0% for Shenzhen New Media Advertising Company Ltd., 15% for Shenzhen Caina, 15% for Shenzhen New Media and Shenzhen Media and 33% for CMO. Beijing Media is under a special local income tax rate - pure revenue rate (total revenue x 9%x applied income tax rate), for small company.



On March 16, 2007, the National People's Congress of China passed the new EIT Law, which will take effect as of January 1, 2008. Under the new 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 EIT at the rate of 25.0% on its global income. The new EIT Law, however, does not define the term "de facto management bodies." If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our global income will be subject to PRC income tax at a tax rate of 25.0%. In addition, under the new EIT Law, dividends from our PRC subsidiaries to us will be subject to a withholding tax. The rate of the withholding tax has not yet been finalized, pending promulgation of implementing regulations. Furthermore, the ultimate tax rate will be determined by treaty between China and the tax residence of the holder of the PRC subsidiaries. We are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact. The new EIT Law imposes a unified income tax rate of 25.0% on all domestic-invested enterprises and FIEs, such as our PRC operating subsidiaries, unless they qualify under certain limited exceptions, but the EIT Law permits companies to continue to enjoy their existing preferential tax treatments until such treatments expire in accordance with their current terms.
Any increase in our effective tax rate as a result of the above may adversely
affect our operating results.



We did not incur income taxes in 2006 because CMO incurred losses in the forth quarter of year 2006 and the losses offset previous income tax expenses.  According to local income tax regulations, these losses can only be used to offset previous income tax expenses in the same year, therefore, there is no accrued tax.  This is a decrease of 100% from the taxes we incurred in 2005, which amounted to $634,498.



Net income (profit after taxes)



We earned net income of approximately $3.06 million in fiscal year 2006.  This is an increase of approximately $0.29 million or approximately 11% from fiscal year 2005 net income of approximately $2.77 million.  The increase in our net income in 2006 resulted mainly due to the increase of our total revenue, gross profit margin and the decrease in income tax.



Liquidity and Capital Resources



As of December 31, 2006, we had a cash balance of $5,127,840 and working capital of $5,120,549.  As of such date, we had a loan borrowed from CMO in an amount of $1,573,822.



We believe that our current cash on hand and continuing revenue from operations is sufficient to maintain operations at their current levels for at least the next twelve months.  However, in order to expand operations, management believes it will be necessary for us to raise additional capital either through sale of equity securities or through debt financing.  Full implementation of the current expansion plans, which includes the potential acquisition of other magazines and/or advertising businesses will require approximately $10 million in additional capital.



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Off-Balance Sheet Arrangements



During the fiscal year ended December 31, 2006, we did not enter 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 2006, the value of RMB against US dollars appreciated by 2%, from RMB8.1/$1 to RMB7.97/$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:



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.  Revenues are recognized when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred according to the sale terms, (3) the seller's price to the buyer is fixed or determinable; and (4) collectible is reasonably assured.



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Magazines.  During the fiscal year ended December 31, 2006, the Company published two magazines - China Marketing and China Business & Trade in China.  The Company published three issues of China Marketing per month, including a sales edition, case edition and channel edition.  The Company published one issue of China Business & Trade per month, which was the training edition.



The Company recognizes revenue for the advertising sales when the customer's advertisement has been published.  In addition, the Company recognizes revenue from the publishing of 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.



Subscription fees collected are classified with other payables on the balance sheet until the criteria for revenue recognition are completed.



Cost of Goods Sold.  Cost of goods sold includes printing, labor costs and amortization incurred by the Company in the production of its magazines.  The Company records the estimated cost of returned magazines at the date the Company delivered the magazines to its vendors.  The 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 postal offices.  Magazine subscribers can request their subscriptions delivered from the postal offices in China.  Returns are not allowed for magazines sold through postal subscription.



Second, order distribution involves request 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 request 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 then distribute the magazines to retail agents at various locations throughout China.  During 2006 we granted sales agents a two-month return privilege. Average return rate for the year ended December 31, 2006 was 17%.



In accordance with the provisions of SFAS 48, Criteria for Recognizing Revenue When Right of Return Exists,if 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.



We recognize magazine sales revenue in accordance with the provisions of SFAS 48 : first, our price to the sale agent is fixed; second, the sale agent has to pay us fully upon order request and the payment is not contingent on resale of the magazines; third, we are not responsible in the event of theft or physical destruction or damage of the product after delivery; fourth, our sale agents include bookstores, reading group, and culture group, etc.; fifth, we have no obligations to resell the magazines distributed to sale agents; finally, the amount of returns can be reasonably estimated.



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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 Foreign Currency Exchange Management Bureau.  Dividend payments are restricted to 85% of profits, after tax.



ITEM 7.  FINANCIAL STATEMENTS.



Financial statements are being filed with this report and are located immediately following the signature page.



ITEM 10.  EXECUTIVE COMPENSATION.



Summary Compensation Table - 2006



The following summary compensation table sets forth the aggregate compensation we paid or accrued to Yingsheng Li, our Chief Executive Officer and Chairman for services rendered in all capacities during the fiscal year ended December 31, 2006.  No other executive officers received total compensation in excess of $100,000.



|Name and Principal Position   | Year | Salary ($)(1) | Bonus ($)(2) | Total ($)
|----------------------------- | ---- | ------------- | ------------ | ---------
|Yingsheng Li,CEO and Chairman | 2006 | 15,404        | 281,385      | 296,789  



(1)

Mr. Yingsheng Li's compensation was paid by the Company in RMB.  The dollar amounts in the above table were calculated on the base that $1= RMB 7.79.



(2)

In January 2006, our three directors, Yingsheng Li, Xiaofeng Ding and Dongsheng Ren authorized the payment to themselves in the aggregate amount of $972,754; the payments were originally characterized as a dividend.  Of the total $972,754 declared, $672,592 was paid during 2006.  On July 31, 2007, when the directors realized that the amounts were not properly characterized as dividends, the board cancelled the remaining payments and recharacterized the 2006 payments as bonuses paid in 2006 for services as directors during 2005.



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Outstanding Equity Awards at Fiscal Year End



We have never granted any of our executive officers, including the named executive officer, any equity awards, including, options, restricted stock or other equity incentives.



Employment Agreements



We have not entered into a written or unwritten employment agreement with Mr. Yingsheng Li, our named executive officer, nor is he entitled to receive any payments upon termination of employment with or without cause, change in control, or upon termination following a change in control.



We entered into an employment agreement with our Executive Director, Bin Li, on March 1, 2004.  This agreement expired on March 1, 2007.  On the same date, Mr. Bin Li's employment agreement was renewed for a one-year term ending March 1, 2008.  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 8,000 (approximately, $1,000).



We entered into an employment agreement with our Chief Financial Officer, Yifang Fu, on December 15, 2006.  This agreement expired on February 28, 2007.  On the same date, Ms. Fu's employment agreement was renewed for a one-year term ending February 28, 2008 and her monthly base salary has been increased to RMB 25,000 (approximately, $3,125).  We expect that this agreement will be automatically renewed for an additional year by the parties upon its expiration.



Retirement Benefits



Currently, we do not provide any company-sponsored retirement benefits or deferred compensation programs to any employee, including the named executive officer (other than a state pension scheme in which all of our employees in China participate).



Director Compensation



The following table provides information on the compensation paid by us to our directors for the fiscal year ended on December 31, 2006.  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
  All Other Compensation ($)(1)
  Total ($)Xiaofeng Ding
  165,096
  165,096Dongsheng Ren
  226,111
  226,111Bin Li
  -
  -




(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 7.79.



(2)

In January 2006, our three directors, Yingsheng Li, Xiaofeng Ding and Dongsheng Ren authorized the payment to themselves in the aggregate amount of $972,754; the payments were originally characterized as a dividend.  Of the total $972,754 declared, $672,592 was paid during 2006.  On July 31, 2007, when the directors realized that the amounts were not properly characterized as dividends, the board cancelled the remaining payments and recharacterized the 2006 payments as bonuses paid in 2006 for services as directors during 2005.



Historically, we have not paid 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.  However,  we reclassified a dividend declaration as a bonus to three of our four directors
on July 31, 2007.  Mr. Bin Li did not receive a dividend declaration because  he did not own any shares in either Media Challenge or the Company at the time the dividend was declared.



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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, 2006.  We do not have non-equity incentive or a deferred compensation plan that our directors may participate in.



ITEM 13.  EXHIBITS.



The following exhibits are filed as part of this report or incorporated by reference:



|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                               
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         | 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 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]                                                             



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|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 10.7 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 10.8 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]                                    
|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]   



9

---



|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]                 
|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 [Incorporated by reference to Exhibit 21 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 17, 2007, in file number 0-51806]                                                                                                                                   
|31.1* | Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                       
|31.2* | Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                       
|32.1* | Certifications of Principal 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 Principal 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.

11

---





SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





| | CHINA MARKETING
    MEDIA HOLDINGS, INC.     
| | ---------------------------------------------
| |                                              
| |                                              
| | By: /s/ Yingsheng
    Li                     
| | Name:  Yingsheng Li                          
| | Title:  Chief Executive Officer and President



In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|SIGNATURE                      | CAPACITY                                        | DATE             
|------------------------------ | ----------------------------------------------- | -----------------
|/s/Yingsheng Li
Yingsheng Li   | President, Chief Executive Officer and Chairman | December 20, 2007
|/s/Bin Li
Bin Li               | Executive Director                              | December 20, 2007
|/s/Xiaofeng Ding
Xiaofeng Ding | Director                                        | December 20, 2007
|/s/Dongsheng Ren
Dongsheng Ren | Director                                        | December 20, 2007
|/s/Yifang Fu
Yifang Fu         | Chief Financial Officer                         | December 20, 2007

12

---







CHINA MARKETING MEDIA HOLDINGS, INC.



CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2006



F-1

---





CHINA MARKETING MEDIA HOLDINGS, INC.







INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





|                                                               | PAGE
|-------------------------------------------------------------- | ----
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM        | F-3 
|CONSOLIDATED BALANCE SHEETS                                    | F-4 
|CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | F-5 
|CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY     | F-6 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                          | F-7 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                     | F-8 

F-2

---







Report of Independent Registered Public Accounting Firm



To the Board of Directors

China Marketing Media Holdings, Inc.

People's Republic of China



We have audited the consolidated balance sheets of China Marketing Media Holdings, Inc. (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive income, changes in stockholders' equity, and cash flows for the years ended December 31, 2006 and 2005.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the 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, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.



Since our previous report dated April 10, 2007 except note 19, which is dated August 17, 2007, as described in note 19, the Company discovered a material error in its declaration of dividends. However, the Company has restated the financial statement to reflect the correction of this error.





Child, Van Wagoner & Bradshaw, PLLC

Salt Lake City, Utah

April 10, 2007, except Note 19, which is dated August 17, 2007



F-3

---

CHINA MARKETING MEDIA HOLDINGS, INC. 
CONSOLIDATED BALANCE SHEETS

|                                                                | December 31, | December 31,
|--------------------------------------------------------------- | ------------ | ------------
|                                                                |              | 2006        
|                                                                | (RESTATED)   |             
|ASSETS                                                          |              |             
|CURRENT ASSETS                                                  |              |             
|Cash and cash equivalents                                       | $            | 5,127,840   
|Accounts receivable                                             |              | 28,612      
|Prepaid expenses                                                |              | 192,574     
|Deposit                                                         |              | -           
|Settlement receivable                                           |              | 345,025     
|TOTAL CURRENT ASSETS                                            |              | 5,694,051   
|                                                                |              |             
|OTHER ASSETS                                                    |              |             
|Due from directors                                              |              | 925,944     
|Deposit - purchase of targets                                   |              | 1,024,590   
|Loan receivables to major sales agents                          |              | 604,853     
|Investment (equity method)                                      |              | 202,751     
|Others                                                          |              | 42,588      
|Fixed assets                                                    |              | 1,117,503   
|Accumulated depreciation                                        |              | (53,699)    
|License agreement                                               |              | 1,294,736   
|Accumulated amortization                                        |              | (410,000)   
|TOTAL OTHER ASSETS                                              |              | 4,749,266   
|                                                                |              |             
|TOTAL ASSETS                                                    | $            | 10,443,317  
|                                                                |              |             
|LIABILITIES AND
    STOCKHOLDERS' EQUITY                        |              |             
|CURRENT LIABILITIES                                             |              |             
|Accounts payable                                                | $            | 36,497      
|Accrued expenses and levies                                     |              | 40,439      
|Deferred revenues                                               |              | 93,609      
|Other payable                                                   |              | 25,955      
|Taxes payable                                                   |              | 76,028      
|Dividend payable                                                |              | 300,974     
|TOTAL CURRENT
    LIABILITIES                                   |              | 573,502     
|                                                                |              |             
|Long-term debt - related party (affiliate) see
    note 9       |              | 1,573,822   
|                                                                |              |             
|TOTAL LIABILITIES                                               |              | 2,147,324   
|                                                                |              |             
|STOCKHOLDERS' EQUITY                                            |              |             
|Common stock: no par value; 100,000,000 common
    shares       |              |             
|authorized; 27,586,002 common shares issued and
    outstanding |              | 1,112,546   
|Retained earnings                                               |              | 6,855,026   
|Accumulated other comprehensive income                          |              | 328,421     
|TOTAL STOCKHOLDERS'
    EQUITY                                  |              | 8,295,993   
|TOTAL LIABILITIES
    AND STOCKHOLDERS' EQUITY                  | $            | 10,443,317  

See accompanying notes to consolidated financial statements

F-4

---

CHINA MARKETING MEDIA HOLDINGS, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

|                                               |            | Year ended December 31,
|---------------------------------------------- | ---------- | -----------------------
|                                               |            | 2006                   
|                                               | (RESTATED) |                        
|Revenues                                       |            |                        
|Sales revenue                                  | $          | 8,383,087              
|Cost of goods sold                             |            | 3,057,859              
|Gross profit                                   |            | 5,325,228              
|                                               |            |                        
|Expenses                                       |            |                        
|Amortization and depreciation                  |            | 106,338                
|Advertising and promotion                      |            | 36,452                 
|Payroll expenses                               |            | 899,556                
|Legal and professional fees                    |            | 580,240                
|Other general and administrative               |            | 679,173                
|Total expenses                                 |            | 2,301,759              
|                                               |            |                        
|Income from operations                         |            | 3,023,469              
|                                               |            |                        
|Other income (expenses)                        |            |                        
|Interest income                                |            | 40,165                 
|Interest expense                               |            | -                      
|Investment loss from unconsolidated subsidiary |            | (41,835)               
|Other                                          |            | 43,763                 
|Total other income (expenses)                  |            | 42,093                 
|                                               |            |                        
|Net income before taxes                        | $          | 3,065,562              
|                                               |            |                        
|Provision for income taxes                     |            | -                      
|                                               |            |                        
|Net income                                     | $          | 3,065,562              
|                                               |            |                        
|Foreign currency translation adjustment        |            | 231,552                
|                                               |            |                        
|Comprehensive income                           | $          | 3,297,114              
|                                               |            |                        
|Basic and fully diluted earnings per share     | $          | 0.11                   
|Weighted average shares outstanding            |            | 27,586,002             
|                                               |            |                        

See accompanying notes to consolidated financial statements

F-5

---

CHINA MARKETING MEDIA HOLDINGS, INC. 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

|                                        |            |   |           |   |                     | Accumulated Other |               | Total
|--------------------------------------- | ---------- | - | --------- | - | ------------------- | ----------------- | ------------- | -----
|                                        | Common     |   | Common    |   | Retained            | Comprehensive     | Stockholders'
|                                        | Shares     |   | Stocks    |   | Earnings (Restated) |                   | Income        |      
|                                        |            |   |           |   |                     |                   |               |      
|January 1, 2005                         | 27,586,002 | $ | 508,681   | $ | 1,249,432           |                   |               | $    
|Increase in subsidiary                  |            |   | 603,865   |   |                     |                   |               |      
|Net income                              |            |   |           |   | 2,766,561           |                   |               |      
|Declaration of dividend                 |            |   |           |   | (226,529)           |                   |               |      
|Foreign currency translation            |            |   |           |   |                     |                   | 96,869        |      
|                                        |            |   |           |   |                     |                   |               |      
|December 31, 2005                       | 27,586,002 | $ | 1,112,546 | $ | 3,789,464           | $                 | 96,869        | $    
|Net income (Restated)                   |            |   |           |   | 3,065,562           |                   |               |      
|Foreign currency translation (Restated) |            |   |           |   |                     |                   | 231,552       |      
|                                        |            |   |           |   |                     |                   |               |      
|Balance December 31, 2006 (Restated)    | 27,586,002 | $ | 1,112,546 | $ | 6,855,026           | $                 | 328,421       | $    

See accompanying notes to consolidated financial statements

F-6

---

CHINA MARKETING MEDIA HOLDINGS, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                        | December 31, | December 31,
|----------------------------------------------------------------------- | ------------ | ------------
|                                                                        |              | 2006        
|                                                                        | (RESTATED)   |             
|Cash flow from
    operating activities:                                |              |             
|Net income                                                              | $            | 3,065,562   
|Adjustments to reconcile net income to cash
    provided by operations: |              |             
|Amortization and depreciation                                           |              | 233,180     
|Loss on disposals of fixed assets                                       |              | 4,132       
|Investment (gain) loss (equity method)                                  |              | 41,835      
|Change in operating assets and liabilities:                             |              |             
|Accounts receivable                                                     |              | 329,504     
|Settlement receivable                                                   |              | (338,012)   
|Deposits                                                                |              | 61,476      
|Due from major sales agent                                              |              | 438,809     
|Prepaid expenses                                                        |              | 214,325     
|Other asset                                                             |              | 5,411       
|Accounts payable                                                        |              | 34,775      
|Other payable                                                           |              | (5,996)     
|Taxes payable                                                           |              | (291,057)   
|Deferred revenues                                                       |              | 84,504      
|                                                                        |              |             
|Net cash provided
    by operations                                     |              | 3,878,448   
|                                                                        |              |             
|Cash flow from
    investing activities:                                |              |             
|Note receivable                                                         |              | -           
|Receipts from (borrowings to) directors                                 |              | 1,948,714   
|Deposits                                                                |              | -           
|Deposits to a target company                                            |              | (1,003,764) 
|Purchase of fixed assets                                                |              | (999,134)   
|Capital contributed to unconsolidated entity                            |              | (160,924)   
|                                                                        |              |             
|Net cash used in
    investing activities                               |              | (215,108)   
|                                                                        |              |             
|Cash flow from
    financing activities:                                |              |             
|Capital contribution                                                    |              | -           
|Repayment of payable to affiliate                                       |              | (121,117)   
|Dividend paid                                                           |              | -           
|                                                                        |              |             
|Net cash used in
    financing activities                               |              | (121,117)   
|                                                                        |              |             
|Increase in cash and
    cash equivalents                               |              | 3,542,223   
|                                                                        |              |             
|Effect on rate changes
    on cash                                      |              | 121,763     
|                                                                        |              |             
|Cash and cash
    equivalents, beginning of period                      |              | 1,463,854   
|                                                                        |              |             
|Cash and cash
    equivalents, end of period                            | $            | 5,127,840   
|                                                                        |              |             
|Supplemental
    disclosures of cash flow information:                  |              |             
|Interest paid in cash                                                   | $            | -           
|Income taxes paid in cash                                               | $            | 457,452     

See accompanying notes to consolidated financial statements

F-7

---

CHINA MARKETING MEDIA HOLDINGS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
Nature of operations

China Marketing Media Holdings, Inc. ("China Marketing," or the "Company") was incorporated under the laws of the State of Texas on October 29, 1999.



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 1 for 10 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 law of the People's Republic of China ("PRC").



According to an agreement, dated June 7, 2005, Shenzhen New Media acquired 100% of Shenzhen Media Investment Co., Ltd. ("Shenzhen Media"), an entity controlled by three 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. (see note 4)



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, i.e., 122,100USD (exchange rate as 1USD: 8.19 RMB).



The consolidated entity is hereafter referred to as "the Company".



The Company engages in the sale of its magazines and advertising space within its magazines, which are sold throughout China.



2.

Basis of Presentation



The consolidated financial statements include the accounts of China Marketing, Media Challenge, Shenzhen New Media, Shenzhen Media, Beijing Media, and NMA. All material inter-company accounts and transactions have been eliminated in consolidation.



The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). This basis differs from that used in the statutory accounts of Shenzhen New Media, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC. All necessary adjustments have been made to present the financial statements in accordance with US GAAP. These statements have been retroactively restated to show the effects due to the consolidation of Shenzhen Media and reverse merger wherein the Company assumed the capital structure of China Marketing and a 1-for-10 reverse stock split that was effected on January 25, 2006.



F-8



---

CHINA MARKETING MEDIA HOLDINGS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.

Summary of Significant Accounting Policies



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.



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.



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.



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



Revenues are recognized when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred according to the sale terms, (3) the seller's price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.



Magazines



During the fiscal year ended December 31, 2006, the Company published two magazines  China Marketing and China Business & Trade in China. The Company published three issues of China Marketing per month, including sales edition, case edition, and channel edition. The Company published one issue of China Business & Trade per month, which is the training edition.



The Company recognizes revenues for the advertising sales ratably over the periods when the customer's advertisements are published. Total revenue from the advertising sales is $6,932,594 and $5,033,019 for the years ended December 31, 2006 and 2005, respectively.



In addition, the Company recognizes revenue from the publishing of 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 $1,450,493 and $1,633,092 for the years ended December 31, 2006 and 2005, respectively.



Property, Plant and Equipment



Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales. Property and equipment are depreciated over their estimated useful lives.



F-8

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CHINA MARKETING MEDIA HOLDINGS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.

Summary of Significant Accounting Policies (continued)



Depreciation expense for the years ended December 31, 2006 and 2005 was $106,338 and $8,607, respectively. The increase of depreciation expense is mainly due to purchasing of office spaces.



Long-term assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in Statement of Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." No impairment of assets was recorded in the periods reported.



Intangible Assets



In accordance with SFAS 142, "Goodwill and Other Intangible Assets", 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, 2006 and 2005.



License amortization expense included in cost of sales for the years ended December 31, 2006 and 2005 was $126,842 and $123,435, respectively.



Cost of Goods Sold



Cost of goods sold includes printing, labor costs and amortization incurred by the Company in the production of its magazines. The Company records the estimated cost of returned magazines at the date it delivered the magazines to its vendors. The Company's 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 the 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.



Second, order distribution involves request made by a subscriber to the Company for a single or multiple issues of magazines that do not involve an ongoing subscription. Upon receipt of order request and payment, the Company delivers 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 the magazines to sales agents who then distribute the magazines to retail agents at various locations throughout China. Usually the Company grants sales agents a two-month return privilege. Average return rate for the year ended December 31, 2006 was 17%.



In accordance with the provisions of SFAS 48, "Criteria for Recognizing Revenue When Right of Return Exists.": If 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:

F-10

---





CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.

Summary of Significant Accounting Policies (continued)



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 SFAS 48: first, the price to the sale agent is fixed; second, the sale agent has to pay the Company 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, the Company's sale agents include bookstores, reading group, and culture group, etc.; fifth, the Company has no obligations to resell the magazines distributed to sale agents; finally, the amount of returns can be reasonably estimated.



Advertising and Promotion Expense



Advertising and promotion costs are expensed as incurred. The Company incurred $36,452 and $8,672 of advertising and promotion costs for the years ended December 31, 2006 and 2005 respectively.



Reclassification



Certain amounts in the prior year have been reclassified to conform to the current year's presentation.



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 year. 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:



|                                                        |   | Year ended December 31,
|------------------------------------------------------- | - | -----------------------
|                                                        |   | 2006                   
|NUMERATOR FOR BASIC AND DILUTED EPS                     |   |                        
|Net income to common stockholders                       | $ | 3,065,562              
|                                                        |   |                        
|DENOMINATORS FOR BASIC AND DILUTED EPS                  |   |                        
|Weighted average shares of common stock
    outstanding |   | 27,586,002             
|EPS - Basic and Diluted                                 | $ | 0.11                   



F-11

---





CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.

Summary of Significant Accounting Policies (continued)



Major Sale Agents for the Advertising Business



Approximately 27% of the Company's magazines are distributed by three major distribution agents in the PRC. The distribution agents are distributing the magazines to the retail outlets in their designated geographic territory. The Company's magazines are believed to be well established and recognized by the general public. In this regard, the management believes no severe impact on the Company sales would result if any of the distributing agents are lost.



Major Distribution Agents for the Publishing Business



Approximately 27% of the Company's magazines are distributed by three major distribution agents in the PRC.  The distribution agents are distributing the magazines to the retails outlets in their designated geographic territory.  The Company's magazines are believed to be well established and recognized by the general public.  In this regard, the management believes no severe impact on the Company sales if lost any of the distributing agents.



Foreign Currency and Comprehensive Income



The accompanying financial statements are presented in US dollars. The functional currency is the Renminbi, or RMB of the PRC. The financial statements are translated into US dollars 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/USD 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 dollars at rates used in translation.



Taxes



Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes," these deferred taxes are measured by applying currently enacted tax laws.



In 2006, one of the company's subsidiaries, NMA, which has accounted for most of the revenues, is exempt from taxes at the national level compared to 2005 most of our revenues came from another subsidiary, Shenzhen New Media, which has an income tax rate of 15%.



The company has implemented SFAS No.109 Accounting for Income Taxes, which provides for a liability approach to accounting for income taxes. Deferred income taxes result from the effect of transactions that are recognized in different periods for financial and tax reporting purposes. The company has recorded no deferred tax assets or liabilities as of December 31, 2006 and 2005, since nearly all differences in tax bases and financial statement carrying values are permanent differences.



F-12

---





CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.

Summary of Significant Accounting Policies (continued)



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.



Restrictions on Transfer of Assets Out of the PRC



Dividend payments by Shenzhen New Media and its subsidiaries 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 . Dividend payments are restricted to 85% of profits, after tax.



4.

Business Combinations between Entities under Common Control



The Company entered into a stock purchase agreement, dated March 7, 2005, with Shenzhen Media. Shenzhen Media was formed on October 22, 2003 as a limited liability company in the PRC and was 61.81% owned by three of the Company's directors and 38.19% owned by a minority entity, Sale and Marketing Publishing House ("CMO"). CMO is controlled by a common director of our Company. Pursuant to the agreement, the Company purchased all of the stock of Shenzhen Media for a total purchase price of RMB 27,790,000. The Company completed the acquisition of Shenzhen Media on December 21, 2005 and Shenzhen Media is now a wholly owned subsidiary of Shenzhen New Media.



The acquisition was accounted for as a transfer of entities under common control. Accordingly, the operations of Shenzhen Media for the years ended December 31, 2006 and 2005 are included in the consolidated statements as if the transaction had occurred at the beginning of the first period presented, each account stated at its historical cost.



5.

Loan Receivable with Major Sales Agents



The Company had loans receivable amounting to $604,853 and $1,018,587 as of December 31, 2006 and 2005, respectively.  Loans were provided to the Company's major sales agents.  The loans are unsecured, and bear no interest.  These loans have no fixed payment schedule and are payable on demand.



6.

Settlement Receivable



The settlement receivable balance is related to a car accident which has been settled on April 9, 2007 in favor of the Company and the full amount of $345, 025 will be refunded to the Company.



7.

Prepaid Expenses



Prepaid expenses consist primarily of prepayments made to the unrelated company in advance for future financial and legal consultation services. The advance payments are meant to assure delivery of the services in time.  As of December 31, 2006 and 2005, prepaid balance under these arrangements totaled $192,574 and $397,991, respectively.



F-13

---



CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8.

Deposit  purchase of a target company



On October 30, 2006, Shenzhen New Media entered into an Equity Transfer Agreement with Shenzhen Caina Brand Consultant Company (Shenzhen Caina) to acquire 100% shares ownership from its sole owner, Mr. Zhu Yu Tong. Shenzhen New Media paid RMB 8,000,000 (US$1,024,590) as the purchase deposit to Mr. Zhu Yu Tong.  The legal registration of the equity transfer was completed in March 2007.



9.

Related Party Transactions with an Affiliate



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 subsidiary of the Company.  Transactions with CMO are listed as follows:



|                                              |   | December 31, 2006 |   | December 31, 2005
|--------------------------------------------- | - | ----------------- | - | -----------------
|                                              |   |                   |   |                  
|Contract receivable                           | $ | 790,851           | $ | 728,079          
|Less: Payable, zero interest rate             |   | 2,364,673         |   | 2,370,421        
|Net balance amount due to CMO,                |   |                   |   |                  
|balance due on August 18, 2008, zero interest | $ | -1,573,822        | $ | -1,642,342       



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 clients already existing at the time of the contract, in addition to any new clients that Shenzhen Media can solicit and retain. In addition, Shenzhen Media shall bear all the operating costs and receive all the revenues from the contracted businesses.



CMO's revenue and expenses have been included in the consolidation financial statement for the years ended December 31, 2006 and 2005 and are presented in the following table.



|                  | For the year ended | For the year ended
|----------------- | ------------------ | ------------------
|                  |                    | December 31, 2006 
|Revenue           | $                  | 2,779,100         
|Cost of sales     |                    | 1,668,678         
|Gross profit      |                    | 1,110,422         
|Expenses          |                    | 1,101,418         
|Income before tax |                    | 9,004             
|Income tax        |                    | -                 
|Net income        | $                  | 9,004             



Contract receivable as of December 31, 2006 and 2005 was $ 790,851 and $728,079, respectively.



F-14

---



CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10.

Related Party Receivable with Directors



The Company loaned money to our directors, Yingsheng Li, Xiaofeng Ding and Dongsheng Ren.  The loans are unsecured, non-interest bearing.  The balances due from the directors were $980,565 at year ended December 31, 2006.  The balance bears no interest and is payable on demand. This loan had been fully paid off on March 30, 2007.



11.

Dividends



The Company had no dividends declared in year 2006. The dividends payable balance as of December 31, 2006 and 2005 was $300,974 and $291,202, respectively.



12.

Income Taxes Expense



The Company is currently subject to income taxes according to applicable tax laws in the PRC. The tax rates are 0% for Shenzhen New Media Advertising Company Ltd., 15% for Shenzhen New Media, 15% for Shenzhen Caina, 15% for Shenzhen Media and 33% for CMO. The provision for income taxes for the years ended December 31, 2006 and 2005 was $0 and $634,498, respectively.



Pursuant to the laws and regulations in the PRC, Shenzhen New Media Advertisement, as a wholly foreign owned enterprise ("WFOE") in the PRC, is entitled to an exemption from the PRC enterprise income tax for two years commencing from its first profitable year in 2006.



13.

Lease Commitment



The Company leases an office space located at Room 903-905, Kun Tai International Mansion, Chao Wai Street, Beijing, 100020, PRC.  The lease requires a monthly payment of $4,089 from October 2006 to August 2007.



The future lease commitment for the office lease is $32,715 in 2007.



14.

Concentrations and Risk



The Company's major operations are through an agreement as discussed in Note 9 with CMO, a company owned by the PRC government. All 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.



15.

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.



Deposits in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. Management believes the probability of a bank failure, causing loss to the Company, is remote.



F-15



---



CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



16.

Recapitalization



On December 31, 2005, China Marketing acquired Media Challenge whose only business was the 100% ownership of Shenzhen New Media. This acquisition transaction involved an issuance of 22,808,002 post reverse split shares of China Marketing common stock in exchange for 100% of the outstanding shares of Media Challenge, and was accounted for as a reverse merger, whereby the accounts of Media Challenge became those of China Marketing. The accounts of the accounting acquirer, Media Challenge, included herein have been adjusted to reflect the capital structure of the parent retroactively to the beginning of the first period presented in accordance with rules for reverse merger accounting.



On February 7, 2006, the Company changed its name from Infolife, Inc. to China Marketing Media Holdings, Inc.



In March 2005, Shenzhen Media, an entity controlled by three common owners of Media Challenge, increased its registered capital by RMB 5,000,000 (approximately $603,865). After the reverse merger, the increased registered capital of $603,865 of Shenzhen Media was consolidated into the Company's financial statements as increased contributed capital for year 2005.



On January 25, 2006, the Company effected a 1-for -10 reverse stock split, after which it issued 22,808,002 shares of the Company's common stock pursuant to an share exchange agreement entered into by and between the Company and the shareholders of Media Challenge. Immediately prior to the reverse stock split there were 47,780,000 shares of common stock outstanding, and immediately following the reverse split and the issuance required by the Exchange, there were 27,586,002 shares of common stock outstanding. The financial statements have been retroactively restated to show the effects of the reverse stock split as if they had occurred at the beginning of the first period presented.



17.

Subsequent Event



Pursuit to an Equity Transfer Agreement with Shenzhen Caina dated October 30, 2006 (see note 8), the Company completed the legal registration regarding its acquisition of Shenzhen Caina in March 2007.



Shenzhen Caina was incorporated in Shenzhen, China and conducts business in advertisement design, brand, sales and marketing consulting and other related services.



18.

Recent Accounting Pronouncements



In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140. The statement permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips are not subject to the requirements of Statement 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The Statement is effective for financial instruments acquired or issued after the beginning of the first fiscal year that begins after December 15, 2006. The Company expects that the Statement will have no material impact on its consolidated financial statements.



In February 2006, the FASB issued Staff Position No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. This position addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event, amending paragraphs 32 and A229 of SFAS No. 123 (revised 2004), Share-Based Payment. As the Company has not traditionally paid compensation through the issuance of equity securities, no impact is expected on its consolidated financial statements.



F-16

---



CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



18.  Recent Accounting Pronouncements (Continued)



In June 2006, the FASB issued FASB Interpretation Number 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. This interpretation contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The provisions are effective for fiscal years beginning after December 15, 2006. It is not expected that FIN 48 will have a material effect on the Company's financial position or results of operations.



In December 2006, the FASB issued SFAS No. 157 Fair Value Measurements which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. The provisions are effective for fiscal years beginning after November 15, 2007.  The Company is currently assessing the impact of the statement.



In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment to FASB Statement No. 115. This statement permits companies to choose to measure many financial instruments and other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement of accounting for financial instruments. This statement applies to all entities, including not for profit.



The fair value option established by this statement permits all entities to measure eligible items at fair value at specified election dates. This statement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007.



The Company is currently assessing the impact adoption of SFAS No. 159 on its consolidated financial statements.



F-17

---



CHINA MARKETING MEDIA HOLDINGS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



19.

Restatement



In January 2006, the Company paid $972,754 to our pre-merged shareholders based on the Company's 2005 earning performance.  The payments were originally characterized as a dividend.  Of the total $972,754 dividend declared, $672,592 was paid during the year of 2006. In July 2007, our board of directors revoked the 2006 dividend declaration in July 2007.



The paid dividend of $672,592 was reclassified as bonus expense and the unpaid dividend was cancelled.  Due to the currency transaction application, our restated net income was decreased by $672,592, retained earnings were increased by $345,162.



In this regard, financial statements have been restated as follows:



Consolidated Balance Sheets:



|Account                                | 2006 Original
Balance | Restatement Adjustment | 2006 Restated Balance | Effect  
|-------------------------------------- | --------------------- | ---------------------- | --------------------- | --------
|Dividend payable                       | $  691,919            | $  (390,945)           | $  300,974            | Decrease
|Retained earnings                      | 6,509,864             | 345,162                | 6,855,026             | Increase
|Accumulated other comprehensive income | 282,638               | 45,783                 | 328,421               | Increase



Consolidated Statements of Operations and Comprehensive Income:



|Account                                 | 2006 Original
Balance | Restatement Adjustment | 2006 Restated Balance | Effect  
|--------------------------------------- | --------------------- | ---------------------- | --------------------- | --------
|Payroll expense                         | $  271,964            | $  627,592             | $  899,556            | Increase
|Foreign currency translation adjustment | 185,769               | 45,783                 | 231,552               | Increase



Consolidated Statement of Cash Flows:



In addition to the above changes, we perform a recalculation on our cash flows according to FASB 95, appendix C,: example 2 to recompute the effect of the changes of exchange rate on cash.

F-18

---





CHINA MARKETING MEDIA HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



19.

Restatement
(Continued)



CHINA MARKETING MEDIA HOLDINGS, INC. 
CONSOLIDATED BALANCE SHEETS (RESTATED)

|                                                          | December 31, | December 31,
|--------------------------------------------------------- | ------------ | ------------
|                                                          |              | 2006        
|                                                          | (RESTATED)   | (ORIGINAL)  
|ASSETS                                                    |              |             
|CURRENT ASSETS                                            |              |             
|Cash and cash equivalents                                 | $            | 5,127,840   
|Accounts receivable                                       |              | 28,612      
|Prepaid expenses                                          |              | 192,574     
|Settlement receivable                                     |              | 345,025     
|TOTAL CURRENT ASSETS                                      |              | 5,694,051   
|                                                          |              |             
|OTHER ASSETS                                              |              |             
|Due from directors                                        |              | 925,944     
|Deposit - purchase of targets                             |              | 1,024,590   
|Loan receivables to major sales agents                    |              | 604,853     
|Investment (equity method)                                |              | 202,751     
|Others                                                    |              | 42,588      
|Fixed assets                                              |              | 1,117,503   
|Accumulated depreciation                                  |              | (53,699)    
|License agreement                                         |              | 1,294,736   
|Accumulated amortization                                  |              | (410,000)   
|TOTAL OTHER ASSETS                                        |              | 4,749,266   
|TOTAL ASSETS                                              | $            | 10,443,317  
|                                                          |              |             
|LIABILITIES AND STOCKHOLDERS' EQUITY                      |              |             
|CURRENT LIABILITIES                                       |              |             
|Accounts payable                                          | $            | 36,497      
|Accrued expenses and levies                               |              | 40,439      
|Deferred revenues                                         |              | 93,609      
|Other payable                                             |              | 25,955      
|Taxes payable                                             |              | 76,028      
|Dividend payable                                          |              | 300,974     
|TOTAL CURRENT LIABILITIES                                 |              | 573,502     
|                                                          |              |             
|Long-term debt - related party (affiliate) see
    note 9 |              | 1,573,822   
|                                                          |              |             
|TOTAL LIABILITIES                                         |              | 2,147,324   
|                                                          |              |             
|STOCKHOLDERS' EQUITY                                      |              |             
|Common stock: no par value; 100,000,000 shares            |              |             
|authorized; 27,586,002 shares issued and
    outstanding  |              | 1,112,546   
|Retained earnings                                         |              | 6,855,026   
|Accumulated other comprehensive income                    |              | 328,421     
|TOTAL STOCKHOLDERS' EQUITY                                |              | 8,295,993   

F-19

---



CHINA MARKETING MEDIA HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



19.

Restatement
(Continued)



CHINA MARKETING MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (RESTATED)

|                                               | December 31, | December 31,
|---------------------------------------------- | ------------ | ------------
|                                               |              | 2006        
|                                               | (RESTATED)   | (ORIGINAL)  
|Revenues                                       |              |             
|Sales revenue                                  | $            | 8,383,087   
|Cost of goods sold                             |              | 3,057,859   
|Gross profit                                   |              | 5,325,228   
|                                               |              |             
|Expenses                                       |              |             
|Amortization and depreciation                  |              | 106,338     
|Advertising and promotion                      |              | 36,452      
|Payroll expenses                               |              | 899,556     
|Legal and professional fees                    |              | 580,240     
|Other general and administrative               |              | 679,173     
|Total expenses                                 |              | 2,301,759   
|                                               |              |             
|Income from
    operations                     |              | 3,023,468   
|                                               |              |             
|Other income
    (expenses)                    |              |             
|Interest income                                |              | 40,165      
|Investment loss from unconsolidated subsidiary |              | (41,835)    
|Other                                          |              | 43,763      
|Total other income
    (expenses)              |              | 42,094      
|                                               |              |             
|Net income before
    taxes                    | $            | 3,065,562   
|                                               |              |             
|Provision for income taxes                     |              | -           
|                                               |              |             
|Net income                                     | $            | 3,065,562   
|                                               |              |             
|Foreign currency translation adjustment        |              | 231,552     
|                                               |              |             
|Comprehensive
    income                       | $            | 3,297,114   
|                                               |              |             
|Basic and fully
    diluted earnings per share | $            | 0.11        
|                                               |              |             

F-20

---



CHINA MARKETING MEDIA HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



19.

Restatement
(Continued)



CHINA MARKETING MEDIA HOLDINGS, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)

|                                                                        | December 31, | December 31,
|----------------------------------------------------------------------- | ------------ | ------------
|                                                                        |              | 2006        
|                                                                        | (RESTATED)   | (ORIGINAL)  
|Cash flow from operating activities:                                    |              |             
|Net income                                                              | $            | 3,065,562   
|Adjustments to reconcile net income to cash
    provided by operations: |              |             
|Amortization and depreciation                                           |              | 233,180     
|Loss on disposals of fixed assets                                       |              | 4,132       
|Investment (gain) loss (equity method)                                  |              | 41,835      
|Change in operating assets and liabilities:                             |              |             
|Accounts receivable                                                     |              | 329,504     
|Settlement receivable                                                   |              | (338,012)   
|Deposits                                                                |              | 61,476      
|Due from major sales agent                                              |              | 438,809     
|Prepaid expenses                                                        |              | 214,325     
|Other asset                                                             |              | 5,411       
|Accounts payable                                                        |              | 34,775      
|Other payable                                                           |              | (5,996)     
|Taxes payable                                                           |              | (291,057)   
|Deferred revenues                                                       |              | 84,504      
|                                                                        |              |             
|Net cash provided by operations                                         |              | 3,878,448   
|                                                                        |              |             
|Cash flow from investing activities:                                    |              |             
|Receipts from directors                                                 |              | 1,948,714   
|Deposits to a target company                                            |              | (1,003,764) 
|Purchase of fixed assets                                                |              | (999,134)   
|Capital contributed to unconsolidated entity                            |              | (160,924)   
|                                                                        |              |             
|Net cash used in investing activities                                   |              | (215,108)   
|Cash flow from financing activities:                                    |              |             
|Repayment of payable to affiliate                                       |              | (121,117)   
|Dividend paid                                                           |              | -           
|                                                                        |              |             
|Net cash used in financing activities                                   |              | (121,117)   
|                                                                        |              |             
|Increase in cash and cash equivalents                                   |              | 3,542,223   
|                                                                        |              |             
|Effect on rate changes on cash                                          |              | 121,763     
|                                                                        |              |             
|Cash and cash equivalents, beginning of
    period                      |              | 1,463,854   
|                                                                        |              |             
|Cash and cash equivalents, end of period                                | $            | 5,127,840   
|                                                                        |              |             
|Supplemental disclosures of cash flow
    information:                  |              |             
|Interest paid in cash                                                   | $            | -           
|Income taxes paid in cash                                               | $            | 457,452     

F-21

---

EXHIBITS

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                               
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         | 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 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 10.7 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 10.8 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]                                           
|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]                 

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|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]
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|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 [Incorporated by reference to Exhibit 21 to the Annual Report of the Company on Form 10-KSB, filed with the SEC on April 17, 2007, in file number 0-51806]                                                                                                                  
|31.1* | Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                      
|31.2* | Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                      
|32.1* | Certifications of Principal 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 Principal 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.

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