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EX-32 - EXHIBIT 32 - China Marketing Media Holdings, Inc.exhibit32.htm
EX-31 - EXHIBIT 31 - China Marketing Media Holdings, Inc.exhibit31.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2010

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

Commission File Number: 000-51806

CHINA MARKETING MEDIA HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

RMA 901
KunTai International Mansion
No. 12 Chaowai Street
Beijing, 100020, People’s Republic of China
(Address of principal executive offices, Zip Code)

(86)10-59251090
(Registrant’s telephone number, including area code)

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

Yes [X]             No [   ]

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

Yes [   ]             No [   ]

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

Large accelerated filer [   ] Accelerated filer [   ]
   
Non-accelerated filer [   ] Smaller reporting company [X]
(Do not check if a smaller reporting company)  

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 number of shares outstanding of each of the issuer’s classes of common equity, as of August 13, 2010 is as follows:

Class of Securities Shares Outstanding
Common Stock, no par value 28,686,002
   


 TABLE OF CONTENTS 
     
  PART I – Financial Information  
     
Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
Item 4. Controls and Procedures 30
     
  PART II – Other Information  
    32
Item 1. Legal Proceedings 32
Item 1A. Risk Factors 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. [Removed and Reserved] 32
Item 5. Other Information 32
Item 6. Exhibits 32

i


PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  Page

Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009

F-2

Condensed Consolidated Statements of Operations And Comprehensive Income (Loss) for the

F-3 – F-4

Three and Six Months ended June 30, 2010 and 2009

 

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2009

F-5 – F-6

Condensed Consolidated Statement of Stockholders’ Equity for the Six Months ended June 30, 2010

F-7

Notes to Condensed Consolidated Financial Statements

F-8 – F-21

F-1


CHINA MARKETING MEDIA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2010 AND DECEMBER 31, 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)

  June 30, 2010 December 31, 2009
  (Unaudited)  
ASSETS            
Current assets:    
   Cash and cash equivalents $  5,551,972   $  5,546,749  
   Accounts receivable 2,417,086 2,780,489
   Prepaid taxes   13,344     -  
   Prepaid expenses 111,132 578,652
   Inventory   894,395     279,807  
     
Total current assets   8,987,929     9,185,697  
     
Non-current assets:            
   Loan receivable 1,174,985 1,170,070
   Long-term investments   896,594     456,180  
   Related party receivables – affiliates 5,104,858 2,685,944
   Related party receivables   355,550     354,063  
   Other receivable 843,109 489,356
   Goodwill   815,878     812,465  
   Property, plant and equipment 1,797,175 1,765,843
   Less: accumulated depreciation   (592,529 )   (510,772 )
   License agreement 1,489,052 1,482,823
   Less: accumulated amortization   (965,454 )   (883,746 )
     
Total non-current assets   10,919,218     7,822,226  
     
TOTAL ASSETS $  19,907,147   $  17,007,923  
     
LIABILITIES AND EQUITY            
   Accounts payable $  591,647 $  152,104
   Accrued expenses and levies   83,158     90,117  
   Deferred revenues 644,135 342,126
   Taxes payable   -     91,770  
   Other payable 428,260 375,000
             
Total current liabilities 1,747,200 1,051,117
             
Commitments and contingencies    
             
Equity:    
China Marketing Media Holdings, Inc. stockholders’ equity:            
   Common stock, no par value, 100,000,000 shares authorized,            
   28,686,002 common shares issued and outstanding   1,112,546     1,112,546  
   Additional paid-in capital 165,000 165,000
   Retained earnings   14,902,895     12,760,253  
   Accumulated other comprehensive income 2,012,590 1,947,349
Total China Marketing Media Holdings, Inc. stockholders’ equity   18,193,031     15,985,148  
     
   Non-controlling interests   (33,084 )   (28,342 )
Total equity 18,159,947 15,956,806
             
TOTAL LIABILITIES AND EQUITY $  19,907,147 $  17,007,923

See accompanying notes to condensed consolidated financial statements.

F-2


CHINA MARKETING MEDIA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME 
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

  Three months ended June 30, Six months ended June 30,
  2010 2009 2010 2009
Revenue, net $  8,780,690   $  5,470,627   $  17,580,509   $  9,893,635  
Cost of revenue 6,224,606 3,830,971 12,230,233 6,808,846
Gross profit   2,556,084     1,639,656     5,350,276     3,084,789  
Operating expenses:        
   Payroll expenses   833,662     589,248     1,538,015     1,224,090  
   Other general and administrative 849,817 762,191 1,684,537 1,525,775
   Total operating expenses   1,683,479     1,351,439     3,222,552     2,749,865  
Income from operations 872,605 288,217 2,127,724 334,924
Other income (expense):                        
   Interest income 91,491 7,341 91,491 14,883
   Interest expense   -     -     (34,016 )   -  
   Investment loss (equity method) (2,634 ) (20,117 ) (10,088 ) (38,739 )
   Other income (expenses)   (174 )   2,523     595     10,120  
   Total other income (expense) 88,683 (10,253 ) 47,982 (13,736 )
Income from continuing operations                        
 before income taxes   961,288     277,964     2,175,706     321,188  
Income tax expense   (22,810 )   (11,394 )   (28,128 )   (11,515 )
Income from continuing operations,                        
 net of tax   938,478     266,570     2,147,578     309,673  
Discontinued operations, net of tax   -     (79,020 )   (9,678 )   (79,020 )
NET INCOME $  938,478   $  187,550   $  2,137,900   $  230,653  

See accompanying notes to condensed consolidated financial statements.

F-3


CHINA MARKETING MEDIA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF 
     OPERATIONS AND COMPREHENSIVE INCOME (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

    Three months ended June 30,     Six months ended June 30,  
    2010     2009     2010     2009  
                         
Add: net loss attributable to                        
 non-controlling interests   -     11,330     4,742     34,022  
                         
Net income attributable to China                        
 Marketing Media Holdings, Inc. $  938,478   $  198,880   $  2,142,642   $  264,675  
                         
Earnings per share – basic and diluted:                        
Income from continuing operations                        
   attributable to China Marketing Media                        
   Holdings, Inc. common stockholders $  0.03   $  0.01   $  0.07   $  0.01  
Discontinued operations attributable to                        
   China Marketing Media Holdings, Inc.                        
   common stockholders   -     -     (0.00 )   -  
Net income attributable to China                        
   Marketing Media Holdings, Inc.                        
   common stockholders $  0.03   $  0.01   $  0.07   $  0.01  
                         
Weighted average common stock                        
 outstanding – basic and diluted   28,686,002     28,686,002     28,686,002     28,686,002  
                         
NET INCOME $  938,478   $  187,550   $  2,137,900   $  230,653  
                         
Other comprehensive income:                        
- Foreign currency translation gain   72,641     1,746     65,241     19,872  
                         
COMPREHENSIVE INCOME $  1,011,119   $  189,296   $  2,203,141   $  250,525  
                         
Comprehensive loss attributable to                        
 non-controlling interests $  -   $  11,315   $  4,742   $  33,967  
Comprehensive income attributable to                        
 China Marketing Media Holdings, Inc. $  1,011,119   $  200,611   $  2,207,883   $  284,492  

See accompanying notes to condensed consolidated financial statements.

F-4



CHINA MARKETING MEDIA HOLDINGS, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 
(Currency expressed in United States Dollars (“US$”)) 
(Unaudited)   
     
  Six months ended June 30,
  2010 2009
Cash flows from operating activities:            
Income from continuing operations $ 2,147,578  $ 309,673
Adjustments to reconcile income from continuing operations to net            
   cash provided by (used in) operating activities:            
   Amortization and depreciation 166,162 161,747
   Loss on disposal of property, plant and equipment   14,505     -  
   Investment loss (equity method) 10,088 38,739
Changes in operating assets and liabilities:            
   Accounts receivable 373,648 (1,098,389 )
   Inventory   (611,066 )   (65,385 )
   Related party receivables – affiliates (see note 6) (2,399,883 ) -
   Other receivable   (366,331 )   81,841  
   Due from major sales agents - 128,229
   Prepaid expenses   468,153     (106,441 )
   Accounts payable and accrued expenses 429,914 549,182
   Accrued expenses and levies   -     (99,805 )
   Deferred revenues 299,423 127,038
   Taxes payable   (112,111 )   24,446  
   Other payable 49,299 132,628
             
Net cash provided by operating activities – continuing operations   2,869,262     183,503  
Net cash used in discontinued operations (9,606 ) (79,020 )
             
Net cash provided by operating activities   459,773     104,483  
     
Cash flows from investing activities:    
   Purchase of property, plant and equipment   (38,329 )   (20,083 )
   Refund from investment deposit - 5,976,710
   Payment from related entities   -     569,273  
   Purchase of investment (438,933 ) (45,169 )
             
Net cash (used in) provided by investing activities – continuing operations   (477,262 )   6,480,731  
Net cash used in discontinued operations - -
             
Net cash (used in) provided by investing activities   (477,262 )   6,480,731  

See accompanying notes to condensed consolidated financial statements.

F-5


CHINA MARKETING MEDIA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”))
(Unaudited)

    Six months ended June 30,  
    2010     2009  
Effect of exchange rate changes in cash and cash equivalents   22,712     1,523  
NET CHANGE IN CASH AND CASH EQUIVALENTS   5,223     6,586,737  
BEGINNING OF PERIOD   5,546,749     2,161,227  
END OF PERIOD $  5,551,972   $  8,747,964  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for income taxes $  28,128   $  -  
Cash paid for interest $  -   $  -  

See accompanying notes to condensed consolidated financial statements.

F-6



CHINA MARKETING MEDIA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
 
                                           
  Stockholders’ equity              
                            Accumulated              
                            other              
    Common stock     Retained     Additional     comprehensive     Non-controlling     Total  
    No. of shares     Amount     earnings     paid-in capital     in     interest     equity  
                                           
Balance as of January 1, 2010   28,686,002   $  1,112,546   $  12,760,253   $  165,000   $  1,947,349   $  (28,342 ) $  15,956,806  
                                           
Net income for the period   -     -     2,142,642     -     -     (4,742 )   2,137,900  
                                           
Foreign currency translation adjustment   -     -     -     -     65,241     -     65,241  
                                           
Balance as of June 30, 2010   28,686,002   $  1,112,546   $  14,902,895   $  165,000   $  2,012,590   $  (33,084 ) $  18,159,947  

See accompanying notes to condensed consolidated financial statements.

F-7


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

NOTE-1

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of December 31, 2009 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended June 30, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2010 or for any future period.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2009.

NOTE-2

ORGANIZATION AND BUSINESS BACKGROUND

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 one for ten reverse stock split. The Exchange resulted in the previous controlling shareholders of Media Challenge becoming the controlling shareholders of China Marketing. Consequently, the Exchange is accounted for as a reverse merger, whereby the accounts of Media Challenge are recapitalized to show the adopted capital structure of China Marketing.

Media Challenge was incorporated on August 12, 2004, under the laws of the Territory of the British Virgin Islands (BVI). Media Challenge is a holding company and has no operations other than operations that it conducts through its direct and indirect subsidiaries. One of Media Challenge's subsidiaries, Shenzhen New Media Consulting Co., Ltd. ("Shenzhen New Media") was incorporated on November 15, 2004 under the laws of the People's Republic of China ("PRC").

According to an agreement, dated March 7, 2005, Shenzhen New Media acquired 100% of Shenzhen Media Investment Co., Ltd. ("Shenzhen Media"), an entity controlled by six common owners of Media Challenge. Shenzhen Media was formed on October 22, 2003, under the laws of the PRC. China Marketing completed the acquisition of Shenzhen Media on December 21, 2005, and Shenzhen Media is now a wholly-owned subsidiary of Shenzhen New Media. The transaction was accounted for as a transfer of entities under common control. On March 7, 2005, Shenzhen New Media entered into an agreement to acquire 100% of Shenzhen Media Investment Co., Ltd. ("Shenzhen Media"), an entity controlled by six common owners of Media Challenge. Shenzhen Media was formed on October 22, 2003, under the laws of the PRC. Shenzhen New Media 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.

F-8


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

In October 2004, Shenzhen Media formed a new wholly-owned subsidiary in the PRC known as Beijing Media Management and Consulting Co., Ltd. ("Beijing Media").

In November 2005, Shenzhen New Media formed a new wholly-owned subsidiary in the PRC known as Shenzhen New Media Advertising Co., Ltd. ("NMA"). The registered capital of NMA is one million RMB (approximately $122,100).

In November 2007, Shenzhen Media formed a new 52% owned subsidiary in the PRC known as Beijing Orient Converge Human Resources Management Center Co. Ltd. ("BJOC"). The registered capital of BJOC is RMB 5,000,000 (approximately $684,500).

On July 18, 2008, Shenzhen New Media formed a new 51% owned subsidiary, Shanghai Zhiduo Network Technology Company Limited ("SZNT") under the laws of the PRC. The registered capital of SZNT is RMB 1,000,000 (approximately $142,879). SZNT is engaged in the business of management consulting services and brand name consulting services.

On August 2, 2008, Shenzhen Media sold 42% ownership of BJOC to Shanghai Cheng Mei Biotechnology Co., Ltd. ("Shanghai Cheng Mei") for a cash price of $141,831 (equivalent to RMB 987,461). After the sale, Shenzhen Media owns 10% of BJOC.

On March 18, 2010, the Company’s 51%-owned subsidiary, SZNT discontinued its operations and applied for liquidation process with the local government.

The 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; and provides consulting services to clients concerning advertising and marketing matters. The Company also conducts online sales of electronic products through Shenzhen Media.

NOTE-3

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

•       Use of estimates

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.

•       Basis of consolidation

The condensed consolidated financial statements reflect the consolidated operations of CMKM and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

•      Cash and cash equivalents

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

F-9


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

•      Trade accounts receivable

Trade accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

•      Inventory

Inventories mainly consist of the electronic products purchased from third parties, which are stated at the lower of cost, as determined on a first-in, first-out basis, or market. Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value, if lower.

•      Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

  Depreciable life
Buildings 20 years
Motor vehicles 5 years
Furniture and equipment 5 years
Computer equipment 5 years

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

    June 30, 2010     December 31, 2009  
             
             
Buildings $  1,082,697   $  1,078,168  
Motor vehicles   348,636     328,074  
Furniture and equipment   147,494     158,059  
Computer equipment   218,348     201,542  
    1,797,175     1,765,843  
Less: accumulated depreciation   (592,529 )   (510,772 )
             
Property, plant and equipment, net $  1,204,646   $  1,255,071  

Depreciation expense for three months ended June 30, 2010 and 2009 was $43,898 and $42,957, respectively.

Depreciation expense for six months ended June 30, 2010 and 2009 was $88,536 and $85,654, respectively.

Long-lived assets of the Company are reviewed annually to assess whether the carrying value has become impaired according to the guidelines established in the Accounting Standards Codification ("ASC") Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”. No impairment of assets was recorded during the six months ended June 30, 2010.

F-10


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

•       Intangible assets

In accordance with ASC Topic 350-50, “General Intangibles Other Than Goodwill”, goodwill amounts are not amortized, but rather are tested for impairment at least annually. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives, which is the ten years of the "license agreement." The carrying amount of the asset is reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. No intangible asset impairment charges are deemed necessary for the six months ended June 30, 2010.

Amortization expense of the license agreement included in cost of revenue for the three months ended June 30, 2010 and 2009 was $38,591 and $38,420, respectively.

Amortization expense of the license agreement included in cost of revenue for the six months ended June 30, 2010 and 2009 was $77,626 and $76,093, respectively.

As of June 30, 2010, estimated future annual amortization expense related to the license agreement in the next four years is as follows:

Period ending June 30:    

 

2011 $ 148,478  
2012   148,478  
2013   148,478  
2014    78,164  
       
Total $ 523,598  

Long-term investments

Long-term investments represent cost and equity method investments in the PRC. Equity method investments are recorded at original cost and adjusted to recognize the Company’s proportionate share of the investee’s net income or losses and additional contributions made and distributions received. The Company recognizes a loss if it is determined that other than temporary decline in the value of the investment exists. The Company also accounts for investments, other than marketable securities, with ownership less than 20% using the cost method.

(a) Shenzhen Keungxi Technology Company Ltd. ("SKTC")

SKTC was incorporated in China in October 2005. Its business scope includes, among others, sales and development of computer software, and computer and communication systems. It also provides information system consulting services. The Company, through Shenzhen Media, holds 48% of the equity interest of SKTC and three individual shareholders, Wengao Luo, Xi Chen and Bin Li own the remaining 21.5%, 21.5% and 9% equity interest of SKTC, respectively and accounts for the investment using the equity method.

F-11


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

Balance as of December 31, 2005 $  78,555  
Investment loss (48%)   (41,835 )
Advances made to SKTC   166,031  
Balance as of December 31, 2006   202,751  
Investment loss (48%)   (49,916 )
Advances made to SKTC   217,541  
Balance as of December 31, 2007   370,376  
Investment loss (48%)   (47,908 )
Advances made to SKTC   22,123  
Balance as of December 31, 2008   344,591  
Investment loss (48%)   (33,455 )
Advances made to SKTC   71,915  
Balance as of December 31, 2009   383,051  
Investment loss (48%)   (8,135 )
Advances made to SKTC   9,575  
Balance as of June 30, 2010 $  384,491  

(b) Shanghai Qiyu Information Technology Co., Limited (“SQIT”)

SQIT was incorporated in China in November 2007 and is mainly engaged in the provision of network services. In January 2009, the Company, through Shenzhen Media, holds 30% of the equity interest of SQIT and accounts for the investment using the equity method. The investment was liquidated on January 19, 2010.

(c) Beijing Orient Converge Human Resources Management Center Co. Ltd (“BJOC”)

BJOC was incorporated in China in October 2004 and is mainly engaged in providing consultation, professional training and relevant sale and marketing services to business enterprises in China. In November 2007, the Company, through Shenzhen Media, held 52% of the equity interest of BJOC and accounted for the investment in consolidation.

On August 2, 2008, the Company’s subsidiary, Shenzhen Media, sold 42% ownership of BJOC to Shanghai Cheng Mei Biotechnology Co., Ltd. ("Shanghai Cheng Mei") for a cash consideration of $141,831 (equivalent to RMB 987,461). As of June 30, 2010, the Company, through Shenzhen Media owns the remaining 10% of BJOC amounting to $73,437 and records this investment using the cost method.

(d) Shenzhen Directory Marketing Management Co. Ltd (“SDMM”)

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

Purchases of investment $  440,619  
Investment loss (30%)   (1,953 )
Balance as of June 30, 2010 $  438,666  

•       Non-controlling interest

Non-controlling interest represents non-controlling owners 49% of equity in SZNT for the period ending June 30, 2010.

•       Revenue recognition

F-12


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

In accordance with ASC Topic 605, "Revenue Recognition", the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

(a) Magazine advertising

The Company publishes three issue magazines each month, (namely Sale edition, Channel edition and Case edition) of "China Marketing" and other special editions periodically, for example, "China Business & Trade" –(Training edition).

The Company recognizes revenues for the advertising sales and consulting service ratably over the periods when the customer's advertisements are published and services are provided. Total revenue from the advertising sales is $4,388,160 and $1,723,136 for the six months ended June 30, 2010 and 2009, respectively. Total revenue from marketing consulting service is $1,298,424 and $712,097 for the six months ended June 30, 2010 and 2009, respectively.

The Company recognizes revenue from the publishing of the above magazines when the risks and rewards of ownership of the goods have transferred to the customer, which is usually on delivery or when title passes. Total revenue from the publishing business is $710,416 and $1,486,838 for six months ended June 30, 2010 and 2009, respectively.

(b) Electronics trading

Since the fourth quarter of 2008, the Company commenced the new business line of selling electronic products on the internet portal www.ipinipin.com, which attributed $11,183,509 and $5,971,564 of revenue for the six months ended June 30, 2010 and 2009, respectively.

The Company derives the major revenues from the trading of electronic products. The Company recognizes its revenues net of value-added taxes (“VAT”) when the products are delivered to the customers, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectibility is reasonably assured.

An analysis of the Company’s revenues by products is as follows:            
             
    Three months ended June 30,  
    2010     2009  
Magazine advertising:            
Advertising pages sales $  2,085,797   $  836,633  
Marketing consulting service   639,560     388,015  
Publishing   340,623     852,535  
    3,065,980     2,077,183  
Electronics trading   5,714,710     3,393,444  
             
Total revenue $  8,780,690   $  5,470,627  
             
    Six months ended June 30,  
    2010     2009  
Magazine advertising:            
Advertising pages sales $  4,388,160   $  1,723,136  
Marketing consulting service   1,298,424     712,097  
Publishing   710,416     1,486,838  
    6,397,000     3,922,071  
Electronics trading   11,183,509     5,971,564  
Total revenue $  17,580,509   $  9,893,635  

F-13


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

•       Cost of revenue

(a) Magazine advertising

Cost of revenue includes printing, labor costs and amortization incurred by the Company in the production of its magazines. The Company records the estimated cost of returned magazines at the date we delivered the magazines to our customers. Our sales are based on three main distribution channels throughout China: (1) postal subscription base distribution; (2) direct order distribution; and (3) agency base distribution.

First, postal subscription channel involves the distribution of our magazines by Chinese post offices. Magazine subscribers can request their subscriptions delivered from the post offices in China. Returns are not allowed for magazines sold through postal subscription.

Second, order distribution involves requests made by a subscriber to us for a single or multiple issues of magazines that do not involve an ongoing subscription. Upon receipt of order requests and payment, we deliver the ordered issues to the address requested by the subscriber. Returns are not permitted for magazines sold through direct request subscription.

Third, agency distribution involves delivery of our magazines to sales agents who in turn distribute the magazines to retail agents at various locations throughout China. The Company granted sales agents a two-month return privilege. Average return rate for the six months ended June 30, 2010 and 2009 was 16% and 13.84%, respectively.

In accordance with the provisions of ASC Topic 605-15-25-1, “Sales of Product when Right of Return Exists” (“ASC 605-15-25-1”), an enterprise sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:

a.

The seller's price to the buyer is substantially fixed or determinable at the date of sale.

   
b.

The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.

   
c. The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.
   
d. The buyer acquiring the product for resale has economic substance apart from that provided by the seller.
   
e.

The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer. f. The amount of future returns can be reasonably estimated.

The Company recognizes magazine sales revenue in accordance with the provisions of ASC 605-15-25-1: first, our price to the sales agent is fixed; second, the sales agent has to pay us fully upon order request and the payment is not contingent on resale of the magazines; third, the Company is not responsible in the event of theft or physical destruction or damage of the product after delivery; fourth, our sales agents include bookstores, reading groups, and culture groups, etc.; fifth, the Company has no obligations to resell the magazines distributed to sales agents; and finally, the amount of returns can be reasonably estimated and are included in accrued liabilities.

 

F-14


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

(b) Electronics trading

Cost of revenue consists primarily of purchase cost of electronics products, direct labor, depreciation and other overheads, which are directly attributable to the sale of electronics products. Shipping and handling cost, associated with the delivery of electronic products to the customers, are recorded in cost of revenue and are recognized when the related product is delivered to the customer.

  • Earnings per share

Basic earnings per common share ("EPS") are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive securities, such as stock options and warrants. The numerators and denominators used in the computations of basic EPS are presented in the following table:

    Six months ended June 30,  
    2010     2009  
Numerator for basic and diluted EPS            
Income from continuing operations attributable to China            
 Marketing Media Holdings, Inc. common stockholders $  2,147,578   $  230  
Discontinued operations attributable to China Marketing Media            
 Holdings, Inc. common stockholders   (9,678 )      
Net income attributable to China Marketing Media Holdings,            
 Inc. common stockholders $  2,137,900   $    
             
Denominator for basic and diluted EPS            
- Weighted average shares of common stock outstanding   28,686,002     28,686  
             
Earnings per share – basic and diluted            
Income from continuing operations attributable to China            
 Marketing Media Holdings, Inc. common stockholders $  0.07   $  0.01  
Discontinued operations attributable to China Marketing Media            
 Holdings, Inc. common stockholders $  (0.00 ) $  N/A  
Net income attributable to China Marketing Media Holdings,            
 Inc. common stockholders $  0.07   $  0.01  

•       Foreign currency translation and comprehensive income

The accompanying financial statements are presented in United States Dollars (“US$”). The functional currency is Renminbi Yuan ("RMB") of the PRC. The financial statements are translated into US$ from RMB at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

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

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

F-15


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

•       Income taxes

The Company adopted ASC Topic 740, “Income Taxes” regarding accounting for uncertainty in income taxes, which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties and interest, accounting in interim periods and disclosure.

The Company has recorded no deferred tax assets as of June 30, 2010 and 2009, respectively. For the three and six months ended June 30, 2010 and 2009, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2010, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts major businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.

•       Related parties

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

•       Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in the financial statements. The Company currently has 2 reportable business segments, with electronic products and magazine advertising in the PRC.

•       Fair value measurement

ASC Topic 820, “Fair Value Measurements and Disclosures” ("ASC 820") establishes a new framework for measuring fair value and expands related disclosures. Broadly, ASC 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

For financial assets and liabilities, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

F-16


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

•       Financial instruments

The carrying value of the Company’s financial instruments include cash and cash equivalents, accounts receivable, prepaid expense, other receivables, accounts payable, accrued expenses and levies, deferred revenues, taxes payable and other payables. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.

•       Restrictions on transfer of assets out of the PRC

Dividend payments by Shenzhen New Media and its direct and indirect subsidiary are limited by certain statutory regulations in the PRC. No dividends may be paid by Shenzhen New Media without first receiving prior approval from the State Administration of Foreign Exchange or its local offices. Dividend payments are restricted to 85% of profits, after tax.

NOTE-4

DISCONTINUED OPERATIONS

On March 18, 2010, the Company’s 51%-owned subsidiary, SZNT discontinued its operations and applied for liquidation process with the local government.

No revenues were generated from the discontinued operations for the three and six months ended June 30, 2010 and 2009. The results of operations were reclassified as loss from discontinued operations in the condensed consolidated statements of operations for all dates and periods presented.

NOTE-5

PREPAID EXPENSES

Prepaid expenses consist primarily of prepayments made to an unrelated company in advance for future financial and legal consultation services. As of June 30, 2010 and December 31, 2009, prepaid balance under these arrangements totaled $111,132 and $578,652, respectively.

NOTE-6

RELATED PARTY TRANSACTIONS WITH AN AFFILIATE

Sale and Marketing Publishing House ("CMO"), an affiliate owned by the PRC government, is controlled and directed by a common director and major shareholder of the Company. CMO is not a direct or indirect subsidiary of the Company. Transactions with CMO are listed as follows:

Operation and Management Right Agreement

On October 23, 2003, Shenzhen Media entered into a 10-year agreement with CMO. The agreement calls for the payment of $1,220,930 to CMO in exchange for a right to oversee the operation and strategic planning of advertising, publishing, and staff training for the magazines that are published by CMO. Under this agreement, Shenzhen Media is entitled to collect advertising revenues from customers already existing at the time of the contract, in addition to any new clients that Shenzhen Media can solicit and develop. Shenzhen Media shall bear all the operating costs and receive all the revenues from the contracted businesses.

As of June 30, 2010 and December 31, 2009, related party receivables represented loans receivable from CMO totaling $5,104,858 and $2,685,944, which are unsecured, and non-interest bearing. These loans have no fixed repayment schedule and are receivable on demand.

F-17


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

NOTE-7

RELATED PARTY RECEIVABLES

As of June 30, 2010 and December 31, 2009, related party receivables represented temporary advances totaling $355,550 and $354,063, which are unsecured, and bear no interest. These related party receivables have no fixed repayment schedule and are receivable on demand.

NOTE-8

LOAN RECEIVABLE

On September 24, 2009, the Company, through Shenzhen New Media, entered into a loan and investment option agreement (“the Agreement”) with Beijing Kang Pusen Management Consultants Co., Ltd (“Kang Pusen”). Kang Pusen is mainly engaged in sales training services in the PRC.

Under the Agreement, the Company provides a loan advance of $1,170,070 (equivalent to RMB8,000,000) to Kang Pusen, which is non-interest bearing, secured by 100% equity interest of Kang Pusen and repayable by cash in full or conversion to equity, subject to the fulfillment of performance requirements in 2010 results. Based on the agreed conditions, when Kang Pusen achieves its revenue up to RMB10 million before May 2010, the loan advances at the discretion of the Company may be converted into common stock at the conversion price equal to 20% ownership in Kang Pusen. Additionally, when Kang Pusen achieves 2010 full year’s performance milestone, whereas annual revenue is RMB30 million and net income is RMB12 million, together with the profit commitment of not less than 30% annual growth in the next three years, the Company may agree to increase its equity interest in Kang Pusen up to 45%-55%, at the conversion price of not exceeding 6 times of its earnings per share. The note will automatically mature on December 24, 2010 in full repayment, given that the Company elects not to exercise the conversion option.

As of June 30, 2010, none of the conversion option was exercised by the Company.

As of June 30, 2010 and December 31, 2009, the loan balance amounted to $1,174,985 and $1,170,070, respectively.

NOTE-9

INCOME TAXES

United States

The Company was incorporated in the United States of America and is subject to U.S. tax law. No provisions for income taxes have been made as the Company has no U. S. taxable income for the periods presented. The applicable income tax rates for the Company for the six months ended June 30, 2010 and 2009 are 34%.

British Virgin Islands

The Company’s subsidiary, Media Challenge was incorporated in the British Virgin Islands and is not subject to income taxes under the current laws of the British Virgin Islands.

PRC

The Company’s subsidiaries in the PRC are currently subject to income taxes according to applicable tax laws in the PRC. The tax rates are 15% for NMA, 15% for Shenzhen New Media and Shenzhen Media and 0% for CMO. The provision for income taxes for the six months ended June 30, 2010 and 2009 was $28,128 and $11,515, respectively.

F-18


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

Pursuant to the laws and regulations in the PRC, NMA, as a wholly-foreign-owned enterprise ("WFOE") in the PRC, is entitled to an exemption from the PRC enterprise income tax for two years commencing from its first profitable year in 2006. NMA accounts for most of the revenue during the periods presented. Other subsidiaries income tax rates range from 0% to 25%.

(a) The provision for income taxes consists of the following:            
             
    Six months ended June 30,  
    2010     2009  
PRC:            
Current tax $  28,128   $ 11,515  
Deferred tax   -     -  
             
  $  28,128   11,515  
             
(b) Deferred tax            

No provision for deferred tax assets or liabilities has been made, since the Company had no material temporary differences between the tax bases of assets and liabilities and their carrying amounts.

NOTE-10

CONCENTRATIONS AND RISK

The Company is exposed to the following concentrations of risk:

(a) Business risk with CMO

As discussed in Note 6, the Company's operations are conducted through an agreement with CMO, a company owned by the PRC government. The revenues are generated through production of the magazines owned by CMO. The current contract will terminate in 2013, and it is unknown whether the contract will be renewed. A change in the political climate in the PRC could also have a material adverse effect on the Company's business.

(b) Major customers

For the three and six months ended June 30, 2010 and 2009, there is no customer who accounts for 10% or more of revenues.

(c) Major vendors

For the three and six months ended June 30, 2010 and 2009, there is no vendor who accounts for 10% or more of purchases.

(d) Major distribution agents for the publishing business

For the three and six months ended June 30, 2010 and 2009, approximately 14% and 20% of the Company’s sales are generated from its 4 major sales agents in the PRC, respectively. The representatives solicited advertising from the general public in their designated geographic territory.

The Company’s magazines are believed to be well established and recognized by the general public. In this regard, management believes no severe impact would occur on the Company’s sales if any of the distributing agents were lost.

F-19


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

(e) Economic and political risks

The Company faces a number of risks and challenges as a result of having primary operations and marketing in the PRC. Changing political climates in the PRC could have a significant effect on the Company's business.

(f) Control by principal stockholders

The directors, executive officers and their affiliates or related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding shares of the common stock of the Company. Accordingly, the directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including increasing the authorized capital stock of the Company and the dissolution, merger or sale of the Company's assets.

NOTE-11

COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

The Company leases various office spaces under several non-cancelable operating agreements in a term ranging from 1 to 4 years, with fixed monthly rentals, expiring between December 2010 and December 2012. Costs incurred under these operating leases are recorded as rent expense and totaled approximately $155,953 and $198,256 for the six months ended June 30, 2010 and 2009.

As of June 30, 2010, future minimum rent payments due under various non-cancelable operating leases in next three years are as follows:

Period ending June 30:      
   2011 $  297,254  
   2012   170,187  
   2013   76,159  
       
Total: $  543,600  
       
(b) Contingencies      

The Company has not, historically, carried any property or casualty insurance. No amounts have been accrued for any liability that could arise from the lack of insurance. Management feels the chances of such an obligation arising are remote.

F-20


NOTE-12

SEGMENT INFORMATION

The Company’s business units have been aggregated into two reportable segments: Advertising and marketing matters and online sales of electronic products. The Company, through its subsidiaries operates these segments in the PRC. All the identifiable assets of the Company are located in the PRC during the period presented.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the six months ended June 30, 2010 and 2009. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.

Summarized financial information concerning the Company’s reportable segments is shown in the following table for the three and six months ended June 30, 2010 and 2009:

    Three months ended June 30, 2010  
                         
    Advertising     Electronic              
    and marketing     products     Corporate     Total  
                         
Revenue, net $  3,065,980   $  5,714,710   $  -   $  8,780,690  
Cost of revenue   (792,108 )   (5,432,498 )   -     (6,224,606 )
Gross profit   2,273,872     282,212     -     2,556,084  
Depreciation and amortization   38,962     43,527     -     82,489  
Net income (loss)   1,142,046     (201,793 )   (1,775 )   938,478  
Expenditure for long-lived assets $  16,251   $  20,267   $  -   $  36,518  
                         
                         
    Six months ended June 30, 2010  
                         
    Advertising     Electronic              
    and marketing     products     Corporate     Total  
                         
Revenue, net $  6,397,000   $  11,183,509   $  -   $  17,580,509  
Cost of revenue   (1,455,085 )   (10,775,148 )   -     (12,230,233 )
Gross profit   4,941,915     408,361     -     5,350,276  
Depreciation and amortization   78,039     88,123     -     166,162  
Net income (loss)   2,362,180     (222,226 )   (2,054 )   2,137,900  
Expenditure for long-lived assets $  16,251   $  22,078   $  -   $  38,329  
                         
                         
    Three months ended June 30, 2009  
                         
    Advertising     Electronic              
    and marketing     products     Corporate     Total  
                         
Revenue, net $  2,077,183   $  3,393,444   $  -   $  5,470,627  
Cost of revenue   (720,176 )   (3,110,795 )   -     (3,830,971 )
Gross profit   1,357,007     282,649     -     1,639,656  
Depreciation and amortization   38,881     -     42,496     81,377  
Net income (loss)   184,050     4,250     (750 )   187,550  
Expenditure for long-lived assets $  11,030   $  2,030   $  -   $  13,060  

F-21



    Six months ended June 30, 2009  
                         
    Advertising     Electronic              
    and marketing     products     Corporate     Total  
         
Revenue, net $  3,922,071   $  5,971,564   $  -   $  9,893,635  
Cost of revenue   (1,279,637 )   (5,529,209 )   -     (6,808,846 )
Gross profit   2,642,434     442,355     -     3,084,789  
Depreciation and amortization   76,664     85,083     -     161,747  
Net income (loss)   235,040     (1,520 )   (2,867 )   230,653  
Expenditure for long-lived assets $  12,963   $  7,120   $  -   $  20,083  

All of the Company’s revenues were derived from customers located in the PRC.

NOTE-13

RECENT ACCOUNTING PRONOUNCEMENTS

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

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and include conforming amendments to guidance on employer’s disclosures about postretirement benefit plan assets. ASU 2010-06 is about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

F-22


CHINA MARKETING MEDIA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)

In March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging. ASU 2010-11 provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception in ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades . ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and is not expected to have a significant impact on the Company’s financial statements.

In May 2010, the FASB issued ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in ASU 2010-19 are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.

NOTE-14

SUBSEQUENT EVENTS

The Company has evaluated subsequent events from the balance sheet date through when the report is issued.

F-23


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; and any statements of belief or intention. As such, they are subject to risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward looking statements. Such risks and uncertainties include any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2009 filed April 14, 2010 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Certain Terms

Except where the context otherwise requires and for the purposes of this report only:

  • “BVI” refers to the British Virgin Islands;

  • “China,” “Chinese” and “PRC” refer to the People’s Republic of China and do not include Taiwan and the special administrative regions of Hong Kong and Macao;

  • China Marketing Media,” “the Company,” “we,” “us,” and “our” refer to China Marketing Media Holdings, Inc. and its subsidiaries;

  • “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

  • “Media Challenge” refers to Media Challenge Holdings, Limited, our direct, wholly-owned BVI subsidiary;

  • “RMB” refers to Renminbi, the legal currency of China;

  • “CMO” refers to our affiliate, Sale and Marketing Publishing House;

  • “SEC” refers to the United States Securities and Exchange Commission;

  • “Securities Act” refers to the Securities Act of 1933, as amended;

  • “Shenzhen Media” are to Shenzhen Media Investment Co., Ltd., our indirect, wholly-owned subsidiary, a Chinese company;

  • “Shenzhen New Media” refers to Shenzhen New Media Consulting Co., Ltd., our indirect, wholly-owned subsidiary, a Chinese company; and

  • “U.S. dollar,” “$” and “US$” refer to the legal currency of the United States.


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Overview

We are a holding company and we have no operations other than administrative matters and the ownership of our direct and indirect operating subsidiaries. Through our indirect Chinese subsidiaries, we are engaged in the business of selling magazines and advertising space in our magazines, providing sales and marketing consulting services and online sales of various products. By late 2009 and early 2010, business in the electronic sales segment has almost doubled. This is due to the recovery of the Chinese economy, as people have more disposable income to spend. All of our operations, assets, personnel, officers and directors are located in China. Currently, we publish China Marketing (Xiao Shou Yu Shi Chang) magazine in China. We publish three issues of China Marketing per month, including a sales edition, case edition and channel edition. From June 2003 through December 2006, we also published one issue of China Business & Trade magazine per month, which was the training edition. In June 2009, we began to publish eight special issues of China Marketing, which include cosmetic edition, food edition, gift edition, tobacco edition, finance edition, sporting goods edition, edition for agricultural resources and edition for entrepreneurs in Henan. The special editions are published from time to time based upon market conditions.

Second Quarter Financial Performance Highlights

The following are some financial highlights for the second quarter of 2010:

  • Revenues: Our revenues were approximately $8.8 million for the second quarter of 2010, an increase of 60.5% from the same quarter of last year.

  • Gross Margin: Gross margin was 29.1% for the second quarter of 2010, as compared to 30.0% for the same period in 2009.

  • Operating Profit: Operating profit was approximately $0.87 million for the second quarter of 2010, an increase of approximately $0.66 from approximately $0.21 million of the same period last year.

  • Net Income: Net income was approximately $0.94 million for the second quarter of 2010, an increase of 372% from the same period of last year.

  • Fully diluted earnings per share was $0.03 for the second quarter of 2010.

Results of Operations

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

During the three-month period ended June 30, 2010, we generated revenues through sales of our magazines, sales of advertising space in our magazines and providing sales, marketing consulting services and online sale of electronic products. The following table summarizes the results of our operations during the three month periods ended June 30, 2010 and 2009, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the three month period ended June 30, 2009 to the three month period ended June 30, 2010.

    Three Months Ended June 30  
Item   2010     2009     Increase     % Increase  
                (Decrease)     (% Decrease)  
Revenue $  8,780,690   $  5,470,627     3,310,063     60.5%  
Cost of Sales   6,224,606     3,830,971     2,393,635     62.5%  
Gross Profit   2,556,084     1,639,656     916,428     55.9%  
Operating Expenses   1,683,479     1,351,439     332,040     24.6%  
Other Income (expense)   88,683     (10,253 )   98,936     964.9%  
Provision for Taxes   22,810     11,394     11,416     100.2%  
Net Income attributable to China Marketing Holdings, Inc.   938,478     198,880     739,598     371.9%  

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Revenue

Our revenues during the three-month period ended June 30, 2010 amounted to $8,780,690, which is 3,310,063 or 60.5% more than the same period in 2009, when we had revenues of $5,470,627. The increase in revenues for the three months ended June 30, 2010 is mainly due to the sales increase in selling electronic products online and an increase in advertising sales. The increase in revenue of selling electronic products was mainly contributed by more well-established sales channels and a variety of sales promotions to attract more consumers. In addition, the Chinese economy started recovering during 2009 and many enterprises raised their marketing and advertising budgets in this year, which resulted in the increase of our revenue in an amount of approximately $1.25 million from advertising sales. Sales of magazines dropped 60.0%, or $0.5 million, in the second quarter of 2010 compared to the same period last year, due to three special additions we issued during the second quarter of 2009 which we did not issue in year 2010.

Components of Revenues

The following table shows the different components comprising our total revenues during the three month periods ended June 30, 2010 and 2009.

    Three Months Ended June 30              
Revenue Category   2010     2009     Increase     % Increase  
                (Decrease)     (% Decrease)  
Magazine Sales $  340,623   $  852,535   $  (511,912 )   (60.0% )
Advertising Space   2,085,797     836,633     1,249,164     149.3%  
Sales                        
Consulting Service   639,560     388,015     251,545     64.8%  
 Electronic Products   5,714,710     3,393,444     2,321,266     68.4%  
Total   8,780,690     5,470,627   $ 3,310,063     60.5%  
                       

Cost of Sales

Our cost of sales during the three-month period ended June 30, 2010 and for the same period of 2009 was $6,224,606 and $3,830,971, respectively, which accounts for 70.9% and 70.0%, respectively, as a percentage of total revenues during the applicable periods. The dollar amount of the cost of sales increased mainly because of the increase of total sales. Cost of sales as a percentage of revenues maintained at the same level during the second quarter of 2010 as compared with the same period in 2009.

Operating Expenses

Our expenses consist of payroll and other general and administrative expenses. Payroll expense was $833,662 during the three-month period ended June 30, 2010 as compared to $589,248 during the same period of 2009. The increase in payroll expense is mainly due to the fact that more employees were hired and commissions were paid for our online electronics products selling business.

Our other general and administrative expenses were $849,817 (9.7% of total sales) and $762,191 (13.9 % of total sales) during the second quarter of 2010 and the second quarter of 2009, respectively.

Income taxes

United States

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

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British Virgin Islands

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

PRC

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

Despite these pending changes, the EIT Law gives the FIEs established before March 16, 2007 (“Old FIEs”) a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. During this five-year grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under the original EIT Law shall gradually increase their EIT rate by 2% per year until the tax rate reaches 25%. In addition, the Old FIEs that are eligible for the “two-year exemption and three-year half reduction” or “five-year exemption and five-year half-reduction” under the original EIT Law, are allowed to remain to enjoy their preference until these holidays expire.

The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse effect on any organization’s business, fiscal condition and current operations in China.

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

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

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

We incurred income taxes of $22,810 and $11,394 during the three months ended June 30, 2010 and 2009, respectively or an increase of 100%. We paid more tax during the second quarter of 2010 due to an increase in income from operations.

Net income (profit after taxes)

We earned net income of $938,478 and $198,880 during the three-month period ended June 30, 2010 and 2009, respectively or an increase of 372%. The increase in our net income in the second quarter of 2010 is primarily attributable to the factors described above.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

The following table summarizes the results of our operations during the six month periods ended June 30, 2010 and 2009, and provides information regarding the dollar and percentage increase or (decrease) from the six month period ended June 30, 2009 to the six month period ended June 30, 2010.

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    Six Months Ended June 30              
Item   2010     2009     Increase     % Increase  
                (Decrease)     (% Decrease)  
Revenue $  17,580,509   $  9,893,635     7,686,874     77.7%  
Cost of Sales   12,230,233     6,808,846     5,421,387     79.6%  
Gross Profit   5,350,276     3,084,789     2,265,487     73.4%  
Operating Expenses   3,222,552     2,749,865     472,687     17.2%  
Other Income (expense)   47,982     (13,736 )   61,718     449.3%  
Provision for Taxes   28,128     11,515     16,613     144.3%  
Net Income attributable to China Marketing Media Holdings, Inc.   2,142,642     264,675     1,877,967     709.5%  

Revenue

Our revenues during the six-month period ended June 30, 2010 amounted to $17,580,509, which is $7,686,874 or 77.7% more than the same period in 2009, when we had revenues of $9,893,635. The increase in revenues for the six months ended June 30, 2010 is mainly due to the increase in selling electronic products online and an increase in advertising sales. The increase in revenue of selling electronic products was mainly contributed by more well-established sales channels and a variety of sales promotions to attract more consumers. In addition, the Chinese economy started recovering during 2009 and many enterprises raised their marketing and advertising budgets in this year, which resulted in the increase of our revenue in an amount of approximately $2.67 million from advertising sales. Sales of magazines dropped 52%, or $0.77 million, in the second quarter of 2010 compared to the same period last year, due to three special additions we issued during the second quarter of 2009 which we did not issue in year 2010.

Components of Revenues

The following table shows the different components comprising our total revenues during the six month periods ended June 30, 2010 and 2009.

    Six Months Ended June 30              
Revenue Category   2010     2009     Increase     % Increase  
                (Decrease)     (% Decrease)  
Magazine Sales $  710,416   $  1,486,838     (776,422 )   (52.2% )
Advertising Space   4,388,160     1,723,136     2,665,024     154.7%  
Sales                        
Consulting Service   1,298,424     712,097     586,327     82.3%  
Electronic Products   11,183,509     5,971,564     5,211,945     87.3%  
Total   17,580,509     9,893,635     7,686,874     77.7%  

Cost of Sales

Our cost of sales during the six-month period ended June 30, 2010 and for the same period of 2009 was $12,230,233 and $6,808,846, respectively, which accounts for 69.6% and 68.8%, respectively, as a percentage of total revenues during the applicable periods. The dollar amount of the cost of sales increased mainly because of the increase in sales. Cost of sales as a percentage of revenues remained at the same level for the six months ended June 30, 2010 as compared with the same period in 2009.

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Operating Expenses

Our expenses consist of payroll and other general and administrative expenses. Payroll expense was $1,538,015 during the six -month period ended June 30, 2010 as compared to $1,224,090 during the same period of 2009. The increase in payroll expense is mainly due to the fact that the head count increased and the sales commissions increased in the electronic products division.

Our other general and administrative expenses were $1,684,537 (9.6% of total sales) and $1,525,775 (15.4% of total sales) for the six months ended June 30, 2010 and 2009, respectively.

Income taxes

We incurred income taxes of $28,128 and $11,515 during the six months ended June 30, 2010 and 2009, respectively or an increase of 144%. We paid more tax during the second quarter of 2010 due to the increase in sales.

Net income (profit after taxes)

We earned net income of $2,142,642 and $264,675 during the six-month period ended June 30, 2010 and 2009, respectively or an increase of 709.5% . The increase in our net income for the six months ended June 30, 2010 is primarily attributable to the factors described above.

Liquidity and Capital Resources

As of June 30, 2010, we had cash and cash equivalents (including restricted cash) of approximately $5.6 million. Currently, we do not have outstanding bank loans. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

Cash Flow

 
             
    Six Months Ended June 30,  
         
    2010     2009  
             

Net cash provided by (used in) operating activities

$

459,773  

$

104,483  

 

           

Net cash provided by (used in) investing activities

  (477,262 )   6,480,731  

 

           

Net cash provided by (used in) financing activities

  -     -  

 

           

Net cash flow

  5,223     6,586,737  

Operating Activities:

Net cash provided by operating activities was approximately $0.46 million during the six months ended June 30, 2010, which is an increase of approximately $0.36 million from approximately $0.10 million net cash provided by operating activities for the same period of 2009. Such increase of net cash provided by operating activities was primarily attributable to the increase in income from continuing operations.

 

- 27 -


Investing Activities:

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

Net cash used in investing activities was approximately (0.48) million for the six months ended June 30, 2010, a decrease of approximately $6.96 million from approximately $6.5 million net cash provided by investing activities for the same period of 2009. Such decrease in net cash provided by (used in) investing activities was mainly attributable to a $5.97 million refund from investment deposit recorded in the second quarter of 2009.

Financing Activities

Net cash used in financing activities during the six months ended June 30, 2010 was approximately $0 as compared to $0 provided by financing activities for the same period of 2009.

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

Off-Balance Sheet Arrangements

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

Inflation

Our results of operations have not been affected by inflation and management does not expect that inflation risk would cause a 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 June 2010, the value of RMB against US dollars appreciated by 16%, from RMB8.1/ $1 to RMB6.806/ $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.

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

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

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

(a)The seller's price to the buyer is substantially fixed or determinable at the date of sale.

(b)The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.

(c)The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.

(d)The buyer acquiring the product for resale has economic substance apart from that provided by the seller.

(e)The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.

(f)The amount of future returns can be reasonably estimated. Estimated returns are based on historical data but require significant judgment on the part of management.

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

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

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

Restrictions on Transfer of Assets Out of the PRC. Dividend payments by Shenzhen New Media and its subsidiary are limited by certain statutory regulations in China. No dividends may be paid by Shenzhen New Media without first receiving prior approval from the State Administration of Foreign Exchange. Dividend payments are restricted to 85% of profits, after tax.

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Recent Changes in Accounting Standards

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

In September 2009, Accounting Standards Codification (“ASC”) became the source of authoritative U.S. GAAP recognized by the Financial Accounting Standards Board (“FASB”) for nongovernmental entities, except for certain FASB Statements not yet incorporated into ASC. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative U.S. GAAP for registrants. The discussion below includes the applicable ASC reference.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)” which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. The Company has now evaluated up to ASU 2010-21 on its financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our Chief Executive Officer and Interim Chief Financial Officer, Mr. Yingsheng Li, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2010. Based on that evaluation, Mr. Li concluded that because of the significant deficiencies in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2010.

As we disclosed in our Annual Report on Form 10-K filed with the SEC on April 14, 2010, during our assessment of the effectiveness of internal control over financial reporting as of December 31, 2009, management identified the significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our internal audit functions and (iii) the absence of an Audit Committee.

Because our current accounting department is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies, our management has determined that they require additional training and assistance in U.S. GAAP matters. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions. Finally, management determined that the lack of an Audit Committee of the board of directors of the Company also contributes to insufficient oversight of our accounting and audit functions.

In order to correct the foregoing significant deficiencies, we have taken or are taking the following remediation measures:

  • We are in the process of arranging necessary training for our accounting department staff;

  • We are in the process of engaging external professional accounting or consultancy firms to assist us in the preparation of the US GAAP accounts;

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  • We have committed to the establishment of effective internal audit functions; however, due to the scarcity of qualified candidates with extensive experience in U.S. GAAP reporting and accounting in the region, we were not able to hire sufficient internal audit resources before the end of our reporting period. However, we will increase our search for qualified candidates with assistance from recruiters and through referrals;

  • We have also launched a search for suitable candidates to serve as our independent directors and to serve on an audit committee and other standing committees in the near future.

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

Changes in Internal Control Over Financial Reporting.

During the fiscal quarter ended June 30, 2010, as described above, we have taken or are taking certain remediation measures that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that we expect will have a material adverse affect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three-month period ended June 30, 2010, we made no unregistered sales of our equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
   
None.  
   
ITEM 4. [REMOVED AND RESERVED]
   
ITEM 5. OTHER INFORMATION
   
None.  
   
ITEM 6. EXHIBITS

EXHIBITS.

   
31* Certification of Principal Executive Officer and Interim Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32*

Certification of Principal Executive Officer and Interim 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.

- 32 -


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATED: August 16, 2010

CHINA MARKETING MEDIA HOLDINGS, INC.

By: /s/ Yingsheng Li                                                           
Yingsheng Li
CEO, President and Interim CFO
(Principal Executive Officer and Principal
Financial Officer)



 EXHIBIT INDEX

Exhibit Number

Description

   
31* Certification of Principal Executive Officer and Interim Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32* Certification of Principal Executive Officer and Interim 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.