China Marketing Media (PINK:CMKM)

Item 4.01

Changes in Registrant’s Certifying Accountant.

We view CMKM as a going provate candidate as they just sold their most "promising" asset:

BEIJING, Dec. 29, 2011 (GLOBE NEWSWIRE) -- In accordance with the agreement signed on December 26, 2011, Shenzhen New Media Consulting Co. Ltd ("SNMC"), an indirectly owned subsidiary of China Marketing Media Holdings, Inc. (China Marketing Media or "the Company") (OTCBB:CMKM), has announced the sale of its subsidiary, Shenzhen Media Investment Co. Ltd. ("SMI" ). Under the Agreement, Bin Li, a related party and a former director of the Company, and Feng Yu, an individual shareholder, acquired 90% and 10% of equity interest in the entity, respectively.

The sale price was approximately USD$5.5 million for the 90% equity interest to Bin Li and approximately USD$0.61 million for the 10% equity interest to Feng Yu.

To facilitate the foregoing disposition of SMI, SNMC entered into certain intra-company equity transfer agreements on December 23, 2011 with SMI, pursuant to which SMI transferred its 10% equity interest in Beijing Orient Converge Human Resources Management Center Co. Ltd., its 98% equity interest in Beijing Media Management Consultation Company ("BMMC") and its 30% equity interest in Shenzhen Directory Marketing Management Co. Ltd., all of which, prior to the disposition were the Company's subsidiaries, in consideration for approximately USD$0.8 million, USD$0.15 million and USD$2.4 million, respectively, to SNMC. In addition, Wengao Luo, a member of the Company's Board, agreed to transfer all of his 2% equity interest in BMMC to SNMC in consideration for approximately USD$3,141.

"China Marketing Media has been pursuing a strategy to expand its consulting service to the needs of the clients in the sales and marketing fields. 'SMI' has been suffering losses or barely broke-even since 2008. The Company anticipates that the sale of the interest will enable the Company to focus on the growth of its magazine and advertising business," declared Yingsheng Li, Chairman and CEO of China Marketing Media.

Net (loss) income per common share attributable to China Marketing Media Holdings, Inc. – Basic and diluted
Continuing operations			(0.00	)			0.05				0.00				0.13
Discontinued operations			(0.00	)			(0.00	)			(0.00	)			(0.01	)
Net (loss) income per common share			(0.00	)			0.05				0.00				0.12
Weighted average number of common share outstanding – basic and diluted			28,686,002				28,686,002				28,686,002				28,686,002

Due to a highly competitive market for consumer products, the management has decided to focus on the higher gross margin end users rather than wholesalers and distributors. This also decreased the total Consumer Products division sales for the three-month period ended September 30, 2011. The decrease of overall revenues was also caused by Advertising Space Sales of $862,925 or 40%, but offset by an increase in Consulting Service of $171,100 or 19.6% and a slight increase in Magazine Sales of $10,292 or 2.4%. Even though the Consulting Service sector has been growing rapidly in recent months, the Advertising Space Sales still suffer from a soft market.

The following are some financial highlights for the first quarter of 2011:

• Revenues: Our revenues were approximately $7.1 million for the first quarter of 2011, a decrease of 18.9% from the same quarter a year ago.

• Gross Margin: Gross margin was 35.4% for the first quarter of 2011, as compared to 31.8% for the same quarter in 2010.

•  Operating Profit: Operating profit was approximately $0.37 million for the first quarter 2011, a decrease of approximately 70.8% from approximately $1.26 million of the same period of 2010.

•  Net Income attributable to China Marketing Media Holdings, Inc.: Net income was approximately $0.36 million for the first quarter of 2011, a decrease of 69.8% from the same period of last year.

• Fully diluted earnings per share was $0.01 for the first quarter of 2011, as compared to $.04 for the first quarter ended March 31, 2010.

This decrease in sales was due to a supply shortage experienced by ASUS, one of our major vendors, who was having some issues with meeting demands. The issues have been resolved since early March. The Advertising Pages Sales for the three-month period ended March 31, 2011, which is 1,289,592, or 44.0% less than the same period in 2010. Such decrease was due to the fact that the number of advertising trade shows was reduced. Despite the decrease in overall revenue, Consulting Service’s revenue actually rose $797,215 or 121% in the quarter compared to the same period last year. This was attributable to the sales by more well-established sales channels and a variety of sales promotions to attract more customers.

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.

CHINA MARKETING MEDIA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

(Currency expressed in United States Dollars (“US$”))

		Years ended December 31,
		2010			2009
Revenue, net
Magazine advertising	$	14,407,940		$	9,488,579
Consumer products		20,563,361			15,411,781
Total operating revenue, net		34,971,301			24,900,360
Cost of revenue
Magazine advertising		3,634,990			3,151,729
Consumer products		19,839,929			14,500,327
Total cost of revenue		23,474,919			17,652,056
Gross profit		11,496,382			7,248,304
Operating expenses:
Impairment loss on goodwill		446,543			-
General and administrative		6,707,491			5,917,937
Total operating expenses		7,154,034			5,917,937
Income from operations		4,342,348			1,330,367
Other income (expense):
Interest income		112,440			55,767
Interest expense		(78,631	)		-
Investment loss (equity method)		(42,256	)		(55,369	)
Subsidy income		40,586			140,028
Other income		453			-
Total other income		32,592			140,426
Income from continuing operations before income taxes		4,374,940			1,470,793
Income tax expense		(56,950	)		(27,328	)
Income from continuing operations, net of tax		4,317,990			1,443,465
Discontinued operations, net of tax		20,616			-
NET INCOME	$	4,338,606		$	1,443,465
(Subtract) add: net (income) loss attributable to non-controlling interests		(28,342	)		62,309
Net income attributable to China Marketing Media Holdings, Inc.	$	4,310,264		$	1,505,774
Earnings per share – basic and diluted:
Income from continuing operations attributable to China    Marketing Media Holdings, Inc. common stockholders	$	0.15		$	0.05
Discontinued operations attributable to China Marketing Media    Holdings, Inc. common stockholders		0.00			-
Net income attributable to China Marketing Media Holdings,    Inc. common stockholders	$	0.15		$	0.05
Weighted average common stock outstanding – basic and diluted		28,686,002			28,686,002

GeoTeam Note: Fourth Quarter 2010 vs. 2009 EPS was $0.03 vs. $0.01

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

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

Third Quarter Financial Performance Highlights 

• Revenues were approximately $9.1 million for the third quarter of 2010, an increase of 32.2% from the same quarter of last year.

• Gross margin was 32.6% for the third quarter of 2010, as compared to 30.2% for the same period of last year.

• Operating profit was approximately $1.46 million for the third quarter of 2010, an increase of approximately 95.5% from approximately $0.74 million of the same period last year.

• Net income was approximately $1.40 million for the third quarter of 2010, an increase of 89.6% from the same period of last year.

• Fully diluted earnings per share was $0.05 for the third quarter of 2010 vs. $0.03.

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.

GeoTeam® September 2010 Rodman & Renshaw notes:

China Marketing Media (OTC BB:CMKM)

• Professional magazine specifically targeted to sales and marketing professionals. Was publishing one edition per month, but now doing three.
• Demand for print media still exist in professional magazines.
• Advertising in magazines drives traffic to site for online sales of electronics, cosmetics and apparel. Will be adding additional product lines.
• Also advertises via credit card statements through agreements with banks credit card statements.
• Margins on online sales thin, but CMKM makes money on magazine advertising. Gross margin for online sales are 10 to 13%, advertising margin 70%.
• CFO has only been with company for two months.

Second Quarter Financial Highlights:

• Revenues grew 60.5% year over year from approximately $5.5 million to $8.8 million.
   
• Net income of $938,478 for the second quarter of 2010, an increase of 372% from the same period of last year.
   
• Fully diluted earnings per share ("EPS") were $0.03 for the second quarter of 2010 vs. $0.01.  

First Half 2010 Financial Highlights:

• Sales increase from $9,893,635 to $17,580,509, a 77.7% improvement year over year.
   
• Advertising revenue jumped almost 155% in the first half of 2010 compared to the same period last year, while online electronics sales and consulting revenue grew 87.3% and 82.3% respectively.
   
• Net income after tax for the first six months of 2010 was $2,137,900, or $.07 EPS, compared to $230,653, or $.01 EPS for the first half of 2009.

Mr. Yingsheng Li, President and CEO of China Marketing Media commented, "We are very excited to deliver another solid quarter to our shareholders. In the past year, to diversify our revenue source, China Marketing Media has been expanding to new business opportunities, such as our B2C online division. We are happy to see the recent operating results of our new initiative."

"Despite the decrease of our magazine subscription, our traditional advertising business rebounded tremendously as many Chinese companies are ramping up their marketing budget in 2010. Meanwhile, the fast development of the company's B2C business continues to generate potential clients of our advertising and consulting. Therefore, we expect to see further improvement of our advertising and consulting businesses in coming quarters," concluded Mr. Yingsheng Li.

Please note: On July 6, 2010, the GeoTeam® removed all Chinese stocks that were on GeoBargains and GeoSpecial lists to respective Radar lists as we complete our "quality assessment."

***Very Important GeoTeam note. We have yet to verify if the Chinese filings for ChinaHybrid stocks we monitor match respective SEC filings. We are in the process of completing this task. Although we are not totally convinced that SAIC filings are an accurate represenation of financial statements the issue is impacting stock prices. Conservative investors may want to limit exposure or buy put options on stocks, that have this availability, as insurance against long positions, until we publish our findings. Odds are we will identify some promising companies that will fail this litmus test.

see relevant articles

On May 24, 2010 China Marketng Media reported its 2010 first quarter financial results and continues to make operational strides.

First Quarter 2010 Financial Performance Highlights

• Revenues were $8.80 million for the first quarter of 2010, an increase of 98.95% from $4.42 million for the same quarter last year.
  
• Gross margin was 31.75% for the first quarter of 2010, as compared to 31.82% for the same period in 2009.
  
• Operating profit was $1.26 million for the first quarter of 2010, an increase of 2,587.22% from $0.05 million for the same period last year.
  
• Net Income attributable to China Marketing Media Holdings, Inc.: Net income was $1.20 million for the first quarter of 2010, an increase of 1,730.20% from $0.07 million for the same period last year.
  
• Fully diluted tax adjusted earnings per share was $0.03 for the first quarter of 2010, as compared to $0.00 for the same period in 2009.

We were impressed that the company experienced a 159.71 increase in sales from its adverting segment, which sells add space in CMKM's magazines. In 2009 this revenue stream actually declined.

"The Chinese economy started recovering during 2009 and many enterprises raised their marketing and advertising budget in this year, which resulted in the increase of our revenue in an amount of approximately $1.4 million from advertising sales." (Page 2 of the filing).

We still need to be mindful of a possible dilutive event if the company desires to expand its magazine business.

China Marketing Media continues to make strides and maintains profitability for its 2009 fourth quarter and full year.

December Qtr	4th Quarter 2009	4th Quarter 2008	Period Change
GAAP Revenue	$8.1 M	$1.8 M	350.0%
GAAP EPS	$0.01	-$0.02	n/a

December Yr End	Full Year 2009	Full Year 2008	Period Change
GAAP Revenue	$24.9 M	$13.0 M	90%
GAAP EPS	$0.05	$0.06	-16.7%

Source: 2009 10K Filing

 Again the challenge is that even though  their new focus on online electronics retailing is taking revenue to new heights, the associated margins for this business are rather small:

		2009			2008
Magazine advertising:
Advertising pages sales	$	4,504,651		$	5,098,769
Marketing consulting service		3,344,962			4,273,208
Publishing		1,638,966			1,648,650
		9,488,579			11,020,627
Electronics trading		15,411,781			2,059,579
Total revenue	$	24,900,360		$	13,080,206

Management's comment on margins:

Due to the nature of the wholesale business, our electronic products have a lower profit margin of 6% as compared to a profit margin of 35% for our other products.

We will continue to track the CMKM story. The company is still teetering on profitability and now needs to make significant bottom line strides to hold our attention.

Position: Long CMKM

We are coding China Marketing Media (OTC BB:CMKM) as a GeoSpecial based on the re-pricing of risk premium and significant development.

My curiosity with the CMKM story was not particularly aroused until I perused its SEC filings. Historically, China Marketing’s core revenue stream has been derived from marketing its magazines and associated print advertising in China. Realizing that the future of advertising is not in print, the story just didn’t seem to be one that could deliver growth within my parameters of 30% EPS growth. However, in mid 2008 the company began a new venture that directly benefits from the increase in appetite of the Chinese consumer for electronic products and use of credit cards.

“To increase our revenue stream, our management began exploring the feasibility of engaging in new business lines in July 2007. Management considered the potential costs and benefits of launching another magazine or acquiring other publishing or advertising assets and determined that such actions require capital outlays that are greater than the company can currently afford and would take several months or years to implement. As a result, management investigated other business types to increase our revenues with lower capital expenditures and shorter ramp up times. During the search for new business opportunities, management noted that credit cards are the fastest-growing consumer credit product in China, and it is widely expected in China that card usage and profitability will experience explosive growth over the next decade.”

The management believes that engaging in online business is beneficial and suitable for small business like ours as it requires significantly lower capital outlay compared with traditional business approaches. In July 2008, we began our new business of online marketing and sales of electronic products by entering into various cooperation arrangements with Chinese banks. These banks' existing consumer communication channel allows us to spend a limited amount of money as the startup cost for advertisement. We have been able to market and sell our products by sending marketing brochures with the banks' monthly statements to their credit card customers and receive payments through the banks' already developed online payment mechanism.”

Taking a close look at the financial break out over the past three quarter reveals an interesting trend:

While its core magazine/advertising business growth has been erratic, China Marketing’s new on-line business has experienced steady sequential growth increasing from 2.58 million in its 2009 first quarter to $6.9 million in its 2009 third quarter. 

Also, EPS growth was finally achieved in the third quarter after two quarters of negative growth:

Quarterly EPS Trend

	2010	2009	Period Change
EPS March  Qtr.	$0.00	$0.03	n/a
EPS June  Qtr.	$0.01	$0.03	-66.6%
EPS September  Qtr.	$0.03	$0.02	50.0%

Source: SEC 10Q Filings 

China Marketing has not issued any recent press releases and appears to have no United States contact. So, I don’t think investors are aware of management’s new focus. It will be difficult to make a final investment determination until I can interview management. For now I will take a chance on the company, since it is profitable and selling substantially below its book value of 54 cents per share. Hopefully, the company will be able to drive EPS growth as it targets an industry segment that should be a direct beneficiary of the economic growth in China.

There are still a few loose ends that investors need to ponder:

• We need to inquire about capital needs.
• Although the company has finally seen an uptick in the EPS growth rate during its third quarter, gross margins and EPS have suffered due to the extra costs with having to carry an inventory.  Additionally, the EPS number was still in line with 2008 first and second quarter figures.
• The company’s magazine/advertising business may not exist at some point in the future:

“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.

"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.”