UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549




FORM
10-Q




(Mark
One)




þ           Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For the
quarterly period ended September 30,
2010




or




o           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 001-33746




CHINA
MEDIAEXPRESS HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)





Delaware
            
            20-8951489(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer
              Identification
      No.)




Room
2805, Central Plaza, Wanchai, Hong Kong


(Address
of Principal Executive Offices including zip code)




+852 2827
6100


(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 Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ  No o




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 o  No o




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




Large
      Accelerated Filer o
            Accelerated
      Filer þ
            Non-Accelerated
      Filer (Do not check if a smaller reporting company) o
            Smaller
      reporting company o




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




As of
November 8, 2010, 34,290,552 shares of the issuer’s common stock, par value
$0.001, were outstanding.










PagePart
      I
                                                  FINANCIAL
      INFORMATION
                                                  
                                                  
                                                  2ITEM
      1
                                                  FINANCIAL
      STATEMENTS
                                                  
                                                  
                                                  2ITEM
      2
                                                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                                                  
                                                  
                                                  15ITEM
      3
                                                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                                  
                                                  
                                                  21ITEM
      4
                                                  CONTROLS
      AND PROCEDURES.
                                                  
                                                  
                                                  22Part
      II
                                                  OTHER
      INFORMATION
                                                  
                                                  
                                                  22ITEM
      1
                                                  LEGAL
      PROCEEDINGS
                                                  
                                                  
                                                  22ITEM
      1A.
                                                  RISK
      FACTORS
                                                  
                                                  
                                                  22ITEM
      2
                                                  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                                                  
                                                  
                                                  22ITEM
      3
                                                  DEFAULTS
      UPON SENIOR SECURITIES
                                                  
                                                  
                                                  22ITEM
      4
                                                  (REMOVED AND
      RESERVED)
                                                  
                                                  
                                                  22ITEM
      5
                                                  OTHER
      INFORMATION
                                                  
                                                  
                                                  22ITEM
      6
                                                  EXHIBITS
                                                  
                                                  
                                                  23







Part
I


FINANCIAL
INFORMATION




ITEM
      1
            FINANCIAL
      STATEMENTS




CONDENSED
CONSOLIDATED BALANCE SHEETS


(Amounts in thousands of
United States ("U.S.") dollars ("$'000"), except number of shares and per share
amounts)


(Unaudited)




September
      30,
                
                
                December
      31,2010
                
                
                2009ASSETSCurrent
      Assets:Cash
                
                $
                169,947
                
                
                $
                57,151Accounts
      receivable
                
                
                20,337
                
                
                
                12,569Prepaid
      expenses and other current assets
                
                
                3,766
                
                
                
                251Total
      current assets
                
                $
                194,050
                
                
                $
                69,971Non-current
      Assets:Property
      and equipment, net
                
                $
                11,734
                
                
                $
                11,065Long
      term prepayment
                
                
                12,060
                
                
                
                -Deferred
      tax assets
                
                
                3,083
                
                
                
                1,943Total
      non-current assets
                
                $
                26,877
                
                
                $
                13,008Total
      assets
                
                $
                220,927
                
                
                $
                82,979LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts payable(including accounts payable of the consolidated variable interest
      entities ("VIEs") without recourse to China MediaExpress Holdings, Inc.
      (the "Company") of $2,904 and $2,179 as of September 30, 2010, and
      December 31, 2009, respectively)
                
                $
                2,904
                
                
                $
                2,179Amounts
      due to related parties
                
                
                3,498
                
                
                
                13,315Payables for acquisitions of
      equipment(including amounts due to payables for acquisition of
      equipment of the consolidated VIEs without recourse to the Company of
      $1,676 and $2,071 as of September 30, 2010, and December 31, 2009,
      respectively)
                
                
                1,676
                
                
                
                2,071Income
      tax payable
                
                
                10,529
                
                
                
                5,765Accrued expenses and other
      current liabilities(including accrued expenses and other current
      liabilities of the consolidated VIEs without recourse to the Company of
      $3,615 and $2,374 as of September 30, 2010, and December 31, 2009,
      respectively)
                
                
                6,671
                
                
                
                4,144Accrued concession fees - current(including current portion of accrued concession fees of the
      consolidated VIEs without recourse to the Company of $3,047 and $1,134 as
      of September 30, 2010, and December 31, 2009,
respectively)
                
                
                3,047
                
                
                
                1,134Total
      current liabilities
                
                $
                28,325
                
                
                $
                28,608Non-current
      Liability:Accrued concession fees -
      non-current(including non-current portion of accrued concession
      fees of the consolidated VIEs without recourse to the Company of $9,286
      and $6,639 as of September 30, 2010, and December 31, 2009,
      respectively)
                
                $
                9,286
                
                
                $
                6,639Total
      non-current liability
                
                $
                9,286
                
                
                $
                6,639Total
      liabilities
                
                $
                37,611
                
                
                $
                35,247CommitmentShareholders'
      equityCommon shares($0.001 par
      value: 40,000,000 shares authorized; 34,290,552 and 24,859,368 shares
      issued and outstanding as of September 30, 2010 and December 31, 2009,
      respectively)
                
                $
                34
                
                
                $
                24Preferred Shares($0.001
      par value: 1,000,000
      shares authorized; 1,000,000 and 0 shares issued and outstanding as of
      September 30, 2010 and December 31, 2009 and, respectively; liquidation
      value: $30,000 as of September 30, 2010
                
                
                22,095
                
                
                
                -Additional
      paid-in capital
                
                
                73,640
                
                
                
                1,960Subscription
      receivable from shareholders
                
                
                -
                
                
                
                (3,350
                )Accumulated
      other comprehensive income
                
                
                3,010
                
                
                
                1,346Statutory
      reserve
                
                
                8,834
                
                
                
                8,834Retained
      earnings
                
                
                75,703
                
                
                
                38,918Total
      shareholders' equity
                
                $
                183,316
                
                
                $
                47,732TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                
                $
                220,927
                
                
                $
                82,979





The
accompanying notes are an integral part of these condensed consolidated
financial information.


2


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts in thousands of
U.S. dollars ("$'000"), except number of shares and per share
amounts)


(Unaudited)





Three months ended September
      30,
                
                
                Nine months ended September
    30,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenue,
      net
                
                $
                56,956
                
                
                $
                26,122
                
                
                $
                154,992
                
                
                $
                63,983Cost
      of revenue
                
                
                (13,198
                )
                
                
                (8,630
                )
                
                
                (42,527
                )
                
                
                (22,992
                )Gross
      profit
                
                
                43,758
                
                
                
                17,492
                
                
                
                112,465
                
                
                
                40,991Selling
      expenses
                
                
                (2,281
                )
                
                
                (1,371
                )
                
                
                (6,171
                )
                
                
                (1,897
                )Administrative
      expenses
                
                
                (228
                )
                
                
                (588
                )
                
                
                (2,506
                )
                
                
                (1,941
                )Total
      operating expenses
                
                
                (2,509
                )
                
                
                (1,959
                )
                
                
                (8,677
                )
                
                
                (3,838
                )Income
      from operations
                
                
                41,249
                
                
                
                15,533
                
                
                
                103,788
                
                
                
                37,153Interest
      income
                
                
                106
                
                
                
                27
                
                
                
                251
                
                
                
                70Income
      before income tax expense
                
                
                41,355
                
                
                
                15,560
                
                
                
                104,039
                
                
                
                37,223Income
      tax expense
                
                
                (10,224
                )
                
                
                (3,896
                )
                
                
                (26,262
                )
                
                
                (9,823
                )Net
      income
                
                $
                31,131
                
                
                $
                11,664
                
                
                $
                77,777
                
                
                $
                27,400Deemed
      dividend on convertible preferred shares
                
                
                -
                
                
                
                -
                
                
                
                (9,242
                )
                
                
                -Income
      attributable to holders of common shares
                
                $
                31,131
                
                
                $
                11,664
                
                
                $
                68,535
                
                
                $
                27,400Earnings
      per share:Basic
                
                $
                0.92
                
                
                $
                0.56
                
                
                $
                2.09
                
                
                $
                1.31Diluted
                
                $
                0.81
                
                
                $
                0.56
                
                
                $
                1.86
                
                
                $
                1.31Weighted
      average number of shares used in calculating:Basic
                
                
                33,823,161
                
                
                
                20,915,000
                
                
                
                32,805,597
                
                
                
                20,915,000Diluted
                
                
                38,430,241
                
                
                
                20,915,000
                
                
                
                36,929,298
                
                
                
                20,915,000




The
accompanying notes are an integral part of these condensed consolidated
financial information.


3


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts in thousands of
U.S. dollars ("$'000"), except number of shares and per share
amounts)


(Unaudited)




Nine months ended September
    30,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income
                    
                    $
                    77,777
                    
                    
                    $
                    27,400Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      of property and equipment
                    
                    
                    2,942
                    
                    
                    
                    2,351Amortization
      of long term prepayment
                    
                    
                    1,575
                    
                    
                    
                    -Deferred
      tax
                    
                    
                    (1,085
                    )
                    
                    
                    (332
                    )Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (8,005
                    )
                    
                    
                    (5,228
                    )Prepaid
      expenses and other current assets
                    
                    
                    (17,399
                    )
                    
                    
                    33Accounts
      payable
                    
                    
                    859
                    
                    
                    
                    465Amounts
      due to related parties
                    
                    
                    -
                    
                    
                    
                    710Income
      tax payable
                    
                    
                    4,587
                    
                    
                    
                    1,495Accrued
      expenses and other current liabilities
                    
                    
                    2,953
                    
                    
                    
                    1,744Accrued
      concession fees
                    
                    
                    4,759
                    
                    
                    
                    1,140Accrued
      severance payment
                    
                    
                    -
                    
                    
                    
                    86Net
      cash from operating activities
                    
                    $
                    68,963
                    
                    
                    $
                    29,864Cash
      flows used in investing activities:Acquisitions
      of property and equipment, net of related payables
                    
                    $
                    (3,610
                    )
                    
                    $
                    (1,415
                    )Cash
      flows from (used in) financing activities:Dividend
      paid to shareholders
                    
                    $
                    -
                    
                    
                    $
                    (17,555
                    )Exercise
      of warrants
                    
                    
                    47,616
                    
                    
                    
                    -Issuance
      of preferred shares and warrants
                    
                    
                    30,000
                    
                    
                    
                    -Payment
      of additional consideration in relation to the Share
    Exchange
                    
                    
                    (20,890
                    )
                    
                    
                    -Repayment
      of promissory note in connection with Share Exchange
                    
                    
                    (10,000
                    )
                    
                    
                    -Transaction
      cost paid for issuance of preferred shares and warrants
                    
                    
                    (583
                    )
                    
                    
                    -Net
      cash from (used in) financing activities
                    
                    $
                    46,143
                    
                    
                    $
                    (17,555
                    )Effect
      of foreign currency translation adjustments on cash
                    
                    $
                    1,300
                    
                    
                    $
                    (36
                    )Net
      increase in cash
                    
                    $
                    112,796
                    
                    
                    $
                    10,858Cash
      at the beginning of the period
                    
                    
                    57,151
                    
                    
                    
                    29,997Cash
      at the end of the period
                    
                    $
                    169,947
                    
                    
                    $
                    40,855Supplemental
      disclosure of cash flow information:Income
      taxes paid
                    
                    $
                    22,759
                    
                    
                    $
                    8,328Interest
      paid
                    
                    $
                    -
                    
                    
                    $
                    -Supplemental
      schedule of non-cash investing and financing activities:Deemed
      dividend on convertible preferred shares
                    
                    $
                    9,242
                    
                    
                    
                    -Acquisitions
      of property and equipment included in accrued liabilities
                    
                    $
                    1,676
                    
                    
                    $
                    1,455





As
disclosed in Note 1, 1,000,000 Earn-out Shares were distributed to the sellers
of Hong Kong Mandefu Holding Limited on August 12, 2010, as the Company achieved
the performance target for the year ended December 31, 2009 as stipulated in the
Share Exchange Agreement.





The
accompanying notes are an integral part of these condensed consolidated
financial information.


4




CHINA
MEDIAEXPRESS HOLDING, INC.
 (Amounts in thousands of
U.S. dollars ("$'000"), except number of shares and per share amounts and
unless
 otherwise
stated)
 (Unaudited)


NOTE
1:    BASIS OF
PRESENTATION





Hong Kong
Mandefu Holding Limited ("HKMDF") and China MediaExpress Holdings, Inc. (the
"Company" and together with its subsidiaries, consolidated variable interest
entities, the “Group”) entered into a Share Exchange Agreement on May 1, 2009,
as amended on September 30, 2009 (the "Share Exchange") under which the Company
acquired all of the issued and outstanding shares of HKMDF in exchange
for:





i)
            The
      issuance of 20,915,000 newly issued common shares of the Company to the
      shareholders of HKMDF (the
"Sellers");


ii)
            The
      payment of $10,000 to the Sellers in three years. These promissory notes
      are non-interest bearing;


iii)
            The
      issuance of up to 15,000,000 common shares of the Company ("Earn-out
      Shares") to the Sellers if certain performance targets as calculated based
      on the terms as stipulated in the Share Exchange Agreement are met in
      fiscal 2009, 2010 and 2011 and


iv)
            The
      payment of up to $20,890 of cash proceeds from the exercise of the
      Company's publicly held warrants  to the Sellers to the extent a
      sufficient number of these warrants are
  exercised.





The Share
Exchange was approved at the Company's special meeting of shareholders on
October 15, 2009. As explained in the Company's annual report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 2010, the accompanying
consolidated financial statements for periods prior to the consummation of the
Share Exchange are those of HKMDF and its subsidiary and variable interest
entity, except the equity section.





The
promissory notes of $10,000 as part of the Share Exchange were accounted for as
a distribution to shareholders and the payable was fully repaid in February
2010.





The
1,000,000 Earn-out Shares, with value of $10,860,000, in relation to the fiscal
year 2009 were distributed in the third quarter of fiscal year 2010 as the
Company achieved the performance target as stipulated in the Share Exchange
Agreement for the year ended December 31, 2009.





In the
first quarter of 2010, a substantial number of the public warrants were
exercised and $20,890 was paid to the Sellers, and this payment was accounted
for as a distribution to shareholders.





NOTE 2   SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





(a)
            Basis
      of presentation





The
condensed consolidated financial information of the Company have been prepared
in accordance with the accounting principles generally accepted in the U.S.
("U.S. GAAP"). These condensed consolidated financial information should be read
in conjunction with the consolidated financial statements and accompanying notes
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2009 (the "2009 Form 10-K").


5





The
accompanying unaudited condensed consolidated financial information include, in
the opinion of the management, all adjustments, consisting of normal recurring
adjustments, necessary to summarize fairly the Company's financial position,
results of operations and cash flows for the interim period. The interim period
results and cash flows reported in these condensed consolidated financial
information should not be taken as indicative of results and cash flows that may
be expected for the entire year.





(b)
            Use
      of estimates





The
preparation of condensed consolidated financial information in conformity with
U.S. GAAP requires the Group's management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial information and the reported amounts of revenues and expenses during
the reporting periods.  Actual results could differ from those
estimates.  On an ongoing basis, management reviews its estimates,
including those related to useful lives and residual values of long-lived
assets, the recoverability of the carrying values of long-lived assets,
increment rate of concession fees and valuation allowance for deferred tax
assets.  Changes in facts and circumstances may result in revised
estimates.





(c)
            Long term
      prepayments





The Group
signed framework agreements with some media companies to acquire the exclusive
operating right to operate television screens on the inter-city or airport
express buses in different cities and region in Peoples Republic of China (the
"PRC"). A lump sum fee is required to pay to these media companies who have
exclusive agreements with the bus operators, and the amount will be amortized to
the profit or loss in accordance with the terms of the contracts.  The
portion of the prepaid fee that will be amortized within one year is classified
as current assets, and the portion that will not be amortized over one year is
classified as non-current assets.





(d)
            Income
      taxes





Income
taxes related to ordinary income for interim periods are computed at an
estimated annual effective tax rate and the income taxes related to all other
items are individually computed and recognized when the items occur. The
estimated effective tax rate is used in providing for income taxes on a current
year-to-date basis.





The
Company recognizes the effect of income tax positions only if those positions
are more likely than not of being sustained.  Recognized income tax
positions are measured at the largest amount that is greater than 50% likely of
being realized.  Changes in recognition or measurement are reflected
in the period in which the change in judgment occurs.  The Company
records interest related to unrecognized tax benefits and penalties, if any, in
income tax expense.





(e)
            Earnings
      per share





Basic
earnings per share are computed by dividing net income of the Group by the
weighted average number of ordinary shares outstanding during the
period.





Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or converted
into common shares.


6





For the
purpose of calculating earnings per share for the three and nine months ended
September 30, 2009, the number of ordinary shares outstanding is determined on
the basis of HKMDF's historical number of ordinary shares outstanding multiplied
by the share exchange ratio established in the Share Exchange.





(f)
            Preferred
      Shares and Warrants





Convertible
preferred shares and warrants issued in the first quarter of 2010 are classified
as equity (see Note 4)





(g)
            Comprehensive
      Income (loss)





Comprehensive
income (loss) includes net income and foreign currency translation
adjustments.  Comprehensive income is defined as the change in equity
during a period from transactions and other events and circumstances except for
transactions resulting from investments by shareholders and distributions to
shareholders and is reported in the consolidated statements of shareholders'
equity and comprehensive income.





Comprehensive
income of the Group totaled $32,366 and $79,441 for the three and nine
months ended September 30, 2010, respectively, and $11,675 and $27,364 for the three
and nine months ended September 30, 2009, respectively.


7


NOTE
3   RECENTLY ISSUED ACCOUNTING STANDARDS





In July
2010, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2010-20, Receivables (Topic 310):Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses.This ASU is effective for disclosures as of the end of a
reporting period for interim and annual reporting periods ending on or after
December 15, 2010 and for disclosures about activity that occurs during a
reporting period for interim and annual reporting periods beginning on or after
December 15, 2010. Management is currently evaluating the impact that the
adoption of ASU 2010-20 will have and does not believe the adoption will result
in a material level of new disclosures.





NOTE
4   STARR SECURITIES PURCHASE AGREEMENT





On
January 12, 2010, the Company entered into a securities purchase agreement with
Starr Investments Cayman II, Inc. ("Starr").  Under this agreement,
Starr purchased from the Company 1,000,000 shares of Series A Convertible
Preferred Stock with par value US$0.001 (the "Preferred Shares"), and warrants
(the "Starr Warrants") to purchase 1,545,455 shares of the common shares of the
Company, for an aggregate purchase price of $30,000. Concurrently, certain
shareholders of the Company transferred 150,000 common shares to Starr for no
additional cash consideration (the "Transferred Shares").  The $30,000
consideration received from Starr has been allocated to the Preferred Shares,
Starr Warrants and Transferred Shares on a relative fair value
basis.





The
Transferred Shares have been accounted for as deemed contribution from
shareholders.





The
holder of the Preferred Shares have various rights and preferences as
follows:





Conversion


Each
Preferred Share is convertible into three common shares of the Company at the
discretion of the holder anytime and shall be automatically converted into
common shares of the Company upon the earliest of the following to occur: (1)
the fourth year anniversary of the original issuance date of the Preferred
Shares, (2) the Company’s market capitalization is at least $1.2 billion, or (3)
the closing price of the Company’s common shares has been at least $25 for a
period of 20 consecutive trading days over any 30 consecutive trading
days.





Liquidation


(a)           Voluntary
or Involuntary Liquidation. In the event of any liquidation, dissolution or
winding up of the affairs of the Company, whether voluntary or involuntary,
holders of Preferred Stock shall be entitled to receive for each share of
Preferred Stock, out of the assets of the Company or proceeds thereof (whether
capital or surplus) available for distribution to shareholders of the Company,
and after satisfaction of all liabilities and obligations to creditors of the
Company, before any distribution of such assets or proceeds is made to or set
aside for the holders of common stock any other class or series of capital stock
that ranks junior to the Preferred Stock, an amount (the “Liquidation
Preference”) equal to the greater of (1) the sum of $30 per share and (2) the
per share amount of all cash, securities and other property (such securities or
other property having a value equal to its fair market value as reasonably
determined by the board of directors of the Company) to be distributed in
respect of common stock such holder would have been entitled to receive had it
converted such Preferred Stock immediately prior to the date fixed for such
liquidation, dissolution or winding up of the Company.




8


(b)           Partial
Payment. If in connection with any distribution described in above the assets of
the Company or proceeds thereof are not sufficient to pay the Liquidation
Preference in full to all holders of Preferred Stock, the amounts paid to the
holders of Preferred Stock shall be paid pro rata in accordance with the
respective aggregate Liquidation Preferences of the holders of Series A
Preferred Stock.





Anti-dilution
provision


In the
event the number of common shares of shall be increased by a subdividsion of the
outstanding common shares, stock dividends, stock distribution, recapitalization
or similar event, the conversion price of the Preferred Stock ("Conversion
Price") shall be proportionately decreased. In the event the number of common
shares shall be decreased by a combination of the outstanding common shares,
the Conversion Price then in effect immediately before the combination
shall be proportionately increased.





Voting
rights


Each
holder of Preferred Shares shall have the right to one vote for each common
share into which such Preferred Shares could be converted, with full voting
rights and powers equal to the voting rights and powers of holders of common
shares.





Dividends
rights


The
Preferred Shares are not entitled to any dividend.





Redemption


There is
no redemption rights for the Preferred Shares holders.





The Starr
Warrants are exercisable until the earlier of the fifth year anniversary of the
original issuance date of the Starr Warrants and the date of redemption of the
Starr Warrants.  The exercise price for the Starr Warrants is $6.47
per share.  The Company may redeem the Starr Warrants at $0.01
per warrant if the last sales price of the Company's common share has been at
least $14 per share for a period of 20 consecutive trading days over any 30
consecutive trading days.





During
the 9-month period following the closing, no transfer by Starr of shares of
Preferred Shares, common shares issued upon conversion of Preferred Shares,
Warrants and common shares issued upon exercise of its Warrants and the 150,000
common shares transferred from certain shareholders of the Company (other than
to Starr's permitted transferees or pursuant to certain other customary
exception).





Preferred
Shares and Starr Warrants issued in the nine months ended September 30, 2010 are
classified as equity.  Proceeds from issuance of Preferred Shares and
Starr Warrants are allocated to the Preferred Shares and Starr Warrants on a
relative fair value basis.  Fair values in excess of the proceeds
received are treated as deemed dividend.  Based on the Company's
valuation, the deemed dividend associated with the Convertible preferred shares
and warrants issued to Starr in the nine months ended September 30, 2010 totaled
$9,242.





NOTE
5   EARNINGS PER SHARE





Earnings
per share for the period prior to the Share Exchange have been restated to
effect the Share Exchange.  For the purpose of calculating earnings
per share for the prior period presented, the number of ordinary shares
outstanding is determined on the basis of HKMDF's historical number of ordinary
shares outstanding multiplied by the share exchange ratio established in the
Share Exchange Agreement.


9





The
calculations of basic and diluted earnings per share are computed as
follows:





Three months ended September
      30,
                
                
                Nine months ended September
    30,2010
                
                
                2009
                
                
                2010
                
                
                2009Numerator:Net
      Income
                
                
                31,131
                
                
                
                11,664
                
                
                
                77,777
                
                
                
                27,400Less:
      deemed dividend on convertible preferred shares
                
                
                -
                
                
                
                -
                
                
                
                (9,242
                )
                
                
                -Net
      income used for basic and diluted earnings per share
                
                
                31,131
                
                
                
                11,664
                
                
                
                68,535
                
                
                
                27,400Denominator:Denominator
      for basic earnings per shareWeighted-
      average ordinary shares outstanding during the period
                
                
                33,823,161
                
                
                
                20,915,000
                
                
                
                32,805,597
                
                
                
                20,915,000Effect
      of dilutive securitiesWarrants
                
                
                1,139,689
                
                
                
                -
                
                
                
                1,301,337
                
                
                
                -Earn-out
      shares for fiscal year 2009
                
                
                467,391
                
                
                
                -
                
                
                
                822,464
                
                
                
                -Preferred
      shares
                
                
                3,000,000
                
                
                
                -
                
                
                
                2,000,000
                
                
                
                -Denominator
      used for diluted earnings per share
                
                
                38,430,241
                
                
                
                20,915,000
                
                
                
                36,929,398
                
                
                
                20,915,000Basic
      earnings per share
                
                
                0.92
                
                
                
                0.56
                
                
                
                2.09
                
                
                
                1.31Diluted
      earnings per share
                
                
                0.81
                
                
                
                0.56
                
                
                
                1.86
                
                
                
                1.31





The
impact of Earn-out Shares for fiscal year 2009 were included in the calculation
of the diluted earnings per share as the Company achieved the performance target
for fiscal year 2009 as stipulated in the Share Exchange
Agreement.  The Earn-out Shares for fiscal year 2009 were issued in
the third quarter of fiscal year 2010.


10


NOTE
6   PROPERTY AND EQUIPMENT, NET




Property
and equipment consist of the following:


September
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009Buildings
                  
                  $
                  234
                  
                  
                  $
                  228Electronic
      and office equipment
                  
                  
                  146
                  
                  
                  
                  105Motor
      vehicles
                  
                  
                  414
                  
                  
                  
                  190Display
      network equipment
                  
                  
                  22,850
                  
                  
                  
                  19,259Sub-total
                  
                  $
                  23,644
                  
                  
                  $
                  19,782Less:
      accumulated depreciation
                  
                  
                  (11,910
                  )
                  
                  
                  (8,717
                  )Total
                  
                  $
                  11,734
                  
                  
                  $
                  11,065





Depreciation
expense was $1,033 and $2,942 for the three months and nine months ended
September 30, 2010 respectively, and $808 and $2,351 for the three months and
nine months ended September 30, 2009.





NOTE
7    CAPITAL STRUCTURE





Common
Shares





During
the nine months ended September 30, 2010, 8,050,577 common shares were issued as
a result of the exercise of Public Warrants (see Note 9 below) and 365,572
common shares were issued as a result of the exercise of Insider Warrants (see
Note 9 below).





Preferred
Shares





The
Company is authorized to issue 1,000,000 preferred shares of par value of $0.001
each, with such designations, voting and other rights and preference as may be
determined from time to time by the board of directors of the
Company.





As stated
in Note 4, on January 12, 2010, the Company entered into a securities purchase
agreement with Starr and the Company issued 1,000,000 Preferred Shares and Starr
Warrants to purchase 1,545,455 shares of the common shares of the Company for a
consideration of $30,000.




NOTE
8 DIVIDENDS





On
February 5, 2009, the board of directors of HKMDF approved and paid a dividend
of $17,570 (equivalent to RMB120 million) or $1,757 per share (before the effect
of Share Exchange) payable to the shareholders of HKMDF at the date of dividend
declaration.




11




NOTE
9  WARRANTS





Public
Warrants





On
October 17, 2007 (“IPO Date”), the date that the Company completed its initial
public offering (“IPO”), the Company sold 10,255,000 units in the IPO at a price
of $8.00 per unit.  Each unit consists of one share of the Company's
common share and one redeemable common stock purchase warrant ("Public
Warrant(s)").  Each Public Warrant will entitle the holder to purchase
from the Company one share of common share at an exercise price of $5.50
commencing on the later of the completion of a business combination and one
year from IPO Date and expires four years from IPO Date.





The
Company announced the redemption of all the public warrants on December 29, 2009
and extinguished all the outstanding Public Warrants at a price of $0.01 per
warrants on or about January 29, 2010.





During
the first quarter of 2010:





i)
              8,050,577
      Public Warrants were exercised and converted into common shares of the
      Company


ii)
              27,718
      Public Warrants were redeemed by the Company at $0.01 on or about January
      29, 2010





As a
result, no Public Warrants were outstanding as of September 30,
2010.





No Public
Warrants were exercised during the three and nine months ended September 30,
2009.





Insider
Warrants





The
Company's initial officers and initial directors purchased a total of 2,100,000
warrants ("Insider Warrants") at $1.00 per warrant (for an aggregate purchase
price of $2,100,000) concurrently with the consummation of the IPO pursuant to a
private placement agreement with the Company.  The Insider Warrants
are identical to the Public Warrants except that the Insider Warrants may not be
called for redemption and the Insider Warrants are exercisable on cashless
basis, at the holder's option, so long as such securities are held by such
purchaser or his affiliates.





Furthermore,
the purchasers have agreed that the Insider Warrants will not be sold or
transferred by them, except for estate planning purposes, until after the
Company has completed a business combination.  The sale of the Insider
Warrants to management did not result in the recognition of any stock-based
compensation expense because they were sold above fair market
value.  The holder of Insider Warrants will not have any right to any
liquidation distributions with respect to shares underlying Insider Warrants if
the Company fails to consummate a business combination, in which event Insider
Warrants will expire worthless.





During
the nine months ended September 30, 2010, 629,656 Insider Warrants were
exercised and converted into 380,607 common shares, while no Insider Warrants
were exercised during the nine months ended September 30,
2009.





Starr
Warrants


Pursuant
to the agreement with Starr, the Company issued 1,545,455 Starr Warrants (see
Note 4). As at September 30, 2010, no Starr Warrants had been
exercised.




12




NOTE
10    COMMITMENTS





(a)
            Lease
      commitments





The Group
has entered into certain leasing arrangements relating to office premises that
are classified as operating leases.





Future
minimum lease payments for non-cancellable operating leases during the remained
of the fiscal year ending December 31, 2010 and over the next several fiscal
years are as follows:





October
      1, 2010 to December 31, 2010
                        
                        $
                        502011
                        
                        
                        962012
                        
                        
                        562013
                        
                        
                        10$
                        212





Total
rental expenses were approximately $70 and $205 during the three months and nine
months ended September 30, 2010 and $50 and $149 during the three months and
nine months ended September 30, 2009, respectively, and were charged to the
consolidated statements of operations.





(b)
            Concession
      fees





The Group
has entered into concession right agreements with passenger bus operators and
exclusive agreements with advertising agents.  The contract terms of
such concession rights range from three years to eight years.





Future
minimum concession fee payments under non-cancelable concession right agreements
during the remained of the fiscal year ending December 31, 2010 and over the
next seven fiscal years are as follows:





October
      1, 2010 to December 31, 2010
                            
                            $
                            12,8952011
                            
                            
                            45,6392012
                            
                            
                            31,7772013
                            
                            
                            25,0412014
                            
                            
                            21,1032015
                            
                            
                            3,3252016
                            
                            
                            1,6962017
                            
                            
                            650$
                            142,126





Note
11       SEGMENT REPORTING





The Group
is engaged in the selling of advertising time slots on its advertising network
of television screens placed in passenger buses traveling on the highways
throughout the PRC.  The Group's chief operating decision maker has
been identified as the Chief Executive Officer, who reviews the consolidated
results when making decisions about allocating resources and assessing
performance of the Group.


13





Geographic
information




The Group
operates in the PRC and all of the Group's identifiable assets are located in
the PRC.





Although
the Group operates in multiple cities in the PRC which include Fujian, Beijing,
Shanghai, Guangzhou, Tianjin, Chengdu and other cities, the chief operating
decision maker evaluates the Group's performance as a single reportable segment
and thus the Group believes it operates in one segment as it provides services
to customers irrespective of their locations.





Major
customers





For the
three months ended September 30, 2010, one customer contributed over 10% or more
of the Group’s revenue, amounting $6.6 million (10.8% of the total revenue). For
three months ended September 2009 and nine months ended September 30, 2010 and
2009, there was no single customer that contributed for 10% or more of Group’s
revenue.





NOTE
12     RELATED PARTY TRANSACTIONS





Other
than the dividends paid as described in Note 8, the Group has the following
transactions and balances with its related parties.




Related
      parties balancesSeptember 30,
                          
                          
                          December 31,2010
                          
                          
                          2009Amounts
      due to:Cheng
      Zheng (Note a)
                          
                          $
                          3,498
                          
                          
                          $
                          6,515Thousand
      Space Holdings Limited (Note b)
                          
                          
                          -
                          
                          
                          
                          6,800$
                          3,498
                          
                          
                          $
                          13,315





Notes:





(a)
            The
      amount as of December 31, 2009 included a promissory note of $3,200, which
      was unsecured, non-interest bearing and repayable in 3
      years.  The promissory note was fully repaid in the first
      quarter of 2010.





The
remaining amount as of December 31, 2009 and the amount as of September 30, 2010
were unsecured, non-interest bearing and repayable on demand.




(B)
            Thousand
      Space Holdings Limited was one of the shareholders of HKMDF prior to the
      Share Exchange, and is a shareholder of the Company after the Share
      Exchange.  The amount as of December 31, 2009 represented a
      promissory note of $6,800, which was unsecured, non-interest bearing and
      repayable in 3 years.  The promissory note was fully repaid in
      the first quarter of 2010.




14




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




The
following discussion should be read in conjunction with the condensed financial
statements and footnotes thereto contained in this report.




Forward
Looking Statements




This
quarterly report on Form 10-Q includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 (the “Securities
Act”), as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The forward-looking statements include, but are
not limited to statements regarding the Company’s expectations, hopes, beliefs,
intentions or strategies regarding the future. In addition, any statements that
refer to projections, forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,”
“project,” “should,” “would” and similar expressions may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking.




The
forward-looking statements contained or incorporated by reference in this
quarterly report on Form 10-Q are based on our current expectation and beliefs
concerning future developments and their potential effects on us and speak only
as of the date of such statements. There can be no assurance that future
developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond our control) or other assumptions that may cause actual results
or performance to be materially different from those expressed or implied by
these forward-looking statements. These risks and uncertainties include, but are
not limited to, those factors described under the heading “Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31, 2009. 
Should one or more of these risks or uncertainties materialize, or should any of
our assumptions prove incorrect, actual results may vary in material respects
from those projected in these forward-looking statements. We undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as may be required
under applicable securities laws.




References
in this report as to “we,” “us”, “CME” or “our Company” refer to China
MediaExpress Holdings, Inc. (f/k/a TM Entertainment and Media,
Inc.).




Overview




The
Company, through contractual arrangements with Fujian Fenzhong, an entity
majority owned by CME’s majority shareholder, operates the largest television
advertising network on inter-city and airport express buses in China.  Our
operations in general and similar connotations, refer to Fujian Fenzhong, an
entity which is controlled by the Company through contractual agreements and
which operates the advertising network. While we have no direct equity ownership
in Fujian Fenzhong, through the contractual agreements we receive all the
economic benefits of Fujian Fenzhong’s operations.  We generate revenues by
selling advertising on its network of television displays installed on
inter-city and airport express buses in China.




CME’s
extensive and growing network covers inter-city express bus services originating
in China’s most prosperous regions. As of September 30, 2010, our network
covered inter-city express bus services originating in eighteen regions,
including the four municipalities of Beijing, Shanghai, Tianjin, and Chongqing
and fourteen economically prosperous provinces, namely Guangdong, Jiangsu,
Jiangxi, Fujian, Sichuan, Anhui, Hubei, Hebei, Shandong, Shanxi, Inner Mongolia,
Zhejiang, Hunan and Henan. These eighteen regions in aggregate generated over
half of China’s gross domestic product, or GDP. CME’s network is capable of
reaching a substantial and growing audience. Many of the cities connected in our
network are major transportation hubs, which serve as points of transfer for
large numbers of leisure, business and other travelers in China to other modes
of transportation. CME’s network also includes airport buses connecting major
cities to airports and tour buses traveling on routes that connect major cities
with popular tourist destinations in China. As of September 30, 2010, our
network covered all transportation hubs designated by the Ministry of Transport,
and we expect to further increase this percentage as it continues to expand the
geographic coverage of its network. In addition to major transportation hubs,
the network also covers small to medium-sized cities in China, some of which
rely on highway transportation as the primary transportation option for
connection outside these cities.




15


Fujian
Fenzhong has entered into long-term framework agreements with 63 bus operator
partners for terms ranging from three to eight years. Pursuant to these
agreements, we pay the bus operators concession fees for the right to install
its displays and automated control systems inside their buses and display
entertainment content and advertisements. CME’s entertainment content is
self-produced or provided by third parties and advertisements provided by its
clients. CME obtains a wide range of free entertainment content from Fujian
SouthEastern Television Channel and Hunan Satellite Television each month,
purchases a limited amount of copyrighted programs from time to time and engages
a production company to produce some short programs.




In
October 2007, Fujian Fenzhong entered into a five-year cooperation agreement
with an entity affiliated with the Ministry of Transport of the People’s
Republic of China to be the sole strategic alliance partner in the establishment
of a nationwide in-vehicle television system that displays copyrighted programs
on buses traveling on highways in China. The cooperation agreement also gave CME
exclusive rights to display advertisements on the system. In November 2007, this
entity issued a notice regarding the facilitation of implementation of the
system contemplated under the cooperation agreement to municipalities,
provinces and transportation enterprises in China. CME believes its status as
the sole strategic alliance partner designated by an entity affiliated with the
Ministry of Transport and the exclusive rights to display advertisements on the
system has facilitated its historical expansion and is expected to continue to
provide them with a competitive advantage in the future.




We
believe our network is a highly effective advertising medium. The network is
capable of reaching audiences on inter-city and airport express buses while they
remain in a comfortable and enclosed environment with minimal distraction. The
majority of the inter-city and airport express buses within the network are
equipped with leather seats and air-conditioning, providing a comfortable
environment which makes the audiences more receptive to the content displayed on
CME’s network. Inter-city travel in China typically takes a number of hours.
Audiences are therefore exposed to the content displayed on its advertising
platform for a significantly longer period of time than on shorter-distance
travel. In addition, our patented automated control systems ensure that the
programs and advertisements are displayed continuously throughout the
journey.




CME has
grown significantly since it commenced its advertising services business in
November 2003. During the year ended December 31, 2009, more than 400
advertisers purchased advertising time on CME’s network either through
advertising agents or directly from CME. Some of these clients have purchased
advertising time from CME for more than three years, including Hitachi, China
Telecom, Toyota, Siemens and China Pacific Life Insurance. CME has attracted
several well-known international and national brands to its advertising network,
including Coca Cola, Pepsi, Wahaha, Siemens, Hitachi, China Telecom, China
Mobile, China Post, Toyota, Bank of China and China Pacific Life Insurance. For
the years ended December 31, 2007, 2008 and 2009, CME generated total net
revenues of $25.8 million, $63.0 million and $95.9 million,
respectively. During the same periods, CME had net income of $7.0 million,
$26.4 million and $41.7 million, respectively. For nine months ended
September 30, 2010, CME generated total net revenue and net income of $155.0
million and $77.8 million, respectively.




Critical
Accounting Policies




The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to adopt
accounting policies and make significant judgments and estimates to develop
amounts reflected and disclosed in the financial statements. In many cases,
there are alternative policies or estimation techniques that could be used. We
maintain a process to review the application of our accounting policies and to
evaluate the appropriateness of the many estimates that are required to prepare
the financial statements of a large, global corporation. However, even under
optimal circumstances, estimates routinely require adjustment based on changing
circumstances and the receipt of new or better information. There have been no
significant changes to our critical accounting policies and estimates as
discussed in our Annual Report on Form 10-K for the fiscal year ended December
31, 2009.




16


Results
of Operations




Three
months ended September 30, 2010 Compared to Three months ended September 30,
2009




Net revenues.  CME’s
sales, net of business tax and related surcharges increased to $57.0 million for
the three months ended September 30, 2010 from $26.1 million for the
three months ended September 30, 2009. The increase was primarily attributable
to the increased total amount of advertising time that CME sold, an increase in
average rates per second, increase in CME’s advertising base, expansion of the
geographic coverage of CME’s network, increase in the portion of the direct
sales to the advertisers, additional revenue generated from the embedded
advertisement which was displayed during the broadcasting of the content. 
In addition, CME started to separate out the airport express buses from the
original inter-cities buses from the beginning of 2010.  As at September
30, 2010, CME covers Beijing, Fuzhou, Guangzhou, Qingdao, Changsha and Chongqing
airports in the PRC.  The charge rates for these airport express buses
route were higher than those inter-cities buses, which partially contributes to
the increase in CME’s sales.  The net revenue generated from the airport
express buses for the three months ended September 30, 2010 was approximately
$15.0 million.




Cost of sales.  CME’s
cost of sales increased to $13.2 million for the three months ended
September 30, 2010 from $8.6 million for the three months ended September
30, 2009 due to the following reasons:




Concession fees. 
Concession fees charged by inter-city express and airport express bus operators
increased to $9.1 million for the three months ended September 30, 2010
from $6.3 million for the three months ended September 30, 2009. The
increase was attributable to the increase in the concession fees payable to the
group of bus operators participating in CME’s network through the execution of
long-term framework agreements for the three months ended September 30, 2010, an
increase in the number of inter-city express buses and airport express buses
carrying CME’s network as a result of the increase in number of buses operators
that signed contracts with CME and the amortization of lump sum payment to the
media company in order to obtain the operating right of some regions. At the
beginning of the year , based on updated contract renewal information, CME
changed the estimated growth rate of the concession fees from 10% per year to
15% per year . For three months ended September 30, it resulted an increase of
COS totaled $0.5 million.




Depreciation. 
Depreciation for CME’s digital television displays and hard disk drives
increased to $1.0 million for the three months ended September 30, 2010 from
$0.8 million for the three months ended September 30, 2009. The increase was
attributable to installation of new equipment and control systems in connection
with the increase in the number of inter-city express and airport express buses
in CME’s networks.




Business tax.  Business
tax increased to $2.1 million for the three months ended September 30, 2010 from
$0.9 million for the three months ended September 30, 2009. The increase was
primarily attributable to more business taxes arising from consulting services
provided by Fujian Across Express Information Technology Co. Ltd  to Fujian
Fenzhong in the three months ended September 30, 2010.




Production cost for embedded
advertisement.Production costs increased to $0.9 million for the
three months ended September 30, 2010 from $0.6 million for the three months
ended September 30, 2009 as CME started to produce the embedded advertisements
inside content in August 2009.




Gross profit.  As a
result of the foregoing, CME’s gross profit increased to $43.8 million for the
three months ended September 30, 2010 from $17.5 million for the three months
ended September 30, 2009. CME’s gross profit margin for the three months ended
September 30, 2010 was 76.8% compared to the gross profit margin of
67.0% for the three months ended September 30, 2009.  The increase in
the margin was because of the higher margin contribution from  airport
express buses and the embedded advertisement business.




Operating expenses. 
CME’s operating expenses increased to $2.5 million for the three months ended
September 30, 2010 from $2.0 million for the three months ended September 30,
2009 due to the following reasons:




17




Selling expenses. 
Selling expenses were $2.3 million and $1.4 million for the three months ended
September 30, 2010 and 2009, respectively.  The majority of selling
expenses consisted of the salaries, sales commission and staff welfare of the
sales force and promotion expenses. The significant increase in selling expenses
is mainly a result of increasing sales staff to meet the growing sales demand as
well as the increase in sales commission.




General and administrative
expenses.  General and administrative expenses decreased by 61.2% to
$228,000 for the three months ended September 30, 2010 from $588,000 for the
three months ended September 30, 2009. The decrease was primarily attributable
to exchange gains.




Operating income.  As a
result of the foregoing, CME’s operating income increased by 166% to $41.2
million for the three months ended September 30, 2010 from $15.5 million for the
three months ended September 30, 2009.




Interest income.  CME’s
interest income increased by 293% to $106,000 for the three months ended
September 30, 2010 from $27,000 for the three months ended September 30, 2009,
primarily as a result of higher cash balance in the bank.




Income tax expenses. 
CME’s income tax expenses increased by 162% to $10.2 million for the three
months ended September 30, 2010 from $3.9 million for the three months ended
September 30, 2009. The increase was primarily attributable to the increase in
income before income taxes.




Net income.  As a result
of the foregoing, CME’s net income increased by 167% to $31.1 million for the
three months ended September 30, 2010 from $11.7 million for the three months
ended September 30, 2009. CME’s net profit margin increased to 54.7% for the
three months ended September 30, 2010 from 44.7 % for the three months
ended September 30, 2009, primarily attributable to an increase in gross profit
in the three months ended September 30, 2010.




Nine
months ended September 30, 2010 Compared to Nine months ended September 30,
2009




Net revenues.  CME’s
sales, net of business tax and related surcharges increased to $155.0 million
for the nine months ended September 30, 2010 from $64.0 million for
the nine months ended September 30, 2009. The increase was primarily
attributable to the increased total amount of advertising time that CME sold, an
increase in average rates per second, increase in CME’s advertising base,
expansion of the geographic coverage of CME’s network, increase in the portion
of the direct sales to the advertisers, additional revenue generated from the
embedded advertisement which was displayed during the broadcasting of the
content for the nine months ended September 30, 2010.  In addition, CME
started to separate out the airport express buses from the original inter-cities
buses from the beginning of 2010.  The net revenue generated from the
airport express buses for the nine months ended September 30, 2010 was
approximately $35.1 million.




Cost of sales.  CME’s
cost of sales increased to $42.5 million for the nine months ended
September 30, 2010 from $23.0 million for the nine months ended September
30, 2009 due to the following reasons:




Concession fees. 
Concession fees charged by inter-city and airport express bus operators
increased to $30.6 million for the nine months ended September 30,
2010 from $17.8 million for the nine months ended September 30, 2009.
The increase was attributable to the increase in the concession fees payable to
the group of bus operators participating in CME’s network through the execution
of long-term framework agreements for the nine months ended September 30, 2010,
an increase in the number of inter-city express and airport express buses
carrying CME’s network as a result of the increase in number of buses operators
that signed contracts with CME and the amortization of lump sum payment to the
media company in order to obtain the operating right of some regions.  At
the beginning of the year, based on updated contract renewal information, CME
changed the estimated growth rate of the concession fees from 10% per year to
15% per year.  For the nine months ended September 30, 2010 it resulted an
increase of COS totaled $3.0 million.




18


Depreciation. 
Depreciation for CME’s digital television displays and hard disk drives
increased to $2.9 million for the nine months ended September 30, 2010 from $2.4
million for the nine months ended September 30, 2009. The increase was
attributable to installation of new equipment and control systems in connection
with the increase in the number of inter-city express buses and airport express
in the CME’s networks.




Business tax.  Business
tax increased to $5.8 million for the nine months ended September 30, 2010 from
$2.1 million for the nine months ended September 30, 2009. The increase was
primarily attributable to more business taxes arising from consulting services
provided by Fujian Across Express Information Technology Co. Ltd  to Fujian
Fenzhong in the nine months ended September 30, 2010.




Production cost for embedded
advertisement.Production costs increased to $2.7 million for the
nine months ended September 30, 2010 from $0.6 million for the nine months ended
September 30, 2009 as CME started to produce the embedded advertisements inside
content in August 2009.




Gross profit.  As a
result of the foregoing, CME’s gross profit increased to $112.5 million for the
nine months ended September 30, 2010 from $41.0 million for the nine months
ended September 30, 2009. CME’s gross profit margin for the nine months ended
September 30, 2010 was 72.6% compared to the gross profit margin of
64.1% for the nine months ended September 30, 2009.




Operating expenses. 
CME’s operating expenses increased to $8.7 million for the nine months ended
September 30, 2010 from $3.8 million for the nine months ended September 30,
2009 due to the following reasons:




Selling expenses. 
Selling expenses were $6.2 million and $1.9 million for the nine months ended
September 30, 2010 and 2009, respectively. The majority of selling expenses
consisted of the salaries, sales commission and staff welfare of the sales
force, and  promotion expenses. The significant increase inselling expenses
is mainly a result of increasing sales staff to meet the growing sales demand as
well as the sales commission.




General and administrative
expenses.  General and administrative expenses increased by 29% to
$2.5 million for the nine months ended September 30, 2010 from $1.9 million for
the nine months ended September 30, 2009. The increase was primarily
attributable to audit and consulting fees, which was offset by some exchange
gain for the nine months ended September 30, 2010.




Operating income.  As a
result of the foregoing, CME’s operating income increased by 179% to $103.8
million for the nine months ended September 30, 2010 from $37.2 million for the
nine months ended September 30, 2009.




Interest income.  CME’s
interest income increased by 259% to $251,000 for the nine months ended
September 30, 2010 from $70,000 for the nine months ended September 30, 2009,
primarily as a result of higher cash balance in the bank.




Income tax expenses. 
CME’s income tax expenses increased by 167% to $26.3 million for the nine months
ended September 30, 2010 from $9.8 million for the nine months ended September
30, 2009. The increase was attributable to the increase in income before income
taxes.




Net income.  As a result
of the foregoing, CME’s net income increased by 184% to $77.8 million for the
nine months ended September 30, 2010 from $27.4 million for the nine months
ended September 30, 2009. CME’s net profit margin increased to 50.2% for the
nine months ended September 30, 2010 from 42.8% for the nine months ended
September 30, 2009, primarily attributable to an increase in gross profit in the
nine months ended September 30, 2010.




19


Liquidity
and capital resources.




As of
September 30, 2010, CME had net cash of $169.9 million. CME’s cash primarily
consists of cash on hand and cash deposited in banks and interest-bearing
savings accounts. CME’s liquidity requirements primarily include cash required
to install its equipment and control systems on the inter-city express buses
carrying its network, concession fees payable to the inter-city express and
airport express bus operators participating in its network and its working
capital needs.




For the
nine months ended September 30, 2010, CME has financed its liquidity needs
primarily through cash flows from operating activities and capital financing
from the Starr preferred shares and warrants from   and the exercise
of public warrants.




As of
September 30, 2010 and December 31, 2009, CME’s accounts receivable, one of
the principal components of CME’s current assets, were $20.3 million and
$12.6 million, respectively. CME’s accounts receivable relate to
advertising fees payable by its clients. CME expects its accounts receivable to
increase as it continues to grow its business. CME intends to maintain its
current policies for collections of accounts receivable, which provide a
30-60-day credit period following the month in which the advertisements are
displayed. CME mitigates its collection risk by evaluating the creditworthiness
of its clients and monitoring outstanding balances payable by its clients. In
addition, as of September 30, 2010 and December 31, 2009, CME’s accounts
payable, one of the principal components of its current liabilities, were
$2.9 million and $2.2 million, respectively. CME’s accounts payable
relate to concession fees payable to the inter-city express and airport express
bus operators participating in CME’s networks. CME expects its accounts payable
to increase as the number of inter-city express and airport express buses
carrying its network increases. CME settles such concession fees on a monthly
basis based on the actual number of buses carrying its network in the preceding
month. Moreover, as of September 30, 2010 and December 31, 2009, CME’s accrued
liabilities for the purchase of property, plant and equipment were
$1.7 million and $2.1 million, respectively. Such liabilities relate
to CME’s purchase of equipment and control systems.  CME believes the cash
it generates from its customers, will be sufficient to fund its expansions and
payment obligations to the inter-city express and airport express bus operators
and CME’s equipment supplier.




CME
believes that its existing cash resources, the anticipated cash flows from
operating activities, will be sufficient to meet both its short-term and
long-term liquidity needs, including capital expenditure requirements to achieve
its expansion plans and the potential increase in costs as a result of becoming
a public reporting company.




Net cash
provided by operating activities during the nine months ended September 30, 2010
increased to $69.0 million compared with the prior year comparable period
primarily due to:




·
            significant
      increase in net income


·
            increase
      in accrued concession fees due to increase in bus lines; partially offset
      by


·
            increase
      in prepaid expenses due to acquisition of new operating
    right


·
            increase
      in accounts receivable




Net cash
used in investing activities during the nine months ended September 30, 2010
increased to $3.6 million compared with the prior year comparable period
primarily due to increase in capital expenditures for business
expansion.




Net cash
provided by financing activities of $46.1 million during the nine months ended
September 30, 2010 while it was net cash used in financing activities of $17.6
million during the prior year comparable period primarily due to





·
              no
      dividend paid out in the current period comparing to $17.6 million
      dividend payment in the prior year comparable period;


·
              $47.6
      million cash from exercises of warrants; and


·
              $30
      million cash from issuance of preferred shares and warrants; offset
      by


·
            $30.9
      million cash paid in relation to the Share Exchange
    Agreement




20




ITEM
      3
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Foreign
Exchange Risk




All of
CME’s revenue, and majority of costs and expenses are denominated in Reminbi, or
RMB. Although the conversion of the RMB is highly regulated in China, the value
of the RMB against the value of the  United States dollar, or U.S. dollar
or any other currency nonetheless may fluctuate and be affected by, among other
things, changes in China’s political and economic conditions. Under current
policy, the value of the RMB is permitted to fluctuate within a narrow band
against a basket of certain foreign currencies. China is currently under
significant international pressures to liberalize this government currency
policy, and if such liberalization were to occur, the value of the RMB could
appreciate or depreciate against the U.S. dollar.




Because
all of CME’s earnings and cash assets are denominated in RMB, appreciation or
depreciation in the value of the RMB relative to the U.S. dollar would affect
CME’s financial results reported in U.S. dollar terms without giving effect to
any underlying change in CME’s business or results of operations. Fluctuations
in the exchange rate will also affect the relative value of any dividend CME
issues after this offering that will be exchanged into U.S. dollars and earnings
from, and the value of, any U.S. dollar-denominated investments CME makes in the
future.  If the RMB vs. USD exchange rate increase/decrease by 1%, the
other comprehensive income will increase/decrease by 1% correspondingly as most
of the assets, liabilities, revenue and expenses are dominated by
RMB.




Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. While CME may decide to enter into hedging transactions in the future, the
availability and effectiveness of these hedging transactions may be limited and
CME may not be able to successfully hedge our exposure at all. In addition, our
currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert RMB into foreign currency.




Interest
Rate Risk




CME has
not been, nor does it anticipate being, exposed to material risks due to changes
in interest rates. CME’s risk exposure to changes in interest rates relates
primarily to the interest income generated by cash deposited in interest-bearing
savings accounts. CME has not used, and does not expect to use in the future,
any derivative financial instruments to hedge its interest risk exposure.
However, CME’s future interest income may fall short of its expectation due to
changes in interest rates in the market.




Credit
Risk




The
Company is exposed to credit risk from its cash in bank and accounts receivable.
The credit risk on cash in bank is limited because the counterparties are
recognized financial institutions. Accounts receivable are subjected to credit
evaluations. An allowance would be made, if necessary, for estimated
irrecoverable amounts by reference to past default experience, if any, and by
reference to the current economic environment.




Inflation




Inflationary
factors, such as increases in the cost of our products and overhead costs, could
impair our operating results. Although we do not believe that inflation has had
a material impact on our financial position or results of operations to date, a
high rate of inflation in the future may have an adverse effect on our ability
to maintain current levels of gross margin and selling, general and
administrative expenses as a percentage of sales revenue if the selling prices
of our products do not increase with these increased costs.




21


Company’s
Operations are Substantially in Foreign Countries




Substantially
all of our operations are conducted in China and are subject to various
political, economic, and other risks and uncertainties inherent in conducting
business in China. Among other risks, the Company and its subsidiaries’
operations are subject to the risks of restrictions on transfer of funds; export
duties, quotas, and embargoes; domestic and international customs and tariffs;
changing taxation policies; foreign exchange restrictions; and political
conditions and governmental regulations. Additional information regarding such
risks can be found under the heading “Risk Factors” in our Annual Report on Form
10-K for the year ended December 31, 2009.




ITEM
4                  CONTROLS AND
PROCEDURES




We
maintain “disclosure controls and procedures,” as such term is defined under
Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures. In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We have carried out an
evaluation as required by Rule 13a-15(d) under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of September 30, 2010. Based upon their
evaluation and subject to the foregoing, the Chief Executive Officer and Chief
Financial Officer concluded that as of September 30, 2010 our disclosure
controls and procedures were effective in ensuring that material information
relating to us, is made known to the Chief Executive Officer and Chief Financial
Officer by others within our company during the period in which this report was
being prepared.




There
were no changes in our internal controls over financial reporting identified in
connection with the evaluation that occurred during the quarter ended September
30, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.




Part
II


OTHER
INFORMATION




ITEM
      1
            LEGAL
      PROCEEDINGS




None.




ITEM
      1A.
            RISK
      FACTORS




There
have been no material changes to the risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2009 in response
to Item 1A to Part I of Form 10-K.




ITEM
      2
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




Not
applicable.




ITEM
      3
            DEFAULTS
      UPON SENIOR SECURITIES




Not
applicable.




ITEM
      4
            REMOVED
      AND RESERVED




Not
applicable.




ITEM
      5
            OTHER
      INFORMATION




Not
applicable.




22




ITEM
      6
            EXHIBITS




The
exhibits listed on the Exhibit Index are filed as part of this
report.




(a) 
         Exhibits:




10.21 
     Form of Loan Agreement between Fujian Across Express
Information Technology Co., Ltd. and each of Zheng Cheng and Chunlan Bian, each
dated as of April 17, 2009.




10.22 
     Form of Power of Attorney in favor of Fujian Across Express
Information Technology Co., Ltd. by each of Zheng Cheng and Chunlan Bian, each
dated as of April 17, 2009.




10.23 
     Form of Exclusive Option Agreement between Fujian Across
Express Information Technology Co., Ltd. and each of Zheng Cheng and Chunlan
Bian, each dated as of April 17, 2009.




10.24 
     Equity Interest Pledge Agreement between Fujian Across
Express Information Technology Co., Ltd. and each of Zheng Cheng and Chunlan
Bian, each dated as of April 17, 2009.




10.25 
     Exclusive Business Cooperation Agreement between Fujian
Across Express Information Technology Co. and Fujian Fenzhong Media Co., Ltd.
dated as of April 17, 2009.




31.1 
       Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.




31.2 
       Certification by Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.




32.1 
       Certification by Chief Executive Officers and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.




23




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:
November 9, 2010




CHINA
      MEDIAEXPRESS HOLDINGS, INC.By:
            /s/
      Jacky LamName:
      Jacky LamTitle:
      Chief Financial Officer




24




EXHIBIT
INDEX




Exhibit
      No.
                                          
                                          Description10.21
                                          
                                          Form
      of Loan Agreement between Fujian Across Express Information Technology
      Co., Ltd. and each of Zheng Cheng and Chunlan Bian, each dated as of April
      17, 2009.10.22
                                          
                                          Form
      of Power of Attorney in favor of Fujian Across Express Information
      Technology Co., Ltd. by each of Zheng Cheng and Chunlan Bian, each dated
      as of April 17, 2009.10.23
                                          
                                          Form
      of Exclusive Option Agreement between Fujian Across Express Information
      Technology Co., Ltd. and each of Zheng Cheng and Chunlan Bian, each dated
      as of April 17, 2009.10.24
                                          
                                          Equity
      Interest Pledge Agreement between Fujian Across Express Information
      Technology Co., Ltd. and each of Zheng Cheng and Chunlan Bian, each dated
      as of April 17, 2009.10.25
                                          
                                          Exclusive
      Business Cooperation Agreement between Fujian Across Express Information
      Technology Co. and Fujian Fenzhong Media Co., Ltd. dated as of April 17,
      2009.31.1
                                          
                                          Certification
      by Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                                          
                                          Certification
      by Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                                          
                                          Certification
      by Chief Executive Officers and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.




25