UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  FORM
10-K /A
 (Amendment
No. 1)
 
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the fiscal year ended December 31,
      2008ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the transition period from ________________ to
      ________________
 
 Commission
file number:  000- 52746
 SINOHUB,
INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                
                87-0438200(State
      or other jurisdiction of
                
                (I.R.S.
      Employerincorporation
      or organization)
                
                Identification
      No.)6/F,
      Bldg 51, Rd 5, Qiongyu Blvd.
                  Technology
      Park, Nanshan District
                  Shenzhen,
      People’s Republic of China
                
                518057(Address
      of principal executive offices)
                
                (Zip
      Code)
 
 86 755 2661
2106
 
 (Registrant’s
telephone number, including area code)
 
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Securities
registered pursuant to Section 12(b) of the
Act:  None
 
 Securities
registered pursuant to Section 12(g) of the Act:  Common
Stock, $.001 par value
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o  
No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.Yes x   No o
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes  x           No  o
  1
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained here, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
  Large
      accelerated filer
                    o
                    Accelerated
      filer
                    oNon-accelerated
      filer
                    o
                    Smaller
      Reporting Company
                    x
  Ind icate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
 Yes o            No 
x
 
 The
aggregate market value of common stock held by non-affiliates of SinoHub Inc.,
based upon the closing price of its common stock as of June 30, 2008, was
$26,682,903.
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
  Class
                        
                        Outstanding
      at December 31, 2008Common
      Stock, $0.001 par value per share
                        
                        24,501,989shares
  
 DOCUMENTS INCORPORATED BY REFERENCE: None.
  2
  SINOHUB,
INC.
 FORM
10-K
 
 TABLE
OF CONTENTS
  PART I
              
              PageItem
      1.
              Business
              6Item
      1A.
              Risk
      Factors
              20Item
      1B.
              Unresolved
      Staff Comments
              31Item
      2.
              Properties
              31Item
      3.
              Legal
      Proceedings
              32Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              32PART IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              32Item
      6.
              Selected
      Financial Data
              37Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and
      Results of Operations
              37Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              51Item
      8.
              Financial
      Statements and Supplementary Data
              51Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              51Item
      9A(T).
              Controls
      and Procedures
              51Item
      9B.
              Other
      Information
              52PART IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              52Item
      11.
              Executive
      Compensation
              58Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              63Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              64Item
      14.
              Principal
      Accountant Fees and Services
              67Part IVItem
      15.
              Exhibits
      and Financial Statement Schedules
              68SIGNATURES
              
              71Consolidated
      Financial Statements and Footnotes
              72Certifications
  3
  Explanation
  SinoHub,
Inc. (the “Company”, “our” or “we”) determined that certain of the disclosures
made in the original annual report on Form 10-K for the year ended December 31,
2008 did not respond fully to the items required by Form 10-K or did not conform
completely to the requirements of Form 10-K.  The following material
changes have been made to this amended report:
  
              The
      discussion in the Business Operations section of Item 1 has been revised
      to provide supplemental information with respect to the Company’s credit
      facilities and the guarantees
therefor;
  
              The
      risk factor in Part I, Item 1A captioned “Future sales of our securities,
      or the perception in the markets that these sales may occur, could depress
      our stock price”
      has been revised to clarify when we believe that Rule 144 will become
      available for the resale of our common
  stock;
  
              We
      have supplemented the discussion in Part II, Item 5 under the caption
      “Recent Sales of Unregistered
Securities”;
  
              We
      have supplemented the discussion of the nature of the mobile phone market
      in China in Part II, Item 7 under the caption “Overview-Our
      Business”;
  
              As
      the Company will likely not file a definitive proxy statement for its
      annual meeting of shareholders by April 30, the Company has added
      disclosure with respect to the “Securities Authorized for Issuance Under
      Equity Compensation Plans” subsection of Part II, Item 5 and Part
      III, Items 10-14, which were previously intended to be incorporated by
      reference to the proxy;
  
              The
      financial statements and accompanying notes have been amended to break out
      certain expenses connected with the Company’s reverse merger and certain
      shares issued in rounding up fractional shares in connection with the
      reverse merger and to clarify the basis for presentation of the Company’s
      equity in the financial statements in light of the reverse
      merger.
  
              The
      certifications filed as Exhibits 31.1 and 31.2 have been amended to add
      certain language required to be included in the introduction to paragraph
      4 which was inadvertently omitted in the filing of the original Form
      10-K;
  This
Amendment No. 1 continues to speak as of the date of the original Form 10-K for
the year ended December 31, 2008, and we have not updated or amended the
disclosures contained herein to reflect events that have occurred since the
filing of the original Form 10-K, or modified or updated those disclosures in
any way other than as described in the preceding paragraphs.  Accordingly,
this Amendment No. 1 should be read in conjunction with our filings made with
the SEC subsequent to the filing of the original Form 10-K on March 17,
2009.
  4
  PART
I
 
 Except
as otherwise required by the context, all references in this report to "we",
"us”, "our", “SinoHub” or "Company" refer to the consolidated operations of
SinoHub, Inc., a Delaware corporation, and its wholly owned
subsidiaries.
  FORWARD-LOOKING
INFORMATION
  This
Annual Report on Form 10-K and certain information incorporated herein by
reference contain “forward-looking statements” within the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995. All
statements contained in this Annual Report on Form 10-K other than statements of
historical fact are “forward-looking statements” for purposes of these
provisions, including any statements of plans and objectives for future
operations and any statement of assumptions underlying any of the foregoing.
Statements that include the use of terminology such as “may,” “will,” “expects,”
“believes,” “plans,” “estimates,” “potential,” or “continue,” or the negative
thereof or other comparable terminology are forward-looking
statements.
  These
forward-looking statements involve known and unknown risks and uncertainties.
Our actual results may differ materially from those projected or assumed in such
forward-looking statements. Among the factors that could cause actual results to
differ materially are the following:
  
                                  the
      potential growth of the mobile telephone and network equipment markets in
      China;
                                  our
      ability to overcome competition from other suppliers;
                                  any
      increase in the cost of component parts that we supply or increases in
      operating costs which cannot be passed on to our
  customers;
                                  the
      availability of financing on attractive terms or at all, which may
      adversely impact our growth plans or increase our future interest
      expense;
                                  changes
      in interest rate levels and volatility in securities
    markets;
                                  the
      retention of import/export licenses and SinoHub SCM SZ’s Client
      Coordinator Enterprise Coordinator status with the Huanggang Customs
      authority;
                                  economic,
      political, regulatory, legal and foreign exchange risks associated with
      our operations;
                                  changes
      in governmental regulation, tax rates and similar
  matters;
                                  retention
      of key members of our senior management;
                                  the
      abatement of the current global economic crisis over
  time;
  and the
factors detailed under the heading “Risk Factors” in Item 1A of this Annual
Report on Form 10-K. All forward-looking statements and risk factors included in
this document are made as of the date hereof, based on information available to
us as of the date hereof, and we assume no obligation to update any
forward-looking statement or risk factor.
  5
 
 Item
1. Business.
 
 Overview
  SinoHub,
Inc. (the “Company”) is engaged in electronic component sales and electronic
component supply chain management (SCM) services. Our electronic component sales
include procurement-fulfillment and individually negotiated electronic component
sales to manufacturers. We only deal in original parts in original packing and
do not alter or modify the parts in any way.  Accordingly, any quality
issues with respect to the parts would be the responsibility of the manufacturer
of the parts. Our SCM services include warehousing, logistics and import/export.
At present all of our component sales and SCM services occur in the PRC and Hong
Kong.
  Procurement-fulfillment
starts when our manufacturer customer enters their bill of materials including
default supplier and price for each electronic component into our proprietary,
SCM online software system named “SinoHub SCM” for a project (for example, to
obtain the necessary components for a project for the production of 50,000
mobile phones). SinoHub then tries to find better pricing on each component than
the target price set by the customer enabling the Company to make a margin on
the purchasing of the components. Then the electronic components are ordered and
received in SinoHub’s Hong Kong warehouse. When the bill of materials is
complete, the customer can order just-in-time shipping of the components to
their factory floor.
  Electronic
component sales are driven by SinoHub’s in-house sales representatives who find
arbitrage opportunities by looking at the pricing in our database of all of the
electronic components we have ever imported.  The database contains
the price at which the part was imported, the quantities imported and
descriptive information regarding the characteristics of the components and is
updated in real time.
  The
Company provides SCM services to electronics manufacturers and component
suppliers in the People’s Republic of China (the “PRC”).  Our
professional Supply Chain Management platform integrates SinoHub SCM, logistics
service centers located in key distribution/manufacturing cities in the PRC, and
a service team of over 100 employees.
  As a
seller of electronic components and an electronic component supply chain
management service provider, we manage all aspects of the purchase and movement
of electronic components from their receipt from suppliers in our Hong Kong
warehouse to their import into China and delivery to a manufacturer. We also
handle the export of the finished goods when that is required. Roughly seventy
percent (70%) of our business with manufacturer customers is related to mobile
phones. The components we source in this vertical market change rapidly in line
with the rapid change of technology in this industry. This helps our business as
more opportunities for price discrepancies occur than in vertical markets, such
as refrigerator manufacture, where the same components are used year in and year
out.
  6
  Each
mobile phone built by one of our customers contains between 100 and 200
electronic components that have an aggregate value of between $15 and
$ 60 . At present, our business mix is weighted toward the lower end of the
scale (the high end is “smart” phones) with the average purchase price of the
electronic components that go into a phone one of our customers would make being
around $ 25 . We have customers who make hundreds of thousands of phones
per month. In the past, we have only been able to handle part of their business
because of liquidity constraints (our procurement-fulfillment business requires
us to have available capital to purchase components for inventory prior to
reselling them to customers). However, we are currently ramping up with several
customers who want to give us the opportunity to supply them with components for
a larger share of their business. In the last three years, mobile phone
components have accounted for approximately 70% of our business and network
equipment components have accounted for approximately 15% of our business. We
expect these percentages to grow slightly in 2009 as we focus on these two
vertical markets. 90% of our manufacturer customers in these areas sell their
products into the local Chinese market. As a result, we have yet to feel much
adverse effect from the global slowdown because demand has remained strong for
these products in China. Because sales of mobile phones in the PRC typically
spike around Chinese New Year which occurs in either January or February, the
fourth calendar quarter is usually our biggest volume quarter. Normally, the
first quarter is our weakest quarter because of this long holiday, with the
second and third quarters showing consecutive increases. A typical pattern of
revenue for our Company would be 15%, 20%, 25% and 40% for the first through
fourth quarters respectively. 2008 proved to be an exception as the third
quarter was a very robust quarter because of some delayed business coming over
from the prior quarter and unusually strong demand. The only inventory SinoHub
carries is electronic components that we are staging for procurement-fulfillment
projects. We never buy components without a corresponding order to purchase the
components. In 2008, SinoHub had three customers, all in the mobile phone
business, who accounted for 12%, 10% and 7% of our revenue respectively. We
expect this concentration to go down as our business expands. We do not have
backlog orders, but with the successful completion of each
procurement-fulfillment project and component sale, we look for repeat orders
from existing customers.
  History
  Liberty
Alliance, Inc. was a corporation organized in Utah in 1986.  In 1991,
Liberty Alliance, Inc. completed its domestication as a Delaware
corporation.  Liberty Alliance, Inc. filed for bankruptcy in 1994 and
the bankruptcy proceedings were completed in 1995. From 1995 to 2006, Liberty
Alliance, Inc. had no or nominal assets and was not conducting any business
operations.  In August 2006, Liberty Alliance, Inc. changed its name
to Vestige, Inc., and in September 2006 it changed its name back to Liberty
Alliance, Inc.  On August 1, 2007, Liberty Alliance, Inc. became a
voluntary reporting company under the Exchange Act when it filed a Form 10
registration statement with respect to its shares of common
stock.  Shares of Liberty Alliance, Inc. common stock began to be
reported on the over-the-counter bulletin board under the symbol “LBTI” on
November 14, 2007.
  In May
2008, Liberty Alliance, Inc., its wholly-owned subsidiary SinoHub Acquisition
Corp., SinoHub, Inc., and Steven L. White, the principal stockholder of Liberty
Alliance, Inc., entered into an Agreement and Plan of Merger pursuant to which
SinoHub Acquisition Corp. merged with and into SinoHub, Inc. and SinoHub, Inc.
became a wholly-owned subsidiary of Liberty Alliance, Inc.  Pursuant
to the Agreement and Plan of Merger, the holders of 5,203,907 shares of Liberty
Alliance, Inc. common stock tendered their shares to the Company for
cancellation, Liberty Alliance, Inc. issued to the former stockholders of
SinoHub, Inc. 18,290,000 shares of Liberty Alliance, Inc. common stock in
exchange for all the outstanding shares of SinoHub, Inc.’s preferred and common
stock, and Liberty Alliance, Inc. assumed options to purchase shares of SinoHub,
Inc. common stock which became exercisable for 489,451 shares of Liberty
Alliance common stock.  In addition, Liberty Alliance, Inc. also
issued 510,000 shares of its common stock to certain consultants for services
rendered in connection with the merger, including 500,000 shares issued to
JCGlobal Capital Partners LLC.  These consulting services included
investment banking advice and strategic advisory services relating to the
structure and consummation of the reverse merger between SinoHub and Liberty
Alliance, Inc. that was eventually consummated.  Immediately following
the merger, Liberty Alliance, Inc. had 20,000,000 shares of common stock
outstanding and options exercisable for an additional 489,451 shares of common
stock. The merger was accounted for as a reverse acquisition with SinoHub, Inc.
as the acquirer for accounting purposes.  After completion of the
merger, the original stockholders of Liberty Alliance, Inc. held approximately
6% of the issued and outstanding shares of Liberty Alliance, Inc. common stock
on a fully diluted basis and the former stockholders of SinoHub, Inc., including
the shares issued to consultants for services rendered in connection with the
merger, held approximately 94% of Liberty Alliance, Inc. issued and outstanding
shares of common stock.
  7
  Subsequent
to the completion of the merger, on July 18, 2008:
  -                      SinoHub,
Inc. amended its certificate of incorporation to change its name to SinoHub
International, Inc.;
  -                       Liberty
Alliance, Inc. amended its certificate of incorporation to change its name to
SinoHub, Inc. and effect a 3.5-to-1 reverse stock split of all issued and
outstanding shares of its common stock; and
  -                      Shares
of SinoHub, Inc. (formerly Liberty Alliance, Inc.) common stock began to be
reported on the over-the-counter bulletin board under the new symbol “SIHI” on a
post-merger, post-split basis.
  For
financial reporting purposes, the reverse takeover of the Company has been
accounted for as a recapitalization of the Company with SinoHub International as
the accounting acquirer whereby the historical financial statements and
operations of SinoHub International, Inc. became the historical financial
statements of the Company, with no adjustment of the carrying value of the
assets and liabilities. When we refer in this Form 10-K to business and
financial information for periods prior to the consummation of the reverse
acquisition, we are referring to the business and financial information of
SinoHub International, Inc. on a consolidated basis unless the context suggests
otherwise.
  Business
Operations
  SinoHub’s
business operations are primarily dedicated toward utilizing the value of the
SCM Platformto
source and deliver electronic components and electronic products for our
customers.
  The
Company offers customers the use of the SCM Platform under a fee based program
whereby customers outsource the supply chain process to SinoHub, while retaining
title to inventory, receivables, and commitments on supplier payables. SinoHub
provides the customer a complete SCM solution that includes importing and
exporting services, facilitating Customs clearance, performing warehouse and
distribution functions, and enabling foreign currency settlements through
SinoHub’s banking relationships and its licensed qualifications as a Client
Coordinator Enterprise in China.  Foreign currency settlement services
are valuable since the Chinese government limits the volume of foreign currency
exchange based on the volume of imported and exported
goods.   Because SinoHub has a high volume of imports, it has a
high limit of foreign currency exchange.  Moreover, the high volume of
foreign currency exchange makes SinoHub an attractive customer to banks, who
earn transaction fees on processing the settlements. In addition, as
described below, the Company has credit facilities with China Construction
Bank, who can immediately settle the value added tax and custom duty with the
government, thus, speeding up the goods in and out of the Customs.
  8
  The
Company also provides a unique procurement-fulfillment program for customers
that integrates the use of the SCM Platform with inventory procurement,
handling, and distribution.  Customers may require “order fulfillment”
services, where the customer outsources its electronic component purchasing
process and specifies suppliers at pre-negotiated costs, and SinoHub receives a
negotiated fee from its customer for services related to handling the
purchasing, and for managing the inventory through the supply chain.
Additionally, customers may request “order procurement” services, where SinoHub
sources and procures electronic components from the marketplace, and then
resells the components to its customers at negotiated prices that include the
component cost and supply chain management. In all cases, the
procurement-fulfillment program provides customers with a streamlined management
process for navigating all importing, Customs, warehousing, and delivery
challenges, while addressing key objectives for working capital, inventory
levels, order fill rates, and transaction costs.
  SinoHub
also supports customers by providing a sourcing channel for electronic
components that are not part of a specific SCM or procurement-fulfillment
program. In these cases, SinoHub utilizes its industry knowledge and
relationships with components suppliers and manufacturers to source products at
competitive prices and within time constraints.  SinoHub responds to
these “spot” orders from customers, sources the product, confirms pricing, and
executes delivery. Customers are required to pay on delivery of
product.
  The
Company has secured financing facilities (RMB based) with certain PRC banks to
support its business operations. The facilities generally run for one year terms
and are replaced by new facilities upon expiration.  We expect that we
will be able to obtain replacement facilities for the facilities listed below
upon their expiration.  The facilities with each bank
include:
  -
              Letter
      of credit facility with China Construction Bank in the amount of
      $3,200,000 to support trading activity. Restricted cash balances are
      required as security for draws against the facility and an annual
      commitment fee of 0.1% is assessed. In addition, the bank requires a third
      party guarantor. The third-party guarantor is Hong Feng Paper Industrial,
      Ltd., which required the Company to pay it a fee of $80,000 for providing
      its guaranty.  Other than the guaranty and the additional
      guaranty described below, the only relationship between the Company and
      Hong Feng is that the principal of Hong Feng owns shares of the common
      stock of the Company.  The facility renews each year and is
      available through August 2009.  The Company also has a
      $1,460,000 Customs duty import facility and a $2,200,000 Customs export
      refund facility through this bank to support short term duty collections
      and refunds on trading activity. These facilities renew each
      year.  The Customs import facility is available through February
      2010.  The Customs export refund facility is available through
      May 2009.  The Customs export refund facility allows the Company
      to advance to its customers refunds of Value Added Tax to which such
      customers may be entitled by shipping products on which the tax was paid
      overseas prior to the receipt of the refunded
  amount.
 
  -
              Letter
      of credit facility with another bank in the amount of $3,400,000 to
      support trading activity. Restricted cash balances are required as
      security for draws against the facility and an annual commitment fee of
      0.1% is assessed. In addition, the bank requires a third party
      guarantor.  The third-party guarantor is Hong Feng Paper
      Industrial, Ltd., which required the Company to pay it a fee of $70,000
      for providing its guaranty. The facility was terminated in December
      2008.
  9
  -
              Bank
      line facility with the Commercial and Industrial Bank of Fujian in
      Shenzhen in the amount of $4,400,000 to support its component sales
      business. Approximately
      $3,650,000 of this facility is available to support the issuance of
      letters of credit and approximately $750,000 of this facility is
      available for short-term loans.  Restricted cash balances
      are required as security for draws against the facility and the bank
      requires guarantors from a subsidiary and shareholders and a lien on a PRC
      property owned by a director. In addition, the bank requires third party
      guarantees from a subsidiary, SinoHub Electronics Shenzhen, Ltd., and
      shareholders, Lei Xia , our President, and his spouse Hantao Cui and a
      lien on a PRC property co-owned by Henry T. Cochran, our CEO with his
      spouse, Linda Marie Hetue.  In addition, the bank requires a
      third party guarantor.  The third-party guarantor is Shenzhen
      Yin Zhao Co., Ltd., which required the Company to pay it a fee of $72,000
      for providing its guaranty.  The only relationship between the
      Company and Shenzhen Yin Zhao Co., Ltd. is the guaranty.The facility is
      available through September,
2009.
   Subsidiaries
  Our
corporate structure is designed to comply with laws affecting ownership by
foreign entities of PRC companies. When SinoHub SCM Shenzhen was incorporated,
PRC laws prohibited a foreign owned company from owning an import/export
license. That restriction has since been removed, but the mechanism for SinoHub
Electronics Shenzhen to purchase SinoHub SCM Shenzhen without affecting SinoHub
SCM Shenzhen’s status at Customs has not yet been defined. SinoHub Electronics
Shanghai has the same purpose as SinoHub Electronics Shenzhen, with each company
focused on operating in Shanghai and Shenzhen, respectively.   
SinoHub SCM Shanghai has the same purpose as SinoHub SCM Shenzhen, with each
company focused on operating in Shanghai and Shenzhen, respectively. The reason
for the use of two subsidiaries is driven by PRC law, which generally requires
that a company be organized in the area in which it is operating.
  The
diagram below illustrates the current corporate structure of SinoHub, Inc. and
its subsidiaries:
  
  10
  SinoHub
International, Inc. was incorporated on March 23, 1999 as a Delaware
corporation. Prior to the Merger, this company was named SinoHub, Inc. and was
the primary holding company for the Chinese and Hong Kong subsidiaries listed
below. SinoHub International, Inc. is wholly owned by SinoHub, Inc.
  SinoHub
Electronics Shenzhen, Ltd. was incorporated on September 19, 2000 in the
People’s Republic of China to provide one-stop SCM services for electronic
manufacturers and distributors in southern China.  SinoHub Electronics
Shenzhen, Ltd. is wholly owned by SinoHub International, Inc.
  SinoHub
SCM Shenzhen, Ltd. was incorporated on December 12, 2001 in the PRC to hold an
import and export license in the PRC. SinoHub SCM Shenzhen, Ltd. purchases and
sells electronic components and provides Customs clearance services to our
customers. Over 70% of the electronic components that SinoHub sells are imported
by SinoHub SCM Shenzhen, Ltd. This is the result of times past when Chinese
regulations only allowed import/export licenses to be issued to companies that
were 100% owned by Chinese citizens. A growing portion of imports are being
done by SinoHub Electronics Shenzhen, Ltd. which now also has an import/export
license, but it is SinoHub SCM Shenzhen that has the highest status at Huanggang
Customs. Our declaration of trust agreement described below allows us to
purchase SinoHub SCM Shenzhen at any time, but the Chinese government has not
yet provided a way for us to acquire this company and retain its status at
Huanggang Customs. Ultimately, we expect that either a way will be provided for
SinoHub Electronics Shenzhen to acquire SinoHub SCM Shenzhen and retain its
status at Huanggang Customs or SinoHub Electronics Shenzhen will reach
equivalent status and the issue will be moot.  100% of the equity
interest in SinoHub SCM Shenzhen, Ltd. is held on behalf of SinoHub by
SinoHub Electronics Shenzhen, Ltd. through a Declaration of Trust with
SinoHub Electronics Shenzhen, Ltd. dated January 30, 2008. The Trustee, Hantao
Cui, holds record title to the equity of SinoHub SCM Shenzhen, Ltd. and
agrees to sign all papers according to the instruction of SinoHub Electronics
Shenzhen, Ltd. as the beneficial owner in order to enable the beneficial owner
or its representative to attend meetings of shareholders of SinoHub SCM
Shenzhen, Ltd. in the capacity of proxy for the Trustee in and to enable the
beneficial owner to exercise the voting rights in the capacity of
proxy.  Ms. Cui is the wife of Lei Xia, President of SinoHub. She
holds an MBA from the Thunderbird School of Global Management in Glendale,
Arizona. Ms. Cui is the Director of Marketing for China for
MFG.com.  Ms. Cui is serving as trustee as an accommodation to the
Company and does not customarily serve in such capacities. The Trustee has also
agreed to transfer 100% of the equity interest to any third party nominated by
the beneficial owner (including beneficial owner) or to otherwise dispose of or
deal with such equity in whatever manner instructed by the beneficial owner. The
right to any consideration for such transfer belongs to SinoHub SCM Shenzhen,
Ltd. as the beneficial owner. SinoHub SCM Shenzhen, Ltd. may appoint a new
trustee in its sole discretion at any time.  The trust does not
explicitly provide for termination.  It provides that the beneficial
owner can replace the trustee at any time.   In addition, SinoHub
Electronics Shenzhen, Ltd. has the right to require the trustee to transfer its
record ownership of SinoHub SCM Shenzhen, Ltd. to any third party or back to
SinoHub Electronics Shenzhen, Ltd. at any time.  Either the
replacement of the trustee or the transfer of record ownership will effectively
result in the termination of the trust. The governing law of the Declaration of
Trust is the law of the PRC.
  SinoHub
SCM Shanghai, Ltd. was incorporated on March 9, 2005 in the PRC to provide
one-stop SCM services for electronic manufacturers and distributors in northern
China. SinoHub SCM Shanghai, Ltd. is wholly owned by SinoHub Electronics
Shenzhen, Ltd. which acquired record ownership of the company on January 17,
2008. Prior to that date, SinoHub Electronics Shenzhen had borne all
costs of forming SinoHub SCM Shanghai and was the sole beneficial owner of
SinoHub SCM Shanghai with record ownership of SinoHub SCM Shanghai being held in
the name of a trustee pursuant to a Declaration of Trust substantially
similar to, and for the same reasons as, the current arrangement with SinoHub
SCM Shenzhen.  SinoHub Electronics Shenzhen was willing to terminate
the trust arrangement with respect to the shares of SinoHub SCM Shanghai
because, unlike SinoHub SCM Shenzhen, SinoHub SCM Shanghai does not
have Client Coordinator Enterprise status with Chinese
Customs.  SinoHub Electronics Shenzhen did not pay any additional
consideration for the transfer of the shares.
  11
  SinoHub
Electronics Shanghai, Ltd. was incorporated on July 5, 2005 in the PRC to
provide one-stop SCM services for electronic manufacturers and distributors in
the PRC. SinoHub Electronics Shanghai, Ltd. is wholly owned by SinoHub
International, Inc.
  B2B
Chips, Limited was incorporated on June 12, 2006 in Hong Kong to purchase and
sell electronic components. B2B Chips is wholly owned by SinoHub Electronics
Shenzhen, Ltd.
  SinoHub
Technology (Hong Kong) Limited was incorporated on May 8, 2007 in Hong Kong and
has not yet commenced business. SinoHub Technology (Hong Kong) is wholly owned
subsidiary of B2B Chips and was acquired on April 10, 2008.  B2B Chips
acquired SinoHub Technology (Hong Kong) from its owners, Henry T. Cochran and
Lei Xia, for HKD 10,000.
  Import/Export Licenses;Client Coordinator
Enterprise
  The
various companies listed above hold import/export licenses as
follows:
  SinoHub
Electronics Shenzhen, Ltd. obtained its import/export license on April 30,
2004.  The current license is renewable within 30 days prior to
September 19, 2010.
  SinoHub
SCM Shenzhen, Ltd. obtained its import/export license on January 18,
2002.  The current license is renewable within 30 days prior to
January 18, 2011.
  SinoHub
SCM Shanghai, Ltd. obtained its import/export license on April 1,
2006.  The current license is renewable within 30 days prior to April
6, 2011.
  The
licenses will expire if not renewed by the respective dates set forth
above.  The licenses can be terminated prior to expiration if, among
other reasons:
  
              the
      license owner declares bankruptcy,
  
              the
      license owner engages in smuggling,
  
              the
      license owner fails to pay Customs duties and Value Added Taxes when due,
      or
  
              the
      license owner fails to otherwise comply with the conditions of the
      license.
  In
addition to its license, in September 2008, SinoHub SCM Shenzhen attained Client
Coordinator Enterprise Coordinator status with the Huanggang Customs authority
in China.  As a Client Coordinator Enterprise, SinoHub SCM Shenzhen is
able to achieve expedited Customs clearance of its goods that it is importing
into China and may defer the payment of Value Added Tax and Customs Duty for two
weeks.
  12
  Available
Information
  The
Company’s mailing address and executive offices are located at 6/F, Building 51,
Road 5, Qiongyu Blvd., Technology Park, Nanshan District, Shenzhen 518057,
People’s Republic of China. The Company’s telephone number, including the
International Code and Area Code is +86-755-2661-2106 and its corporate website
is www.sinohub.com. The reports that the Company files with the Securities and
Exchange Commission pursuant to the Exchange Act are available on the Securities
and Exchange Commission website at http://www.sec.gov. The public may read and
copy any materials filed by the Company with the Securities and Exchange
Commission at the Public Reference Room at 100 F Street, N.E., Washington,
DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Securities and
Exchange Commission at http://www.sec.gov. The contents of these websites are
not incorporated into this filing.
  Market
Overview:  The Electronic Component Industry in China
  The
world has witnessed the enormous growth of the Chinese electronic manufacturing
industry over the past decade. Accordingly, China is a major consumer of
electronic components.   This growth is expected to continue to
increase with the rapid development of new technologies and in turn to lead to
the growth in the consumption of electronics products in China and China’s
continuing growth as the world’s electronics factory. According to Global
Sources, China was projected to consume $117.4 billion of electronic
components in 2008.
  Whereas
in North America and Europe the top manufacturers generally purchase components
directly from the component manufacturers themselves, in China, to date, even
the largest multinational OEMs like Nokia and Sony Ericsson and EMS providers
like Flextronics and Foxconn are generally unable to purchase components in
China directly from U.S. and European component manufacturers, in large part
because these component manufacturers do not have well-established supply chains
into China.  The rapid growth of electronic component distributors in
China and the growth of Web-based Internet procurement have created a very
fragmented electronic components market, with no distributor capturing
significant market share.    To date even the biggest electronic
component distributors in China (WPG, Arrow, Avnet and Yosun) do not provide
complete SCM services to their customers, unlike in the US and Europe where
large component manufacturers and franchise distributors provide complete SCM
services to their customers.  SinoHub believes that the fragmented
market for electronics components in China and the lack of an
end-to-end SCM service offering create an opportunity for us to combine the
sale of electronic components with efficient SCM services to garner a share of
the growing market for such components and services in China.
  SinoHub’s
Strategy
  SinoHub
seeks to implement a strategy of expanding its customer base for electronic
component sales in China by delivering SCM efficiencies to its customers to
drive on-time deliveries and customer satisfaction.   We plan to
do this by maintaining and enhancing the quality and efficiency of our SCM
services, including our proprietary SinoHub SCM online software
service.  In particular, we intend to focus on continuing to build the
procurement-fulfillment portion of our business.
  13
  Development
of SinoHub’s Business; Component Sales; and Component Procurement-Fulfillment
Programs
  SinoHub’s
original business was the provision of SCM services to assist suppliers of
electronic components with their supply chains into PRC.  We refer to
these customers as our “supplier” customers. SinoHub developed an integrated SCM
service offering, including warehousing, logistics and import/exportto assist suppliers
deliver products to Chinese manufacturers.  As a result of SinoHub’s
position as a provider of SCM services in China and our close relationships with
a number of electronic component suppliers and Chinese manufacturers as well as
our experience in the electronic components industry, we eventually decided we
had an opportunity to supply certain Chinese manufacturers with electronic
components and began to source and sell components for our own
account.   As these sales grew as a percentage of revenue, we
increased the resources which we dedicated to sales of components. As our
component customers and the market became more aware of and confident in our SCM
service offering, the opportunity arose for us to generate integrated sales of
components and SCM services in a streamlined approach to inventory management
and order procurement-fulfillment.  Currently, the vast majority of
our revenues are the result of sales of electronic components.  Our
sales of components currently fall into two different categories, namely
individually negotiated component sales, which accounted for approximately 51%
of our sales in 2008 (compared to 63% in 2007) and component sales as part of
procurement-fulfillment programs which accounted for approximately 43% of our
sales in 2008 (compared to 30% in 2007).
  Currently,
our electronic component procurement and sales staff of 15 full time employees
look for opportunities to source components for manufacturer customers at more
competitive prices than the manufacturer customer is currently
receiving.   If a lower price can be achieved and the customer
agrees with the price we quote, an opportunity to lower customer costs and
increase our revenues and profits exits.  Although we are not
contractually obligated to refrain from any sales activity, if a manufacturer
customer of ours is buying a specific component directly from one of SinoHub’s
supplier customers, we will not interrupt that purchase. To mitigate the
risk of purchasing and taking title to the components in these sales of
components, we purchase only standard components that, if necessary, can be sold
to other customers, and we limit the size of each order.
  SinoHub’s
Solution
  While we
derive the vast majority of our revenues from the sale of electronic components,
we believe our SCM services are important to our business and drive our ability
to attract customers.  SinoHub offers a full SCM Platform
solution.  The SinoHub SCM Platform brings a systems approach to our
customers, which enables them to understand, manage, and coordinate the flow of
products and services, within their supply chain.  SinoHub’s SCM
Platform consists of a Web-based online supply chain management system (SinoHub
SCM), key service centers in Hong Kong, Shenzhen, and Shanghai, and a supply
chain management service team that is able to work with our customers through
our online system in real time.
  SinoHub
SCM
  SinoHub
SCM is a proprietary, W eb-based software system that provides our
customers information along with security, accuracy and ease of use. Because we
only deal with electronic components, we can more easily implement features our
customers require. Since our SCM Platform is Web based, our customers can
quickly determine the status of shipments, the status and location of inventory
in our warehouses, and the status of financial transactions.  The
SinoHub SCM is accessible in both Chinese and English.  The following
flow chart illustrates the SinoHub SCM functionality.
  14
  
  As
described by the graph, SinoHub SCM operates in Simplified Chinese and English,
providing the following functionality for electronic component
suppliers:
   ·
              Order
      entry with automated price and category checking·
              Order
      tracking·
              Inventory
      management information system (warehouse management)·
              Shipment
      information system·
              Payment
      system·
              Finished
      orders database·
              Operations
      results tracking·
              Executive
      reporting system
 
  And for
OEMs and EMS companies it provides:
   ·
              Order
      tracking·
              Shipment
      tracking·
              Payment
      system·
              Bonded
      inventory control system·
              Operations
      results tracking·
              Vendor
      Managed Inventory·
              VAT
      tracking for recovery on export·
              Online
      payment
  15
  SinoHub
Service Centers
  SinoHub
utilizes its physical locations as service centers for electronic component
suppliers and OEM/EMS manufacturers. Geographical distances can significantly
affect the ability to provide effective SCM services. Establishing
multifunctional and technologically advanced service centers in major cities in
China may lower costs and improve service standards. SinoHub has established
service centers in Shenzhen and Shanghai which are connected through the SinoHub
SCM.
  SCM
Service Team
  SinoHub
has expended time and resources to hire employees with experience in the
electronic component field and to provide additional training to ensure the
highest quality of service to our customers.  Our SCM Service Team
includes more than 100 employees.
  SinoHub
SCM Services
  SinoHub’s
supply chain management services include:
  1.
              Import
      and export services:·
              Customs
      applications and declaration: bonded Customs declaration, application of
      import approval document, help with inspection & quarantine of the
      imports & exports·
              Tax
      reports generation and recording·
              Value
      added Tax advances and insurance (required by our customers for
      future rebate purposes)·
              Certificates
      for paid custom tax·
              A
      flexible combination of payment methods, including currency
      exchange.
 
  2.
              Warehouse
      services in Hong Kong, Shenzhen and Shanghai·
              Inventory
      management·
              Kitting,
      Repacking·
              Warehouse
      storage and insurance
 
  3.
              Delivery
      services·
              Door-to-door
      just-in-time delivery service·
              Guarantee
      one day for Shenzhen and two day delivery for other cities in China from
      Hong Kong.
 
  Our
customers may access the status of their components in real time through SinoHub
SCM and interact directly with our Customer Service representatives to resolve
problems. The system has helped reduce errors, save cost and time and enable
customers to get shorter time to market for their end products.
  We
believe approximately 50% of the electronic components entering China are
imported at Huanggang Customs in Shenzhen. SinoHub has achieved Client
Coordinator Enterprise status with Huanggang Customs (the highest status
possible). This special status affords the Company priority status at Huanggang
Customs and enables SinoHub to obtain Customs clearance efficiently, by allowing
us to input import/export documents online, resulting in time savings of at
least one hour for each order, which means faster imports and exports for our
customers. To achieve Client Coordinator Enterprise status at Huanggang Customs
a company must have had no incidents of undeclared goods being discovered in
Customs clearance for 3 years consecutively and it must have paid RMB 100
million in value-added tax annually.  We believe that there are fewer
than ten import/export companies focused on electronic components which
have this status. There is currently no expiration on this status as long as
these criteria continue to be met.
  16
  We
believe that through providing SCM services to our customers we gain critical
information about the market for electronic components used in the industries we
serve, including information about price and availability.  We believe
that providing these services also allows us to gain visibility and credibility
in the Chinese market for electronic components for our industry. We plan to
establish the SinoHub brand to be synonymous with SCM services for electronic
components in China, and to complement our procurement-fulfillment services with
our total SCM solution.
  Unlike
express forwarders, SinoHub is able to charge for its SCM services as a
percentage of the value of the goods it handles. SinoHub’s processing volume for
SCM services in 2008 exceeded US$300 million in inventory value processed on
behalf of our customers.  We estimate that approximately 85% of all of
the electronic components that are used in manufacturing in China must be
imported as China’s production of electronic components is very limited at this
point. Our manufacturer customers, who are all located in China, must import
electronic components from outside the PRC to operate their businesses. Our
supplier customers are mainly companies incorporated outside of China who have
representative offices in China and supply electronic components to Chinese
manufacturers. Supplier customers use our warehousing, logistics and
import/export services.   Our supply chain management platform
for the electronic components industry in China connects manufacturer customers,
supplier customers and SinoHub in real time.
  Customers
  SinoHub
has approximately 25 manufacturer customers. Our manufacturer customers are
Chinese companies that are in the business of contract manufacturing or
are design houses (currently limited to mobile phone design)in
China.  These customers purchase components from us and ancillary to
these purchases we also provide them procurement-fulfillment, electronic
component sales and SCM services including warehousing, logistics and
import/export.  Sales of components to these customers constituted
approximately $74.5 million in 2008 and sales of services to these customers
were $1.49 million in 2008.
  SinoHub
has approximately 95 supplier customers.   Our supplier customers
are mainly companies incorporated outside of China which have representative
offices in China and supply electronic components to Chinese manufacturers. The
services we provide to our supplier customers are SCM services comprised of
warehousing, logistics and import/export support.   Pricing for
our supplier customers is negotiated, but on average it is about 1% of the value
of the goods we handle for them.  Sales of services to these customers
(which do not involve sales of components) were $3.48 million in
2008.
  Company
Strengths
  We
believe the strengths outlined below have contributed to our growth so
far:
  17
 ·
                specialized knowledge about component sourcing and pricing which we
      obtain from our supply chain management operations and use in our
      procurement-fulfillment and component sales business;
 ·
                                  our
      ability to provide one-stop-shop for our customers who wish to
      purchase components from us for delivery to the factory without the need
      to handle sourcing, import/export, or any other aspect of logistics or
      fulfillment;·
                                  SinoHub
      SCM SZ’s Client Coordinator Enterprise Coordinator status with the
      Huanggang Customs authority, which facilitates our ability to clear
      shipments through Customs and enables us to permit our customers to defer
      payment of Value Added Tax;·
                                  a
      strong and seasoned management team with many years experience in the
      electronic; components industry.·
                                  a
      supply chain management platform for the electronic components industry in
      China that connects manufacturer customers, supplier customers and SinoHub
      in a real time, transparent environment to allow our customers to manage
      their own components supply chain operations with efficiency;·
                                  continuous
      innovation of our proprietary supply chain management system to expand
      functionality and improve customer satisfaction; and·
                                  dedication
      and focus on providing supply chain management services for the electronic
      components sector in China.
  SinoHub’s
Strategy
  SinoHub
is a complete SCM service provider in China dedicated to electronic product
manufacturers, suppliers and distributors.  Our goal is to make the
SinoHub SCM Platform the most effective SCM Platform for electronic components
manufacturers and suppliers. To accomplish this strategy, we plan
to:
  ·
                                      increase
      brand awareness of SinoHub as a leading electronic component sales and SCM
      service provider for electronic component manufacturers and
      distributors;·
                                      continue
      to expand our SCM Platform and improve process efficiency. We will
      continue to invest in improving our processing efficiencies by enhancing
      our technologies and expanding our service team;·
                                      optimize
      our SinoHub SCM software system, to create a dominant
      position;·
                                      continue
      to expand the services we provide to our customers. We believe that the
      scope of our services differentiates us from many of our competitors. We
      will continue to look for ways to provide more value added services to
      become a best-in-class service provider; and·
                                      expand
      our SCM Platform to locations outside China, including the United States,
      through strategic acquisitions. We intend to leverage our reputation to
      aggressively pursue strategic
acquisitions.
  18
  Major
Customers and Suppliers
  For the
year ended December 31, 2008, one customer represented 12% and one customer
accounted for 10% of SinoHub’s total revenues, respectively. For the year ended
December 31, 2008, two suppliers represented 6% and 5% respectively of the
electronic components we purchased.  The level of sales to any
customer and purchases from any supplier may vary from quarter to
quarter.
  SinoHub
does not expect significant customer concentration to continue in the future
since our customers are generally small to medium size equipment manufacturers
in China.  As our business has grown our customer base has expanded
and the percentage of business we do with any one customer has declined. Because
procurement-fulfillment projects are based on a particular product being made,
it is unlikely that new customers will have so many projects that they will
become more than 10% of our revenue.
  Supplies
of the electronic components that we currently purchase are readily available
from numerous suppliers and resellers most of whom are based overseas but have
representative offices in China. Our three largest suppliers are Willas-Array,
Yosun and Future Electronics, which account for 6%, 5% and 3%, respectively, of
the components purchased in the year ended December 31,
2008.  Purchases are generally made based on purchase orders and we do
not have any long term supply agreements. Conversely, we do not have long term
contracts with our customers to buy the components from us.
  Competition
  We
compete with a number of companies in China that sell or distribute electronic
component parts and which may also offer import/export, logistics and other SCM
services. We also compete with “in house” purchasing departments of large
electronic component vendors, EMS providers and OEMs.  We believe that
many of the distributors against which we compete provide some but not all of
the SCM services that we provide. We do not believe that any other company
distributing electronic components in China currently provides a complete SCM
solution, although some electronic component vendors and distributors provide
logistic services to their customers and we expect that our competitors will
eventually seek to offer, directly or indirectly, a greater number of SCM
services.  We also face competition from local import/export
companies, such as Shenzhen Eternal Asia Supply Chain Company, Ltd., Shenzhen
Strongjet Technology Company, Ltd. and Shenzhen Huafuyang Import and Export
Company, Ltd. (HopeSea), which also offer logistics services, although none of
these companies focuses exclusively on the electronic components
market.  Professional freight forwarders such as Federal Express
and DHL provide express delivery to customers, however, they do not provide
electronic component inventory management, currency exchange, VAT invoicing, and
Customs and excise tax services, and they are not focused on the electronics
field.   We believe that SinoHub’s primary advantage over in-house
purchasing departments is that the up-to-date sourcing and pricing knowledge
which we gain from the large volume of components we handle as part of our SCM
service business for suppliers and the knowledge we gain from the purchase
transactions for our own component resales allows us to obtain better pricing
and availability than these in-house departments in product categories such as
mobile phones where the technology, pricing and availability of parts
changes rapidly.  Our advantage over many electronic component distributors
is that we have very detailed knowledge of what manufacturers are buying and
that we have a broader knowledge of electronic component pricing from our
database of parts that we import.  Many of our competitors have much
greater financial resources than we do and we expect competition to grow over
time and to present greater challenges for us, especially if any of our
competitors were to effectively adopt the elements of our business
model.
  19
  Item
1A.    Risk Factors.
 
 Risks
Related To Our Business
  The
industry in which we have chosen to concentrate our sales efforts is fast moving
and our customers may not be successful in growing in pace with the
industry.
  We have
chosen to concentrate our sales efforts in the fast moving mobile phone
business, where the life cycles of new products can be relatively short, and our
available capital limits the number of new customers we can handle at any given
time. We face the risk of our customers’ growth not keeping pace with this
dynamic market, whether as a result of manufacturing products for which there is
lesser demand, lack of capitalization or otherwise.  In addition,
given our limited resources to evaluate new customers, if we ultimately select
new customers who are less successful, it will provide a smaller return on our
efforts than if we select more successful customers.  Despite our
requirement of non-cancelable purchase orders from our customers and our efforts
to investigate the credit histories of our customers, there is no guarantee that
all our customers will be able to pay for all of the goods they
order.
  
  Our
management and two significant shareholders collectively own a majority of our
common stock.
  Collectively,
our officers, directors and two significant shareholders own or exercise voting
and investment control over approximately 57% of our outstanding common stock.
As a result, investors may be prevented from affecting matters involving the
company, including:
  • the
composition of our board of directors and, through it, any determination with
respect to our business direction and policies, including the appointment and
removal of officers;
  • any
determinations with respect to mergers or other business
combinations;
  • our
acquisition or disposition of assets; and
  • our
corporate financing activities.
  Furthermore,
this concentration of voting power could have the effect of delaying,
deterring or preventing a change of control or other business combination that
might otherwise be beneficial to our stockholders. This significant
concentration of share ownership may also adversely affect the trading price for
our common stock because investors may perceive disadvantages in owning stock in
a company that is controlled by a small number of
stockholders.
  20
  Changes
in governmental regulations affecting the export of electronics from China may
hurt our business.
  While we
believe that our manufacturer customers sell approximately 90% of their products
in the Chinese market, to the limited extent the Company’s manufacturer
customers sell overseas, factors which adversely affect export of electronic
products from China may materially and adversely affect our business, financial
condition, results of operations and business prospects, including regulatory
restrictions, trade disputes, industry-specific quotas, tariffs, non-tariff
barriers and taxes that may result in limiting exports from China.
  Our
business is sensitive to general economic conditions.
  As the
vast majority of our sales are to manufacturers and design firms in China which
in turn causes the end products to be distributed to consumers in China, our
business could be adversely affected if there were to be a slowdown in the
consumer demand in China for products incorporating the components we sell or we
process for our supplier customers.  Our business may also be
negatively affected by rising labor and material costs in China and, to the
limited extent the Company’s manufacturer customers sell overseas, by a downturn
in general economic conditions in major importing countries and
regions.
  Negative
perception or publicity of Chinese products may hurt our business.
  Any
negative perception or publicity of Chinese electronic products may cause a
decline in demand for Chinese electronic products and in turn negatively affect
our sales and revenue.
  SinoHub
envisions a period of rapid growth that may impose a significant burden on its
administrative and operational resources which if not effectively managed, could
impair its growth.
  SinoHub’s
strategy envisions a period of rapid growth that may impose a significant burden
on its administrative and operational resources. The growth of SinoHub’s
business will require significant investments of capital and management’s close
attention. SinoHub’s ability to effectively manage its growth will require it to
substantially expand the capabilities of its administrative and operational
resources and to attract, train, manage and retain qualified management,
technicians and other personnel.    If SinoHub is unable to
successfully manage its growth, SinoHub may be unable to achieve its
goals.
  SinoHub
may not be able to raise the additional capital necessary to execute its
business strategy, which could result in the curtailment of SinoHub’s
operations.
  On
September 10, 2008, the Company sold 4,406,533 shares of common stock and
warrants to purchase an aggregate of 2,203,256 shares of common stock to certain
accredited investors in a private offering, which resulted in aggregate gross
proceeds to the Company of $7,491,110.  Nevertheless, SinoHub will
need to raise substantial additional funds to fully fund its existing operations
and for development, component purchases and expansion of its
business.  An increasingly large proportion of the Company’s business
(currently approximately 43%) is procurement-fulfillment which requires the
Company to have available capital to purchase components for inventory prior to
reselling them to customers.  A lack of sufficient capital beyond cash
on hand and funds available under the Company’s credit facilities significantly
impairs the Company’s ability to take on new customers and the size of the
orders the Company can take from existing customers.  SinoHub has no
current arrangements with respect to sources of additional financing and
the needed additional financing may not be available on commercially reasonable
terms, on a timely basis, or at all. The inability to obtain additional
financing, when needed, would have a negative effect on SinoHub, including
possibly requiring it to curtail operations. If any future financing involves
the sale of the equity securities of SinoHub, the shares of common stock held by
its stockholders could be substantially diluted. If SinoHub borrows money or
issues debt securities, it will be subject to the risks associated with
indebtedness, including the risk that interest rates may fluctuate and the
possibility that it may not be able to repay principal and interest on
the indebtedness when due.
  21
  Insufficient
funds would prevent SinoHub from implementing its business plan and would
require it to delay, scale back, or curtail certain of its growth
plans.
  The competitive
pressures the Company faces could have a material adverse affect on the
Company’s business.
  The
market for the Company’s products and services is very competitive and subject
to rapid technological change. Not only does the Company compete with in-house
service teams and other third-party logistics providers, it also competes for
customers with distributors and with many of its own suppliers.  The
Company’s failure to maintain and enhance its competitive position could
adversely affect its business and prospects. Furthermore, the Company’s efforts
to compete in the marketplace could cause deterioration of gross profit margins
and, thus, overall profitability. The sizes of the Company’s competitors vary
across market sectors, as do the resources the Company has allocated to the
sectors in which it does business. Therefore, some of the competitors may have a
more extensive customer base than the Company has in all or some of its market
sectors or greater resources and funding to capture clients in such
sectors.
  SinoHub
will be required to hire and retain skilled technical and managerial
personnel.
  SinoHub’s
continued success depends in large part on its ability to attract, train,
motivate and retain qualified management and highly-skilled employees,
particularly managerial, technical, sales, and marketing personnel, technicians,
and other critical personnel. Any failure to attract and retain the
required highly-trained managerial and technical personnel who are integral to
production and development and technical support teams may have a negative
impact on the operation of SinoHub’s plants, which would have a negative
impact on revenues. There can be no assurance that SinoHub will be able to
attract and retain skilled persons and the loss of skilled technical personnel
would adversely affect its business .
  SinoHub
is dependent upon its officers for management and direction and the loss of any
of these persons could adversely affect its operations and results.
  SinoHub
is dependent upon its officers for implementation of its proposed expansion
strategy and execution of its business plan. The loss of any of its officers
could have a material adverse effect upon its results of operations and
financial position. SinoHub does not maintain “key person” life insurance for
any of its officers. The loss of any of its officers could delay or prevent the
achievement of its business objectives.
  22
  We
may incur significant costs to ensure compliance with United States corporate
governance and accounting requirements.
  We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the Securities and Exchange Commission, or the
Commission. We expect all of these applicable rules and regulations to
significantly increase our legal and financial compliance costs and to make some
activities more time consuming and costly. We also expect that these applicable
rules and regulations may make it more difficult and more expensive for us to
obtain director and officer liability insurance and we may be required to
accept reduced policy limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. As a result, it may be more difficult for
us to attract and retain qualified individuals to serve on our board of
directors or as executive officers. We are currently evaluating and monitoring
developments with respect to these newly applicable rules, and we cannot predict
or estimate the amount of additional costs we may incur or the timing of such
costs.
  Compliance
with Section 404 of the Sarbanes-Oxley Act on a timely basis may strain
SinoHub’s limited financial and management resources, negatively affect its
operating results, and cause SinoHub to fail to meet its reporting
obligations.
  The SEC,
as directed by Section 404 of the Sarbanes-Oxley Act, adopted rules generally
requiring each public company to include a report of management on the company’s
internal controls over financial reporting in its annual report on Form 10-K
that contains an assessment by management of the effectiveness of the company’s
internal controls over financial reporting. In addition, commencing with our
annual report for the fiscal year ending December 31, 2009 (unless such date is
extended by the SEC) our independent registered accounting firm must attest to
and report on management’s assessment of the effectiveness of our internal
controls over financial reporting.
  SinoHub
is developing and is implementing a Section 404 plan.  Before its reverse
merger, the Company was a shell and had virtually no financial staff and its
controls over financial reporting were ineffective. Before, during and after the
reverse merger, SinoHub staff have been using controls with respect to the core
business. SinoHub’s auditors have conferred with the Company and discussed
their requirements. The officers of SinoHub are aware of the requirement
for internal controls and believe that the internal controls SinoHub has in
place are effective.  SinoHub will continue to endeavor
to improve its control environment as it adds staff and grows the company,
and SinoHub believes that it will be able to meet the requirements of Section
404 of the Sarbanes-Oxley Act on a timely basis.
  However,
SinoHub may need to hire and/or engage additional personnel and incur
incremental costs in order to complete and manage the work required by Section
404 of the Sarbanes-Oxley Act. SinoHub may not be able to completely implement
its Section 404 plan on a timely basis. Additionally, upon completion of the
implementation of its Section 404 plan, SinoHub may not be able to conclude that
its internal controls are effective, or in the event that it concludes that its
internal controls are effective, SinoHub’s independent accountants may disagree
with its assessment and may issue a report that is qualified. The financial and
management resources required to implement and comply with Section 404 of the
Sarbanes-Oxley Act, and any failure to implement required new or improved
controls or difficulties encountered in their management and
implementation, could negatively affect SinoHub’s operating results or cause it
to fail to meet its reporting obligations.
  23
  Risks
Related to Conducting Business in the People’s Republic of China
  SinoHub’s
Chinese operations subject it to certain risks inherent in conducting business
operations in China, including political instability and foreign government
regulation, which could significantly impact its ability to operate in such
countries and impact its results of operations.
  SinoHub
conducts substantially all of its business in China.  SinoHub’s
Chinese operations are, and will be, subject to risks generally associated with
conducting businesses in foreign countries, such as:
  ·
              any
      general economic downturn in China which affects consumer demand for the
      components we process and sell;·
              changes
      in applicable laws and regulations– for example, Customs regulations in
      China are quite complicated and are subject to change;·
              challenges
      to, or failure of, title – should the Company purchase facilities, it is
      more difficult in China to perfect clear title than it is in the United
      States and this represents a potential risk;·
              changes
      in foreign economic and political conditions – to the limited extent that
      the Company’s manufacturer customers sell overseas, economic downturns and
      political instability outside of China is bad for our business. Also,
      since China is an export driven economy, economic downturns overseas are
      bad for China generally and this will have some affect on our manufacturer
      customers which make products for the local Chinese market;·
              export
      and import restrictions – as noted above, Customs regulations change
      frequently and such changes could have negative affects on our
      business;·
              tariffs,
      Customs, duties and other trade barriers– VAT and Customs Duty make
      electronic components more expensive in China (85% are imported), which
      makes products such as mobile phones, components of which are core to the
      Company’s business, more expensive in China;·
              difficulties
      in staffing and managing foreign operations– the number of qualified
      managers in China is much less than the need, therefore it is hard for the
      Company to hire highly qualified managers; and·
              difficulties
      in enforcing agreements - China’s legal system is not as fully developed
      as the legal system in the United States, which means there is more risk
      that the Company could have difficulty enforcing
    agreements.
 
  To the
extent that the Chinese government may in the future to require local ownership
of companies to perform certain activities, the Company’s ownership structure
may not permit it to accomplish all of its business objectives in China. Foreign
governments also may impose additional taxes and/or royalties on our business,
which would adversely affect SinoHub’s profitability. Internal unrest, acts of
violence or strained relations between a foreign government and SinoHub or other
governments may adversely affect its operations. These developments may, at
times, significantly affect SinoHub’s results of operations, and must be
carefully considered by its management when evaluating the level of current and
future activity in such countries.
  24
  SinoHub
holds a beneficial ownership interest in SinoHub SCM Shenzhen, Ltd. through
a trust to fully comply with PRC rules and regulations. However, such
arrangements may be adjudicated by relevant PRC government agencies as not being
in compliance with PRC governmental regulations on foreign investment in Chinese
companies and such structures may limit our control with respect to such
entities.
  Over 70%
of the electronic components that we sell are imported into China by
SinoHub SCM Shenzhen, Ltd. (“SinoHub SCM SZ”), a PRC corporation organized by
our wholly-owned subsidiary SinoHub Electronics Shenzhen, Ltd., also a PRC
corporation (“SinoHub Electronics SZ”).  In September 2008, SinoHub
SCM SZ attained Client Coordinator Enterprise Coordinator status with the
Customs authorities at the Huanggang border crossing with Hong
Kong.  As a Client Coordinator Enterprise, SinoHub SCM SZ is able to
achieve expedited Customs clearance of its goods that it is importing into China
and may defer the payment of Value Added Tax and Customs Duty for two
weeks.
  The
success of our current import operations in China is based in part upon this
status.   If SinoHub SCM SZ were to lose its status as a Client
Coordinator Enterprise for any reason, such loss of status may result in
disruption of our business, diversion of management attention and the incurrence
of substantial costs, and could have a material adverse effect on our results of
operations and financial condition.  A change in Chinese law, such as
the elimination of Value Added Tax, that impacted the benefits of our Client
Coordinator Enterprise status by removing our competitive advantage of passing
on to our customers the deferral in the payment of the tax we receive from such
status, could have a similar material adverse effect on our results of
operations and financial condition.
  In order
to take advantage of favorable treatment available to enterprises whose
registered owners are PRC citizens under certain PRC import/export regulations,
on January 30, 2008 SinoHub Electronics SZ entered into a declaration of trust
with Ms. Hantao Cui, a citizen of the PRC and the spouse of our President Lei
Xia, as trustee (the “Trustee”), which provided for the registration of all of
the ownership interests of SinoHub SCM SZ in the name of the Trustee and the
retention of all of the beneficial ownership interests in SinoHub SCM SZ by
SinoHub Electronics SZ.  SinoHub Electronics SZ, as sole beneficial
owner of SinoHub SCM SZ, retained all rights, title and interests in SinoHub SCM
SZ, and the Trustee may only exercise those rights with respect to SinoHub SCM
SZ that are expressly conveyed to the Trustee in the declaration of
trust.  The declaration of trust did not convey to the Trustee any
authority to encumber the ownership interests in SinoHub SCM SZ.  In
general, the Trustee may not undertake any actions under the declaration of
trust with respect to SinoHub SCM SZ unless it first receives instructions from
SinoHub Electronics SZ, and the Trustee has agreed to, among other things, (i)
vote its interests in SinoHub SCM SZ as directed by SinoHub Electronics SZ, and
(ii) deliver all payments, distributions and other economic benefits received
with respect to its interest in SinoHub SCM SZ to SinoHub Electronics
SZ.
  We
believe that our operations in China through and by SinoHub Electronics SZ and
SinoHub SCM SZ are valid under current PRC laws and
regulations.  However, many PRC import/export laws and regulations are
relatively new and as the PRC legal system continues to rapidly evolve, the
interpretations of many PRC laws, regulations and rules are not always uniform
and enforcement of these laws, regulations and rules involves uncertainties. We
cannot predict the effect of future developments in the PRC legal system,
including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement thereof, the preemption of local regulations by
national laws, or the overruling of local government’s decisions by the
superior, national government.  If we are required to restructure our
operations to comply with new PRC laws or regulations, there can be no assurance
that SinoHub SCM SZ would be able to preserve its status as a Client Coordinator
Enterprise.  Although the declaration of trust agreement between
SinoHub Electronics SZ and the Trustee allows SinoHub Electronics SZ to purchase
SinoHub SCM SZ at any time, there can be no assurance that such acquisition also
would not result in the loss of SinoHub SCM SZ’s Enterprise Coordinator
status.
  25
  China’s
economic policies could affect our business.
  Substantially
all of our assets are located in China and substantially all of our revenue is
derived from our operations in China. Accordingly, our results of operations and
prospects are subject, to a significant extent, to the economic, political and
legal developments in China.
  While
China’s economy has experienced a significant growth in the past twenty years,
growth has been irregular, both geographically and among various sectors of the
economy. The Chinese government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures
benefit the overall economy of China, but may also have a negative effect on us.
For example, our operating results and financial condition may be adversely
affected by the government control over capital investments or changes in tax
regulations.
  The
economy of China has been transitioning from a planned economy to a more
market-oriented economy. In recent years the Chinese government has implemented
measures emphasizing the utilization of market forces for economic reform and
the reduction of state ownership of productive assets and the establishment of
corporate governance in business enterprises; however, a substantial portion of
productive assets in China are still owned by the Chinese government. In
addition, the Chinese government continues to play a significant role in
regulating industry development by imposing industrial policies. It also
exercises significant control over China's economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to
particular industries or companies.
  Fluctuations
in exchange rates could adversely affect our business and the value of our
securities.
  The value
of our common stock will be indirectly affected by the foreign exchange rate
between U.S. dollars and Chinese Renminbi (RMB) and between those currencies and
other currencies in which our sales may be denominated, because substantially
all of our earnings and cash assets are denominated in RMB.  In
addition, appreciation or depreciation in the value of the RMB relative to the
U.S. dollar would affect our financial results reported in U.S. dollar terms
without giving effect to any underlying change in our business or results of
operations. Although we have no current intention to pay any dividends in the
foreseeable future, fluctuations in the exchange rate would also affect the
relative value of any dividend we issue that will be exchanged into U.S. dollars
as well as earnings from, and the value of, any U.S. dollar-denominated
investments we make in the future.
  Since
July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the
People’s Bank of China regularly intervenes in the foreign exchange market to
prevent significant short-term fluctuations in the exchange rate, the RMB may
appreciate or depreciate significantly in value against the U.S. dollar in the
medium to long term. Moreover, it is possible that in the future PRC authorities
may lift restrictions on fluctuations in the RMB exchange rate and lessen
intervention in the foreign exchange market.
  26
  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. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited, and we may
not be able to successfully hedge our exposure at all. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert RMB into foreign currencies.
  Currently,
all of the components we sell to our Chinese customers are
imported.  In the event that the U.S. dollar appreciates against RMB,
our costs will increase.  If we cannot pass the resulting cost
increases on to our customers, our profitability and operating results will be
adversely affected.
  We
may be restricted from exchanging RMB to other currencies in a timely
manner.
  At the
present time the RMB is not an exchangeable currency. The Company receives
nearly all of its revenue in RMB, which may need to be exchanged to other
currencies, primarily U.S. dollars, and remitted outside of the PRC. Effective
from July 1, 1996, foreign currency “current account” transactions by foreign
investment enterprises, including Sino-foreign joint ventures, are no longer
subject to the approval of State Administration of Foreign Exchange, or SAFE,
but need only a ministerial review, according to the foreign exchange
regulations. Current account items include international commercial
transactions, which occur on a regular basis, such as those relating to trade
and provision of services. Distributions to joint venture parties also are
considered a current account transaction. Other non-current account items, known
as capital account items, remain subject to SAFE approval. Under current
regulations, the Company can obtain foreign currency in exchange for RMB from
swap centers authorized by the government. The Company does not anticipate
problems in obtaining foreign currency to satisfy its requirements; however,
there is no assurance that foreign currency shortages or changes in currency
exchange laws and regulations by the PRC government will not restrict the
Company from exchanging RMB in a timely manner. If such shortages or changes in
laws and regulations occur, the Company may accept RMB, which can be held or
reinvested in other projects.
  Our
subsidiaries and affiliated Chinese entities in China are subject to
restrictions on paying dividends or making other payments to us, which may
restrict our ability to satisfy our liquidity requirements.
  SinoHub’s
operating subsidiaries in China generate substantially all of the company’s
consolidated revenues.  To repatriate the cash generated to the
US-based parent, these subsidiaries would need to declare a dividend or make
some other type of payment to the US-based parent.  Current PRC
regulations permit our subsidiaries to pay dividends to us only out of their
accumulated profits, if any, determined in accordance with Chinese
accounting standards and regulations. In addition, our subsidiaries in China are
required to set aside at least 10% of our annual after-tax profits determined in
accordance with PRC GAAP in a statutory general reserve fund until the amount in
such fund reaches 50% of our registered capital. Allocations to these statutory
reserve funds can only be used for specific purposes and are not transferable to
us in the form of loans, advances or cash dividends. Further, if our
subsidiaries and affiliated Chinese entities in China incur debt on their own
behalf, the instruments governing the debt may restrict their ability to pay
dividends or make other payments to us, which may restrict our ability to
satisfy our liquidity requirements. Any limitations on the ability of our PRC
subsidiaries to transfer funds to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to
our business, pay dividends and otherwise fund and conduct our
business.
  27
  We
may face obstacles from the communist system in The People's Republic of
China.
  Foreign
companies conducting operations in The People’s Republic of China face
significant political, economic and legal risks. The Communist regime in The
People's Republic of China may hinder Western investment.
  We
may have difficulty establishing adequate management, legal and financial
controls in the People's Republic of China.
  The
People's Republic of China historically has been deficient in Western style
management and financial reporting concepts and practices, as well as in modern
banking, computer and other control systems. We may have difficulty in hiring
and retaining a sufficient number of qualified employees to work in
the People's Republic of China. As a result of these factors, we may
experience difficulty in establishing management, legal and financial controls,
collecting financial data and preparing financial statements, books of account
and corporate records and instituting business practices that meet Western
standards.
  Because
our assets and operations are located in China, you may have difficulty
enforcing any civil liabilities against us under the securities and other laws
of the United States or any state.
  We are a
holding company, and all of our assets are located in the People’s Republic of
China. In addition, some of our directors and officers are non-residents of the
United States and all or a substantial portion of the assets of these
non-residents are located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon these non-residents, or to enforce against them judgments obtained in
United States courts, including judgments based upon the civil liability
provisions of the securities laws of the United States or any
state.
  There is
uncertainty as to whether courts of the People’s Republic of China would
enforce:
  ·
              Judgments
      of United States courts obtained against us or these non-residents based
      on the civil liability provisions of the securities laws of the United
      States or any state; or
 
  ·
              In
      original actions brought in the Republic of China, liabilities against us
      or non-residents predicated upon the securities laws of the United States
      or any state. Enforcement of a foreign judgment in the Republic of China
      also may be limited or otherwise affected by applicable bankruptcy,
      insolvency, liquidation, arrangement, moratorium or similar laws relating
      to or affecting creditors' rights generally and will be subject to a
      statutory limitation of time within which proceedings may be
      brought.
 
 28
  The
PRC legal system embodies uncertainties, which could limit law enforcement
availability.
  The PRC
legal system is a civil law system based on written statutes. Unlike common law
systems, decided legal cases have little precedence. In 1979, the PRC government
began to promulgate a comprehensive system of laws and regulations governing
economic matters in general. The overall effect of legislation since 1979 has
significantly enhanced the protections afforded to various forms of foreign
investment in China. Each of our PRC operating subsidiaries and affiliates is
subject to PRC laws and regulations. However, these laws and regulations change
frequently and the interpretation and enforcement involve uncertainties. For
instance, we may have to resort to administrative and court proceedings to
enforce the legal protection that we are entitled to by law or contract.
However, since PRC administrative and court authorities have significant
discretion in interpreting statutory and contractual terms, it may be difficult
to evaluate the outcome of administrative court proceedings and the level of law
enforcement that we would receive in more developed legal systems. Such
uncertainties, including the inability to enforce our contracts, could affect
our business and operation. In addition, intellectual property rights and
confidentiality protections in China may not be as effective as in the United
States or other countries. Accordingly, we cannot predict the effect of future
developments in the PRC legal system, particularly with regard to the industries
in which we operate, including the promulgation of new laws. This may include
changes to existing laws or the interpretation or enforcement thereof, or the
preemption of local regulations by national laws. These uncertainties could
limit the availability of law enforcement, including our ability to enforce our
agreements with the government entities and other foreign
investors.
   Risks
Related to Ownership of SinoHub Common Stock
  There
can be no assurance that a liquid public market for our common stock will exist
in the future.
  Although
our common stock is eligible for quotation on the OTC Bulletin Board, very few
shares trade on a regular basis and there may not be a significant market in our
common stock in the future. The OTC Bulletin Board is a significantly more
limited market than the New York Stock Exchange or NASDAQ system.  The
quotation of our shares on the OTC Bulletin Board may result in a less
liquid market available for existing and potential stockholders to trade shares
of our common stock, could depress the trading price of our common stock and
could have a long-term adverse impact on our ability to raise capital in the
future. There can be no assurance that a regular and established market will be
developed and maintained for our common stock. There can also be no assurance as
to the strength or liquidity of any market for our common stock or the prices at
which holders may be able to sell their shares.
  It
is likely that there will be significant volatility in the trading
price.
  In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies has experienced wide fluctuations that have not necessarily been
related to the operations, performance, underlying asset values or prospects of
such companies.  For these reasons, our shares of common stock can
also be expected to be subject to volatility resulting from purely market forces
over which we will have no control.  If our business development plans
are successful, we may require additional equity financing to continue our
growth and our success in raising additional equity capital could be affected by
such volatility.  Market prices for our common stock will be
influenced by many factors and can be expected to be subject to significant
fluctuations in response to variations in our operating results and other
factors. Our stock price will also be affected by the trading price of the stock
of our competitors, investor perceptions of SinoHub, interest rates, general
economic conditions and those specific to our industry, developments with regard
to SinoHub’s operations and activities, our future financial condition, and
changes in our management.
  29
  Our
shares of common stock are currently subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common
stock.
  The
trading price of the common stock has remained been below $5.00. Since our
common stock trades below $5.00 per share, trading in the common stock is
subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), related to any trades
involving a “penny stock” (defined generally, any non-NASDAQ equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions).  These rules impose additional sales practice
requirements on broker-dealers that sell such securities to persons other than
established customers and “accredited investors” (generally, individuals with a
net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or
$300,000 together with their spouses). These rules require additional
disclosure by broker-dealers in connection with any trades involving a “penny
stock” and a two business day “cooling off period” before brokers and dealers
can effect transactions in penny stocks. For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser’s written consent to the transaction prior to
the sale. The broker-dealer also must disclose the commissions payable to the
broker-dealer, current bid and offer quotations for the penny stock and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer’s presumed control over the market. These, and the
other burdens imposed upon broker-dealers by the penny stock requirements, could
discourage broker-dealers from effecting transactions in our common stock which
could severely limit the market liquidity of our common stock and the ability of
holders of our common stock to sell it.
  We
do not intend to pay dividends.
  We have
not paid any cash dividends on any of our securities since inception and we do
not anticipate paying any cash dividends on any of our securities in the
foreseeable future.
  Future
sales of our securities, or the perception in the markets that these sales may
occur, could depress our stock price.
  As of
December 31, 2008, we had issued and outstanding approximately (i) 24,501,989
shares of common stock, warrants for 2,511,712 shares of common stock and
options exercisable for 660,175 shares of common stock.  These
securities will be eligible for public sale only if registered under the
Securities Act or if the stockholder qualifies for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act, or other
applicable exemption. We believe that our stockholders will not be entitled to
sell our shares pursuant to Rule 144 until March 30, 2010.  In
addition to the restrictions on resale imposed by the securities laws, a number
of our outstanding shares are subject to contractual restrictions on
resale.  An aggregate of 398,093 shares of SinoHub common stock
subject to Lock-Up Agreements entered into among such holders and SinoHub in
connection with the Merger have lock-up restrictions that will expire on May 14,
2009.  An additional 2,100 shares of SinoHub common stock subject to
Lock-Up Agreements entered into among the holders of such shares and SinoHub in
connection with the issuance of an aggregate of 1,900 shares of common stock to
such holders to enable them to own a round lot of shares of SinoHub common stock
have lock-up restrictions that will expire on July 18, 2009, and a further
6,078,827 shares owned by our President and by our CEO in the aggregate
subject to Lock-Up Agreements between the President and CEO and the placement
agent for our September 2008 private placement have lock-up restrictions that
will expire on the first anniversary of the date on which the registration
statement described below becomes effective.  The holders of an
aggregate of 7,352,750 shares of SinoHub common stock issued in respect of
SinoHub International’s Series A, B and C Convertible Preferred Stock in
connection with the reverse merger were entitled to piggy back and demand
registration rights with respect to the shares of SinoHub International common
stock into which such preferred stock was convertible pursuant to the terms of
certain Stock Purchase Agreements entered into among SinoHub International and
such holders.  While we do not believe that these rights extend to the
shares of SinoHub common stock received by such holders in the Merger, it is
possible that such holders may take a different view, and there can be no
guarantee that, if they choose to litigate the matter, a court would find in our
favor.  The Company has filed a registration statement on Form S-1 to
register for resale an aggregate of 5,202,627 shares of outstanding common stock
and 2,203,256 shares of common stock issuable upon exercise of outstanding
warrants, including the 398,093 shares subject to the lock-up expiring on May
14, 2009 (which lock-up does not apply to resales made pursuant to the
registration statement).  The market price of our capital stock could
drop significantly if the holders of the shares being registered in that
registration statement sell them or are perceived by the market as intending to
sell them. Moreover, to the extent that additional shares of our outstanding
common stock are either registered for resale or Rule 144 or an exemption from
registration becomes available to the holders of such shares, and such shares
are sold or the holders of such shares are perceived as intending to sell them,
the market price of our capital stock could drop further. These factors also
could make it more difficult for us to raise capital or make acquisitions
through the issuance of additional shares of our common stock or other equity
securities.
  30
  The
ability of the Board of Directors of SinoHub to issue “blank check” preferred
stock and any anti-takeover provisions we adopt may depress the value of our
Common Stock.
  The
authorized capital of SinoHub includes shares of “blank check” preferred
stock.  The SinoHub Board has the power to issue any or all of the
authorized but unissued shares of its preferred stock, including the authority
to establish one or more series and to fix the powers, preferences, rights and
limitations of such class or series, without seeking stockholder
approval.  They may, in the future, adopt anti-takeover
measures.  The authority of the SinoHub Board of Directors to issue
“blank check” preferred stock and any future anti-takeover measures it may
adopt, may in certain circumstances delay, deter or prevent takeover attempts
and other changes in control of SinoHub not approved by its Board of
Directors.  As a result, SinoHub stockholders may lose opportunities
to dispose of their shares at favorable prices generally available in takeover
attempts or that may be available under a merger proposal and the market price
of the Common Stock and the voting and other rights of its stockholders may also
be affected.
  Item
1B. Unresolved Staff Comments.
 
 Not
applicable.
 
 Item
2.    Properties.
 
 We do not
currently own any real property.  We lease the real properties
described below.
  Corporate
Office. We lease 27,600 square feet of combined office and warehouse space
located at 6/F, Building 51, Road 5, Qiongyu Blvd., Technology Park, Nanshan
District,, Shenzhen 518053, People’s Republic of China. This location is our
corporate headquarters. We occupy this facility under a lease that commenced on
August 10, 2008 and ends on August 30, 2013. The base rent for this facility is
approximately $12,690 per month for the first three years of the lease
term.
  31




Import/Export
Department Office near Huanggang Customs. We lease 1,076 square feet of office
space located at Unit 1904, Huang Cheng Guang Chang Da Sha, Rd. Huanggang,
Futian District, Shenzhen, People’s Republic of China. We occupy this facility
under a lease that commenced on May 16, 2008 and ends on May 16, 2010. Our
monthly rental cost is about $805.
  Shanghai
Pudong Facility. We lease approximately 12,084 square feet of office and
warehouse space at 3rd floor, No. 796 YunShang Road, Pudong district, Shanghai,
PRC 201206 for a monthly rental of about $3, 750. We occupy this facility under
a lease that commenced on March 23, 2006 and ends on March 22,
2011.
  Shanghai
Wai Gao Qiao Facility. We lease approximately 6,448 square feet of warehouse
space at D, Floor 5, Building 5, No. 350 XiYa Road, WaiGaoQiao Free Trade Zone,
Shanghai, PRC 200131 for a monthly rental of approximately $2,240. We occupy
this facility under a lease that commenced on June 1, 2008 and ends on May 31,
2011.
  Hong Kong
Facility. We lease approximately 26,500 square feet of warehouse space at Unit
B, 17th Floor, Tins Plaza, 3 San On Street, Tuen Mun, N.T. Kowloon, Hong
Kong SAR for a monthly rental of about $14,996. We occupy this facility under a
lease that commenced on July 2, 2008 and ends on June 1, 2011.
  Item
3.    Legal Proceedings.
  None.
  Item
4.   Submission of Matters to a Vote of Security Holders.
   No
matters were submitted to a vote of our shareholders during the quarter ended
December 31, 2008.
 
 PART II
  Item
5.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
 
 Market
Information
  SIHI
common stock is quoted on the Over-the-Counter Electronic Bulletin Board under
the symbol “SIHI” Presented below is the high and low closing bid information of
SinoHub’s common stock for the periods indicated. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. No bid quotations were available for any of the
quarterly periods for the year ended December 31, 2007.  All
quotations prior to July 18, 2008 were under the name of the Company’s
predecessor, Liberty Alliance, Inc., under the symbol “LBTI.”
  32
  SinoHub
                COMMON
                STOCKHIGH
              
              
              LOWFISCAL
      YEAR ENDING DECEMBER 31, 2008:Fourth
      Quarter
              
              $
              2.74
              
              
              $
              1.02Third
      Quarter
              
              $
              3.15
              
              
              $
              2.50Second
      Quarter
              
              $
              3.15
              
              
              $
              2.80First
      Quarter
              
              $
              N/A
              
              
              $
              N/A
 
  Our
common shares are issued in registered form. The registrar and transfer agent
for our shares is:
  Interwest
Transfer Co. Inc.
 1981
Murray Holladay Road, Suite 100
 Salt Lake
City, UT  84117
 Telephone:
801-272-9294
 Facsimile:
801-277-3147
  Securities
Authorized for Issuance Under Equity Compensation Plans
  The
Board of Directors of the Company has approved the SinoHub, Inc. 2008 Stock Plan
and has reserved 3,000,000 shares for issuance under the Plan.  The
Company intends to present the plan to its stockholders for approval at the next
annual meeting of stockholders.  There are currently options to
purchase an aggregate of 252,524 shares of common stock outstanding under the
Plan.  In connection with the reverse merger, the Company also assumed
options to purchase an aggregate of 489,451 shares of common stock previously
issued under SinoHub International’s 2000 Stock Incentive Plan, of which options
to purchase an aggregate of 407,651 shares of common stock are currently
outstanding and no other securities are authorized for issuance under the 2000
Plan.
  Holders
  As of
December 31, 2008, there were approximately 550 holders of record of our common
stock.
  Dividends
  We have
not declared any dividends since incorporation and do not anticipate that we
will do so in the foreseeable future. Although there are no restrictions that
limit the ability to pay dividends on our common shares, our intention is to
retain future earnings for use in our operations and the expansion of our
business.
  Recent
Sales of Unregistered Securities
  The
following securities were issued within the past three years and were not
registered under the Securities Act of 1933.  Shares issued to
SinoHub’s shareholders were not registered under the Securities Act of 1933, as
amended (“Securities Act”) in reliance upon the exemption from the registration
requirements provided in Section 4(2) of, or the safe harbor from such
registration provided by Regulation S, promulgated under the Securities
Act.
  Issuances of SinoHub
International Securities
  The
following issuances of securities were made by SinoHub International prior to
the Merger:
  During
April 2006, the Company issued 74,369 shares of common stock for services to
third parties at fair value of $7,000.
  33
 During
May 2006, the Company issued 956,166 shares of common stock to third parties for
cash of $100,000.
  During
June 2006, the Company issued 1,062,407 shares of common stock to the spouse of
the President in consideration for the forgiveness of $1,000,000 in outstanding
debt.
  DuringMarch2007, the Company issued 371,842 shares
of common stock to the spouse of the CEO for agreeing to let SinoHub
use the condominium in which she holds 50% ownership (and our CEO Henry T.
Cochran owns the remaining 50%) as collateral for a bank loan at fair
value of $43,000.
  During
May 2007, the Company issued 956,166 shares of common stock to the former Chief
Financial Officer. The shares were valued at the market price on the date of
issuance yielding an aggregate fair value of $109,000.
  During
November 2007, the Company issued 69,057 shares of common stock for services to
third parties at fair value of $7,865.
  On March
20, 2007, a former employee exercised his stock options to purchase 8,301
shares of common stock for $781.
  On June
8, 2007, a former employee exercised his stock options to purchase 2,656
shares of common stock for $250.
  On
November 12, 2007, a warrant to purchase 148,537 shares was exercised for common
stock for $17,000 . The warrant was initially issued for services on
November 12, 2006 and was exercisable at $0.11 per share of the Company’s common
stock. The warrant was determined to have a total market value of $9,000 using
the Black-Scholes option pricing model.
  On
November 19, 2007, a former director exercised his non-qualified stock option to
purchase 36,520 shares of common stock for $3,438. The option to purchase
53,120 shares of common stock was initially issued on January 19,
2005.  The remaining part of the option to purchase 15,625 shares of
common stock expired and was forfeited.
  On
December 5, 2007, a director exercised his non-qualified stock option to
purchase 53,120 shares of common stock for $2,500. The option was
initially issued on June 1, 2001.
  On
December 11, 2007, a stockholder exercised his warrant to purchase 106,241
shares of Series A Convertible Preferred Stock for $17,000.  The
warrant was initially issued as partial consideration for a loan made by the
stockholder to the Company on June 21, 2004 and was exercisable at $0.16 per
share of the Company’s Series A Convertible Preferred Stock.
  On
December 28, 2007, a stockholder exercised his warrant to purchase 130,451
shares of common stock for $15,000. The warrant was initially issued for
services on January 27, 2007 and was exercisable at $0.11 per share of the
Company’s common stock.
  OnNovember 27, 2007, the Company sold a warrant to
purchase 265,602 of the Company’s Series C Convertible Preferred
Stock at an exercise price
of $0.75 per share to an accredited investor for a purchase price of
$50,000.During
November and December 2007, the Company sold 1,699,852shares of Series C
Convertible Preferred Stock  for $1,280,000, which shares include
265,602 shares issued upon the exercise of a warrant. The shares were sold to
four accredited investors,
including the warrant holder.
  34
 Issuances ofLibertyAllianceSecurities
  The
following issuances of securities were made by Liberty Alliance , Inc.
prior to its merger with SinoHub:
  In June
2006, Liberty Alliance , Inc. issued 5,714,286 shares of restricted common
stock to Lorikeet, Inc., a company controlled by Steven L. White, its principal
stockholder and sole officer and director prior to the merger with SinoHub, for
$20,000.
  In June
2006, the Company issued 142,858 shares of restricted common stock to a
non-affiliate investor for $2,500 and an additional 142,858 shares to another
non-affiliate investor for $2,500.  In September of 2006, all of these
shares were re-purchased by the Company.
  In
February 2007, the Company issued 142,858 shares of restricted common stock to a
non-affiliate investor for $2,500 and an additional 142,858 shares to another
non-affiliate investor for $2,500.
  All of
the shares issued by Liberty Alliance , Inc. were issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act and no
commissions were paid relating to any of the securities issued.
  Issuances of Company
Securities
  The
following issuances of securities were made by the Company in connection with or
subsequent to the Merger:
  Pursuant
to the Agreement and Plan of Merger, on May 14, 2008, we issued
18,290,000 shares of our common stock to the former stockholders of
SinoHub, Inc. (approximately 46 holders).  Such securities were not
registered under the Securities Act of 1933.  The issuance of these
shares was exempt from registration, in part pursuant to Regulation S and
Regulation D under the Securities Act of 1933 and in part pursuant to Section
4(2) of the Securities Act of 1933.  We made this determination based
on the representations of the stockholders of SinoHub, Inc. that such
stockholders were either (a) "accredited investors" within the meaning of Rule
501 of Regulation D promulgated under the Securities Act, or (b) not a
"U.S. person" as that term is defined in Rule 902(k) of Regulation S under the
Act, and that such stockholders were acquiring our common stock, for investment
purposes for their own respective accounts and not as nominees or agents, and
not with a view to the resale or distribution thereof, and that the entities and
individuals understood that the shares of our common stock may not be sold or
otherwise disposed of without registration under the Securities Act or an
applicable exemption therefrom.
  Upon the
closing of the M erger, we also issued 510,000 shares of the
Company’s common stock to certain consultants for services rendered in
connection with the Merger.  The vast majority of these shares were
issued to a consultant, JCGlobal Capital Partners LLC, who provided consulting
services to help the company engage SEC counsel and investment bankers in the
process of the Company’s Chinese operations becoming part of a public entity
through a reverse merger and raising a private investment in public equity.
In particular, JCGlobal advised SinoHub International directly in consummating a
reverse merger involving Liberty Alliance, a NASD over-the-counter bulletin
board shell company.
  35
 In
July 2008, we issued an aggregate of190 shares of the
Company’s common stock to shareholders who held fractional shares as a result of
the 1-3.5 reverse stock split of the Company’s common stock effected in July
2008 pursuant to the terms of the amendment to the Company’s Certificate of
Incorporation effecting the reverse stock split which called for fractional
shares to be rounded up.  As no consideration was paid by the
shareholders for such shares, the issuance of such shares did not constitute a
“sale” under the Securities Act.
  Between
August 6, 2008 and November 19, 2008, we issued an aggregate of1,900 shares of the
Company’s common stock to odd lot holders in order to bring their holdings up to
round lots.  The holders were all holders of the shares of the
Company’s common stock prior to the Merger but who otherwise had no relationship
with the Company.  The sole consideration for the shares was the
execution and delivery of lock-up agreements by these stockholders pursuant to
which they agreed to lock up their shares until July 18, 2009.  The
issuances were completed as a private placement exempt from registration
pursuant to Section 4(2) of the Securities Act consistent with the relevant
criteria established in SEC v.
Ralston Purina Co., 346 U.S. 119 (1953), and its progeny.  The
shares were issued to a total of ten natural persons who acquired the shares for
themselves or as trustees or guardians for other entities or
persons.
  On
September 10, 2008, the Company entered into and closed  a Securities
Purchase Agreement with certain accredited investors named therein (“PIPE
Investors”) in a private offering (the “Offering”) for an aggregate of (i)
4,406,533 shares of common stock, (ii) three-year warrants to purchase an
aggregate of 1,101,628 shares of common stock at an exercise price of $2.15 per
share and (iii) five-year warrants to purchase an aggregate of 1,101,628 shares
of common stock at an exercise price of $3.00 per share, which resulted in gross
proceeds to the Company of $7,491,110.
  Global
Hunter Securities, LLC (“Global Hunter”) acted as placement agent with respect
to the Offering and received a cash fee of $524,378 (equal to 7% of the gross
proceeds of the Offering) and warrants to purchase an aggregate of 308,457
shares of common Stock (equal to 7% of the number of shares of common stock
issued in the Offering), with 154,228 shares at an exercise price of $2.15 per
share and 154,229 shares at an exercise price of $3.00 per share. In addition,
through December 10, 2009, Global Hunter is entitled to (i) serve as lead
underwriter or exclusive placement agent to the Company for any equity financing
and (ii) serve as exclusive financial advisor and may receive fees in the event
of an extraordinary transaction with certain entities introduced to the Company
by Global Hunter.
  The
warrants issued in the Offering may be exercised, at the option of the holder,
by cash payment of the exercise price or by “cashless exercise” (in which case
the Company will not receive additional proceeds) if after six months from the
date of original issuance a registration statement permitting the PIPE
Investors to resell the warrant shares is not then effective or the prospectus
is not then available for the resale of the warrant shares. The warrants also
provide the holder with anti-dilution price protection.
  The
common stock and warrants described above were offered and sold solely to
“accredited investors” in reliance on the exemption from registration afforded
by Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act
of 1933, as amended (the “Securities Act”).  In connection with the
sale of these securities, the Company relied on each of the Investors' written
representations that it was an "accredited investor" as defined in Rule 501(a)
of the Securities and Exchange Commission.  In addition, neither the
Company nor anyone acting on its behalf offered or sold these securities by any
form of general solicitation or general advertising.
  36
 On
October 29, 2008 employees exercised their stock options to purchase an
aggregate of  71,166 shares of common stock for an aggregate price of
$8,000.
  On
December 16, 2008, the Company issued 22,200 shares for services to employees at
fair value of $50,000 pursuant to the Company’s 2008 Stock Plan
..
  Except as
expressly set forth above, the individuals and entities to which we issued
securities as indicated in this section of the Form 10-K are unaffiliated with
us.
   Repurchase
of Equity Securities
  None.
 
 Item
6.  Selected Financial Data
 
 Not
applicable.
  
 Item
7.     Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
 
 The following discussion and
analysis is based on, and should be read in conjunction with our consolidated
financial statements, which are included elsewhere in this Form
10-K.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains statements that are
forward-looking.  These statements are based on current expectations
and assumptions that are subject to risk, uncertainties and other
factors.  Actual results could differ materially because of the
factors discussed in “Risks Factors” elsewhere in this Form 10-K, and other
factors that we may not know.  All amounts are expressed in United
States dollars.
 
 The
following discussion and analysis is based on, and should be read in conjunction
with our audited historical consolidated financial statements, which are
included elsewhere in this Form 10-K. Management’s Discussion and Analysis of
Financial Condition and Results of Operations contains statements that are
forward-looking. These statements are based on current expectations and
assumptions that are subject to risk, uncertainties and other factors. Actual
results could differ materially because of the factors discussed in “Risk
Factors” above and elsewhere in this Form 10-K, and other factors that we may
not know. All amounts are expressed in United States dollars.
  OVERVIEW
  Our
Business
  SinoHub,
Inc. (the “Company”) is engaged in electronic component sales and electronic
component supply chain management (SCM) services. Our electronic component sales
include procurement-fulfillment and individually negotiated electronic component
sales to manufacturers. We deal only in original parts in original packing and
do not alter or modify the parts in any way.  Accordingly, any quality
issues with respect to the parts would be the responsibility of the manufacturer
of the parts, and we provide no warranties with respect to the components we
sell.  Our SCM services include warehousing, logistics and
import/export. At present all of our component sales and SCM services occur in
the PRC and Hong Kong.
  37
 Procurement-fulfillment
starts when our manufacturer customer enters their bill of materials including
default supplier and price for each electronic component into our proprietary,
SCM online software system named “SinoHub SCM” for a project (for example, the
production of 50,000 mobile phones). SinoHub then tries to find better pricing
on each component than the target price set by the customer enabling the Company
to make a margin on the purchasing of the components. Then the electronic
components are ordered and received in SinoHub’s Hong Kong warehouse. When the
bill of materials is complete, the customer can order just-in-time shipping of
the components to their factory floor.
  Electronic
component sales are driven by SinoHub’s in-house sales representatives who find
arbitrage opportunities by looking at the pricing in our database of all of the
electronic components we have ever imported.  The database contains
the price at which the part was imported, the quantities imported and
descriptive information regarding the characteristics of the components and is
updated in real time.
  The
Company provides SCM services to electronics manufacturers and component
suppliers in the PRC).  Our professional Supply Chain Management
platform integrates SinoHub SCM, logistics service centers located in key
distribution/manufacturing cities in the PRC, and a service team of over 100
employees.
  As a
seller of electronic components and an electronic component supply chain
management service provider, we manage all aspects of the purchase and movement
of electronic components from their receipt from suppliers in our Hong Kong
warehouse to their import into China and delivery to a manufacturer. We also
handle the export of the finished goods when that is required. Roughly seventy
percent (70%) of our business with manufacturer customers is related to mobile
phones. The components we source in this vertical market change rapidly as the
technology changes very quickly. This actually helps our business because it
means that there are many more opportunities for price discrepancies than there
are in vertical markets, such as refrigerator manufacture, where the same
components are used year in and year out.
  Each
mobile phone built by one of our customers contains between 100 and 200
electronic components that have an aggregate resale value of between $15 and
$ 60 . At present, our business mix is weighted toward the lower end of the
scale (the high end is “smart” phones) with the average purchase price of the
electronic components that go into a phone one of our customers would make being
around $ 25 . We have customers who make hundreds of thousands of phones
per month. In the past, we have only been able to handle part of their business
because of liquidity constraints (our procurement-fulfillment business requires
us to have available capital to purchase components for inventory prior to
reselling them to customers). However, we are currently seeking to increase our
business with several customers who want to give us the opportunity to supply
them with components for a larger share of their business.
  Our
main customers are the mobile phone design houses and printed circuit board
assembly (PCBA) manufacturers who sell to the second tier phone (i.e., mid-range
priced) integrators who sell mobile phones locally in China. Design houses are
responsible for the hardware design of the PCBA (the phone’s “motherboard”) and
for the software of the phone. PCBA manufacturers are responsible for surface
mounting the electronic components on the printed circuit boards for the
phones.  Final assembly of the phones often is done by an integrator
who sources the PCBA and other component parts such as the display, camera,
sound system, housing, keyboard and battery.  There are several
business models around the actual production of the PCBA. A design house may
subcontract with a PCBA manufacturer to build the motherboards. Conversely, the
PCBA manufacturer may buy a design from a design house or develop one internally
and then produce the PCBA to sell directly to the integrator. Along with pure
PCBA manufacturer customers, our design house customers are increasingly
subcontracting with SinoHub to manage the process of PCBA
production.  Because we were limited by our capital prior to closing
our private placement in September 2008, we were forced to be very selective in
the design houses that we took on as customers and thus far those design houses
have been able to generate significant business for us.
  38
 Our
growth in the mobile phone component business has been driven by the fact that
in recent years there has been a shift away from the branded products offered by
the multi-national companies that previously dominated the second tier phone
market to non-branded phones that sell at substantially less than the big brand
products.  The first tier (or top tier) mobile phone market in China
is dominated by big multi-national companies such as Nokia, Sony-Ericsson,
Motorola and Samsung. These companies are too large to be served by SinoHub’s
current capacity.  The first tier is the market for premium mobile
phones mainly sold in urban areas at high prices.  The second tier
mobile phone market is also mainly in urban areas, but is a more price sensitive
market and one that is increasingly dominated by non-branded mobile phones such
as the ones our customers produce.  SinoHub believes it has adequate
capacity to serve the needs of these second-tier customers and that, through
cost-effective procurement practices, it can deliver components to these
price-sensitive customers at competitive prices.
  In
the last three years, mobile phone components have accounted for approximately
70% of our business and network equipment components have accounted for
approximately 15% of our business. We expect these percentages to grow slightly
in 2009 as we focus on these two vertical markets.  We believe that
90% of our manufacturer customers in these areas sell their products into the
local Chinese market. As a result, we have yet to feel much effect from the
global economic downturn because demand has remained strong for these products
in China. Because sales of mobile phones typically spike around Chinese New Year
which always occurs in either January or February, the fourth calendar quarter
is usually our biggest volume quarter. Normally, the first quarter is our
weakest quarter because of this long holiday, with the second and third quarters
showing consecutive increases. A typical pattern of revenue for our Company
would be 15%, 20%, 25% and 40% for the first through fourth quarters
respectively. 2008 proved to be an exception as the third quarter was a robust
quarter because of some delayed business coming over from the prior quarter and
unusually strong demand.
  The only
inventory SinoHub carries is electronic components that we are staging for
procurement-fulfillment projects. We do not buy components without a
corresponding customer order to purchase the components.  In 2008,
SinoHub had three customers, all in the mobile phone business, who accounted for
12%, 10% and 7% of our revenue respectively.  We expect this
concentration to go down as our business expands. We do not have backlog orders,
but with the successful completion of each procurement-fulfillment project and
component sale, we look for repeat orders from these customers.
  History
and Basis of Reporting
  SinoHub,
Inc. (formerly known as Liberty Alliance, Inc.) is a Delaware corporation,
originally incorporated in Utah in 1986, and subsequently merged and reorganized
as Liberty Alliance, Inc. in Delaware in 1991.  In May 2008, Liberty
Alliance, Inc., its wholly-owned subsidiary SinoHub Acquisition Corp., SinoHub,
Inc., and Steven L. White, the principal stockholder of Liberty Alliance, Inc.,
entered into an Agreement and Plan of Merger pursuant to which SinoHub
Acquisition Corp. merged with and into SinoHub, Inc. and SinoHub, Inc. became a
wholly-owned subsidiary of Liberty Alliance, Inc.  After completion of
the merger, the original stockholders of Liberty Alliance held approximately 6%
of the issued and outstanding shares of Liberty Alliance, Inc. common stock on a
fully diluted basis and the former stockholders of SinoHub, Inc., including the
shares issued to consultants for services rendered in connection with the
merger, held approximately 94% of Liberty Alliance, Inc. issued and outstanding
shares of common stock.
  39
 
  Subsequent
to the completion of the merger, on July 18, 2008, Liberty Alliance , Inc.
amended its certificate of incorporation to change its name to SinoHub, Inc. and
effect a 3.5-to-1 reverse stock split of all issued and outstanding shares of
its common stock.
 For
financial reporting purposes, the reverse takeover of the Company has been
accounted for as a recapitalization of the Company with SinoHub International as
the accounting acquirer whereby the historical financial statements and
operations of SinoHub International , Inc. became the historical financial
statements of the Company, with no adjustment of the carrying value of the
assets and liabilities. When we refer in this Form 10-K to business and
financial information for periods prior to the consummation of the reverse
acquisition, we are referring to the business and financial information of
SinoHub International , Inc. on a consolidated basis unless the context
suggests otherwise.
  Business
Operations
  In the
process of importing electronic components for our customers, SinoHub records
the price, manufacturer, lead time and supplier name information for each part
number in a database.  The Company’s business operations use data
contained in this database to source electronic components for our manufacturer
customers at the lowest price indicated.  We also use the same
infrastructure we use to provide SCM services to our supplier customers (e.g. we
use the same warehouses, trucks, import/export staff, third party freight
forwarders) for our electronic component sales activities.  We import
electronic components into China and deliver them inside China.  As a
part of the procurement-fulfillment process, we assemble all of the electronic
components needed to make the device in our warehouse in Hong
Kong.  After all parts related to a customer’s order have been
assembled, we deliver the parts to the customer’s factory floor in the
PRC.  Even though we derive only about 6% of our revenue from our SCM
business, it is invaluable because it provides the information and the
infrastructure that supports our procurement-fulfillment and electronic
component sales.
  The
Company offers SCM customers the use of the SCM Platform under a fee based
program where customers outsource the supply chain process to SinoHub, while
retaining title to inventory, receivables, and commitments on supplier
payables.  SinoHub provides the customer a complete SCM solution that
includes importing and exporting services, facilitating Customs clearance,
performing warehouse and distribution functions, and enabling foreign currency
settlements through SinoHub’s banking relationships and its licensed
qualifications as a Client Coordinator Enterprise in China.
  40
 The
Company also provides a procurement-fulfillment program for customers that
integrates the use of the SCM platform with inventory procurement, handling, and
distribution, as well as payment terms, if required.  Customers may
require “order fulfillment” services, where the customer outsources its
electronic component purchasing process and specifies suppliers at
pre-negotiated costs, and SinoHub receives a negotiated fee from its customer
for services related to handling the purchasing, and for managing and financing
the inventory through the supply chain.  Additionally, customers may
request “order procurement” services, where SinoHub sources and procures
electronic components from the marketplace, and then resells the components to
its customers at negotiated prices that include the component cost, supply chain
management, and financing, if necessary. It is possible that a customer would
only use fulfillment services, but using procurement services implies the use of
fulfillment services too. Currently we do not have any customers who only use
fulfillment services.  In all cases, the procurement-fulfillment
program provides customers with a streamlined management process for navigating
all importing, Customs, warehousing, and delivery challenges, while addressing
key objectives for working capital, inventory levels, order fill rates, and
transaction costs.
  SinoHub
also supports customers by providing a sourcing channel for electronic
components that are not part of a specific SCM or procurement-fulfillment
program.  In these cases, SinoHub utilizes its industry knowledge and
relationships with components suppliers and manufacturers to source products at
competitive prices and within time constraints.  SinoHub responds to
these “spot” orders from customers, sources the product, confirms pricing, and
executes delivery.  Customers are required to pay on delivery of
product.
  Our
biggest competition in the procurement-fulfillment and component sales
businesses where we make 94% of our revenue comes from electronic component
distributors, and in-house purchasing departments of EMS providers and OEMs. We
do have a few competitors such as Shenzhen Eternal Asia, HopeSea and Strongjet,
but none of these companies focus exclusively on electronic components and none
of them has an online SCM system with the functionality of SinoHub
SCM.
  Consolidated
Results of Operations
  The
Company derives revenue and gross profit primarily from sales of electronic
components and fees associated with the provision of SCM services.
  The
Company reports revenue from supply chain management services and electronic
components sales.  Revenues for supply chain management services are
earned from both the SCM and procurement-fulfillment programs and are primarily
based on a percentage of inventory value handled for a customer.  The
Company recognizes revenue from SCM services when the services are
provided.  Revenue from electronic components sales is based on quoted
prices and is recognized at the time of shipment to customers.  Sales
are recorded net of discounts and allowances.  In all cases, revenue
is recognized when there is persuasive evidence of an arrangement, delivery has
occurred or services rendered, the sales price is determinable, and
collectability is reasonably assured.
  Cost of
sales for SCM services primarily represents direct costs incurred for providing
SCM services, including logistics services, import/export services, warehouse
services and a number of ancillary services such as kitting, insurance,
repackaging and re-labeling.  Cost of sales for electronic components
primarily represents the cost of components and expenses directly related to
component procurement.
  SCM
pricing is negotiated based on a percentage of the value of the goods
handled.  For procurement-fulfillment and electronic component sales
the Company makes a margin based on the difference between the price at which it
buys electronic components and the price at which it sells these parts to the
customer.  The margin SinoHub makes on this business varies based on
the rapidly changing prices in the market into which the SinoHub SCM database
give the Company a unique window.
  Selling,
general and administrative expenses include salaries paid to employees, employee
related expenses, professional fees, marketing costs, technology costs, sales
commissions, depreciation, rent, and related office and facility
expenses.
  41
 Fiscal
Years Ended December 31, 2008 Compared to December 31, 2007:
  Overall
Results
  The
company reported net income for the year ended December 31,2008
was $8.5 million compared to $3.5 million in the prior year, an increase of
143%.
  Net
Sales
  Net
sales for the year ended December 31, 2008 was $79.5 million, up 176% from $28.8
million recorded in the prior year.  The Company reports net sales on
the basis of two business categories, supply chain management services and
electronic component sales.  In the year ended December 31, 2008, net
sales of supply chain management services increased 138% to $5.0 million from
$2.1 million in the prior year.  This increase was primarily based on
the addition of nine large manufacturer customers who, we believe, were
attracted to SinoHub by our online software system, SinoHub SCM.  As a
result, net sales of supply chain management services to manufacturer customers
are growing rapidly as a percentage of total SCM sales. The percentages of SCM
sales accounted for by supplier customers and by manufacturer customers in 2008
were approximately 60% and 40%, respectively, a big change from roughly 90% and
10%, respectively, in 2007.  In the year ended December 31, 2008, net
sales of electronic components increased 179% to $74.5 million from $26.7
million in the prior year.  We believe that the main driving force
behind this increase was the Company’s ability to obtain from its supplier
customers better pricing for its manufacturer customers than they were able to
achieve on their own, and new functionality in SinoHub SCM, such as online bill
of material management and the use of bar codes to pre-sort components for
processing, that made it easier for manufacturer customers to operate their
supply chains.  Electronic component sales are made in two ways,
individually negotiated sales and sales of components in procurement-fulfillment
projects. For the year ended December 31, 2008 individually negotiated sales
rose almost 123% to $40.5 million and procurement-fulfillment sales rose
approximately 300% to $34 million. Procurement-fulfillment sales are growing
faster than individually negotiated component sales because we have added a
number of new mobile phone design houses as procurement-fulfillment customers
and these customers have significant volume.
  Growth
was supported by additional access to financial resources and bank borrowings
during  2008.  In particular, the Company raised net
proceeds of $1.3 million at the end of 2007 and $6.5 million in September 2008
from sales of new equity that was put to use financing additional
procurement-fulfillment projects and increased component sales in 2008, and the
Company was able to expand its bank lines with both China Construction Bank and
China Industrial Bank.
  Gross
Profit
  The
Company recorded gross profit of $16.2 million in the year of 2008 compared with
$6.7 million in the prior year.  The gross profit margin for the year
of 2008 decreased to 20.4% from 23.2% in the prior year.  Gross
margins are under pressure as a result of growth in larger
procurement-fulfillment projects where the mix of components and competitive
pricing configurations result in lower margins.  While positive profit
trends are expected as the Company’s sales grow, the trend toward lower gross
profit margins may continue as the Company pursues and wins new business
opportunities.  In particular, in the Company’s electronic components
sales business, as volume increases, gross margins may tend to gradually decline
because the occasional opportunity for us to make a very high margin transaction
caused by a large price discrepancy between what the Company buys a component
for and its sales price will not have as dramatic an effect on the overall gross
profit earned for the period.
  42
 Selling,
General and Administrative Expenses
  Selling,
general and administrative expenses increased 65% to $3.8 million in 2008 from
$2.3 million in 2007 to support the general growth in sales and expanded
operations.  These expenses were approximately 6% of revenues in the
year of 2008 compared to 8% in the prior year as the Company experienced
favorable leverage on infrastructure and operating expenses while sales
increased.  For example, the 138% increase in net sales of SCM
services and the 179% increase in net sales of electronic components in the year
of 2008 were accomplished with an average of 91 employees versus 61 employees in
the prior year, a 49% increase in average number of employees.
  Income
from Operations
  The
Company recorded income from operations of $10.8 million in the year of
2008, as compared with operating income of $4.0 million in the prior
year.
  Income
Taxes
  The
Company’s effective tax rate was 20.2% in the year of 2008 compared to 12.7% in
2007.  The statutory tax rate in the PRC of 25% in 2008 and 33% in
2007 was reduced in both periods by favorable tax preferences experienced by the
Company’s operations in special economic zones as designated by the Chinese
government.  The trend toward a higher effective tax rate is expected
to continue as preferences lapse over time.  The Chinese government
recently lowered the corporate income tax rate from 33% to 25%.  In
Shenzhen, where the Company does most of its business, the special economic zone
status means the corporate income tax rate for 2008 was 18% and, barring further
changes, it will be 19% in 2009.  The stated intention of the Chinese
government is to gradually increase the corporate tax rate in special economic
zones such as in Shenzhen to the national level, which is 25% at present. Income
tax estimates in interim periods have varied as the Company has adjusted
provisions and accruals in light of actual tax filings.
  Foreign
Currency Translation Gain and Comprehensive Net Income
  The
Company reported foreign currency translation gains of $541,000 in the year of
2008, compared with foreign currency translation gains of $285,000 in the prior
year as the increase in value of the RMB versus the USD
continued.  Comprehensive net income (net income plus foreign currency
translation gains) was $9.0 million in the year of 2008 compared with $3.8
million in the prior year.
  CONSOLIDATED
FINANCIAL CONDITION AND LIQUIDITY
  Liquidity
and Capital Resources
  The
Company’s strategic plans include continued expansion and support of our SCM
Platform (consisting of SinoHub SCM, key service centers in Hong Kong, Shenzhen,
and Shanghai, and a supply chain management service team providing real time
support) and electronic component sales, including procurement-fulfillment
programs.  As a result of the working capital investments necessary to
support these plans, the Company will continue to require cash and financing
resources to meet and exceed its objectives. The Company’s cost of capital
increased with the private financing we closed on September 10, 2008 for net
proceeds of approximately $6.5 million. Since gross proceeds were approximately
$7.5 million, the cost burden of $1 million represented 13.3%.  Our
cost of capital with China Construction Bank and Industrial and the Commercial
and Industrial Bank of Fujian was approximately 6% at December 31,
2008.  Most of the working capital the Company intends to raise in the
near to medium term is expected to come from Chinese banks, which, to date, have
not been affected by the global credit crisis nearly as much as the US and
European banks.  While there can be no assurance that we will not
experience a problem in the future, to date we have not had any collection
problems with any procurement-fulfillment project funded.  We may also
seek to raise additional capital in public or private equity
offerings.
  43
 We
believe that SinoHub’s procurement-fulfillment and electronic component sales
business can be expanded with additional funds depending on how quickly we can
build out new infrastructure and hire additional staff.  This is
because the electronics business in China is very large relative to the size of
the Company’s business.  Additional working capital would enable us to
purchase more electronic components from our suppliers, which should lower our
costs, and thus enhance our profitability.  Increased volume would
also likely enable the Company to get favorable terms from suppliers which would
lower our need for additional financing from third parties.  Moreover,
the addition of warehouse space to support the Company’s growth will require
capital investment.  Accordingly, if SinoHub is unsuccessful in
raising additional working capital, the Company’s growth will be adversely
affected.
  We intend
to raise these funds through the sale of additional equity or debt, long-term
debt financings, and operating cash flows.  Due to the risk factors
discussed in this document there can be no assurance that we will be successful
in raising the additional funds necessary to carry out management’s plans for
the future on acceptable terms or at all.  Our ability to obtain
additional capital will also depend on market conditions, national and global
economies and other factors beyond our control.  We cannot be sure
that we will be able to implement or capitalize on various financing
alternatives.  The terms of any debt or equity funding that we may
obtain in the future may be unfavorable to us and to our
stockholders.
  At
December 31, 2008 and December 31, 2007, the Company had cash and cash
equivalents of $5.9 million and $4.3 million, respectively.  During
the year of 2008, the net amount of cash used in the Company’s operating
activities was $6.4 million, the net amount of cash provided by investing
activities was $5.0 million, and the net amount of cash provided by financing
activities was $2.6 million.  Exchange rate changes increased cash
flow effects by $344,000 in 2008.
  The
Company must generally pay the purchase price of electronic components for
procurement-fulfillment customers and then recoup the purchase price from the
customer upon delivery.  We only purchase standard components which
are readily saleable.  When a manufacturer customer gives us a
procurement-fulfillment project, the customer inputs a bill of materials with
their supplier and price information into SinoHub SCM.  Our job is to
purchase these electronic components, substituting our suppliers if we can get a
better price and, when we have the entire bill of materials assembled, import
the components into China and deliver the components to the customer’s factory
floor. Our typical procurement-fulfillment sale to a customer requires the
customer to post a deposit of 15% to 20% of the cost of the components and we
generally provide 30 day payment terms.  The terms begin when the
project is approved, but SinoHub does not actually pay for the components until
we receive them and in some cases we receive terms from the suppliers allowing
us to defer payment for up to 30 days after delivery.   The
Company’s borrowings vary based on the timing of procurement-fulfillment
projects, large spot component sales, use of our VAT import line and use of our
export reimbursement line.  Generally, borrowings from our lenders
have not exceeded $6,000,000, or 53% of our available capacity.  As a
vendor of electronic components and a supply chain management service provider,
we do not manufacture any of the electronic component products that we
supply.  Consequently, our capital expenditures are significantly
lower than what they would be if we were required to purchase and maintain
manufacturing equipment.  Currently, the interest rates under our
borrowing arrangements with our lenders range from 5% to 6.83%, and our
outstanding borrowings of $2,123,000 at December 31, 2008 had a weighted average
interest rate of 5.5%.  Our cost of borrowing for the entire year of
2008 was approximately 6%..
  44
 Cash
Flows from Operating Activities
  The
Company maintains a significant investment in working capital, primarily
accounts receivable and inventories. Accounts receivable and inventories
represented approximately 74% and 42% of total assets at December 31, 2008 and
December 31, 2007, respectively.
  The net
amount of cash used in the Company’s operating activities during the year of
2008 was $6.4 million, which primarily included earnings from operations that
were more than offset by investments in accounts receivable and inventory to
support the Company’s business growth.  In addition, accounts payable
reductions were made during the period to enable the Company to get favorable
terms with suppliers.  In the prior year period, net cash provided by
operating activities was $2.1 million as cash flow from income was largely
offset by investments in receivables as well as certain deposits with customers
as procurement-fulfillment projects where completed.
  Cash
Flows from Investing Activities
  The net
amount of cash generated by investing activities during the year of 2008 was
$5.0 million primarily the result of a release of restricted cash as the Company
settled bank notes under letters of credit that required restricted cash
balances.  In the prior year period, investing activities used $5.6
million of cash due to the restricted cash buildup.
  Cash
Flows from Financing Activities
  The net
amount of cash provided by financing activities during the year of 2008 was $2.7
million, which included a private placement stock offering in the third quarter
with gross proceeds of $7.5 million, proceeds from bank borrowings of
approximately $2.1 million, and an amount of $1.6 million due from a related
party offset by payments on bank loans of $7.3 million, expenses associated with
the private placement of $1 million, and Note repayments of $251,000. The
related company, GenNext Technology, Ltd., a company owned jointly by the
Chairman and the President of the Company, which is based in Hong Kong, assisted
the Company by facilitating certain foreign exchange transactions, and settled
obligations to certain suppliers on behalf of the Company, and collected certain
customer remittances on behalf of the Company. Over the course of the fourth
quarter of 2008, the activities which were previously being conducted solely by
GenNext Technology, Ltd. were transferred to B2B Chips, a wholly owned
subsidiary of the Company that was used to conduct the Company’s Hong Kong
business as it achieved the required assignment of customer contracts and bank
accounts to support the necessary foreign exchange transactions.  In
the prior year period, cash flow from financing activities of $4.4 million
included advance payments by investors of $1.4 million in connection with equity
offerings that closed in November and December of 2007, and bank borrowing
proceeds of $6.6 million, offset by Note repayments of $516,000 and reductions
in related company payables to GenNext of approximately $3.1
million.
  45
  OFF-BALANCE
SHEET ARRANGEMENTS
   We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to our
investors.
  CRITICAL
ACCOUNTING POLICIES
  The
preparation of our financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities.  On an ongoing basis, we evaluate our estimates,
including but not limited to those related to income taxes and impairment of
long-lived assets.  We base our estimates on historical
experience and on various other assumptions and factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Based on our ongoing review, we plan to
adjust to our judgments and estimates where facts and circumstances
dictate.  Actual results could differ from our
estimates.
  We
believe the following critical accounting policies are important to the
portrayal of our financial condition and results and require our management's
most difficult, subjective or complex judgments, often because of the need to
make estimates about the effect of matters that are inherently
uncertain.
  Concentrations and
Risks
  Substantially
all of Company's assets are located in the PRC and Hong Kong and substantially
all of the Company's revenues were derived from customers located in the PRC,
with roughly seventy percent (70%) of the Company’s business with manufacturer
customers related to mobile phones.  In addition, financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of accounts receivable.  The Company
mitigates credit risk through procedures that include determination of credit
limits, credit approvals, and related monitoring procedures to ensure delinquent
receivables are collected.
  Cash and Cash
Equivalents
  For the
purpose of the statements of cash flows, cash and cash equivalents include cash
on hand and demand deposits with a bank with a maturity of less than three
months.  Cash amounts held as security for the Company’s bank loans
are reported as restricted cash and are not included with cash and cash
equivalents on the balance sheet until the security for such funds has been
released.
  46
 Accounts
Receivable
  The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts.  An allowance for doubtful
accounts is established and recorded based on managements’ assessment of
customer credit history, overall trends in collections and write-offs, and
expected exposures based on facts and prior experience.  At December
31, 2008, the Company made $1.2 million in provision, or 5% of accounts
receivable, due to ongoing severe global financial crisis.  In the
prior year, the Company considered all outstanding accounts receivable to be
collectible and no provision for doubtful accounts was made in the financial
statements.
  Inventories
  Inventories
are stated at cost, cost being determined on a first in first out
method.  No allowance is made for excess or obsolete inventories as
inventories are held for a short period of time and are substantially related to
specific customer order commitments.  Inventory consists of electronic
components purchased from suppliers.
  Property
and Equipment
  Property
and equipment are stated at cost, less accumulated
depreciation.  Expenditures for additions, major renewals and
betterments are capitalized and expenditures for maintenance and repairs are
charged to expense as incurred.
  Depreciation
is provided on a straight-line basis, less estimated residual values over the
assets’ estimated useful lives.  The estimated useful lives are as
follows:
  Plant
      and
      machinery
                        5
      YearsMotor
      vehicles
                        5
      YearsFurniture,
      fixtures and
      equipment
                        2
      to 5 Years
  Long-lived
assets held and used by the Company are reviewed for impairment whenever changes
in circumstances or events indicate that the carrying amount of an asset may not
be recoverable.  For purposes of evaluating the recoverability of
long-lived assets, the Company considers various factors, including future cash
flows, to determine whether the carrying amount exceeds fair value, and in that
case, the asset is written down to fair value.  The Company believes
that no impairment of property and equipment exists at December 31,
2008.
  Financial
Instruments
  The
Company analyzes all financial instruments that may have features of both
liabilities and equity under SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock.”  At present, there are no such
instruments in the financial statements.  The Company also analyzes
registration rights agreements associated with any equity instruments issued to
determine if penalties triggered for late filing should be accrued under FSP
EITF 00-19-2, “Accounting for Registration Payment Arrangements.”
  47
 Fair Value of Financial
Instruments
  SFAS No.
107, "Disclosure About Fair Value of Financial Instruments," requires certain
disclosures regarding the fair value of financial instruments. Fair value of
financial instruments is made at a specific point in time, based on relevant
information about financial markets and specific financial
instruments.  As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
values.
  The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses, bank borrowings, notes payable and other liabilities
approximate their fair values because of the short-term nature of these
instruments.  Management believes the Company is not exposed to
significant interest or credit risks arising from these financial
instruments.
  The
Company’s operations are primarily based in the PRC, which may give rise to
significant foreign currency risks and opportunities from fluctuations and the
degree of volatility of foreign exchange rates between the United States dollar
(“USD”) and the Chinese Renminbi (“RMB”).In July 2005, the PRC
allowed the RMB to fluctuate within a narrow range ending its decade-old
valuation peg to the USD.  Since this change in 2005, the RMB has
experienced positive trends in valuation against the USD; such trends are
reflected in part by the foreign currency translation gains reported in the
Company’s financial statements.
  Derivative
Instruments
  The
Company does not utilize derivative or hedge instruments in its financing
activities.
  Stock-Based
Compensation
  The
Company adopted SFAS No. 123R, “Share-Based Payments.”  This
Statement requires a public entity to measure the cost of services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award.  That cost will be recognized over the period during
which services are received.  Stock compensation for stock granted to
non-employees has been determined in accordance with SFAS 123R and the Emerging
Issues Task Force consensus Issue No. 96-18, "Accounting for Equity Instruments
that are issued to Other than Employees for Acquiring, or in Conjunction with
Selling Goods or Services" ("EITF 96-18"), as the fair value of the
consideration received or the fair value of equity instruments issued, whichever
is more reliably measured.
  Revenue
Recognition
  The
Company reports revenue from supply chain management, or SCM, services and
electronic components sales. Revenues for supply chain management services are
earned from both the SCM and procurement-fulfillment programs and are primarily
based on a percentage of inventory value handled for a customer.  The
Company recognizes revenue from SCM services when the services are
provided.  Revenues from electronic components sales including
procurement-fulfillment procurement are based on quoted prices and are
recognized at the time of shipment to customers. Revenues are recognized on the
gross amount billed to customers. Sales are recorded net of discounts and
allowances.  In all cases, revenue is recognized when there is
persuasive evidence of an arrangement, delivery has occurred or services
rendered, the sales price is determinable, and collectability is reasonably
assured.
  48
 Income
Taxes
  The
Company accounts for income taxes under the SFAS No. 109, “Accounting for Income
Taxes.”  Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.  Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment date.
  Foreign Currency
Translation
  SinoHub,
Inc., SinoHub International, Inc., B2B Chips, Ltd., and SinoHub Technology Hong
Kong, Ltd. maintain accounting records using the functional currencies, USD and
Hong Kong Dollars (“HKD”) respectively.  SinoHub SCM Shenzhen, Ltd.,
SinoHub Electronics Shenzhen, Ltd., SinoHub SCM Shanghai, Ltd. and SinoHub
Electronics Shanghai, Ltd. maintain accounting records using RMB as the
functional currency.
  The
Company uses United States Dollars (“USD”) as its reporting
currency.  The Company accounts for foreign currency translation
pursuant to SFAS No. 52, “Foreign Currency Translation” (“SFAS No.
52”).  The subsidiaries of the Company’s functional currencies are the
Hong Kong Dollar (“HKD”) and Chinese Renminbi (“RMB”).  Under SFAS No.
52, all assets and liabilities are translated into United States dollars using
the current exchange rate at the balance sheet date.  The capital and
various reserves are translated at historical exchange rates prevailing at the
time of the transactions while income and expenses items are translated at the
average exchange rate for the period.  Translation adjustments are
included in other comprehensive income (loss) for the period.
  Foreign
currency transactions during the year are translated to their functional
currencies at the approximate rates of exchange on the dates of
transactions.  Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the approximate rates of
exchange at that date.  Non-monetary assets and liabilities are
translated at the rates of exchange prevailing at the time the asset or
liability was acquired.  Exchange gains or losses are recorded in the
statement of operations.
  Comprehensive
Income
  The
foreign currency translation gain or loss resulting from the translation of the
financial statements expressed in HKD and RMB to USD is reported as other
comprehensive income in the statements of operations and stockholders’
equity.
  Earnings Per
Share
  Earnings
per share in accordance with the provisions of SFAS No. 128, "Earnings Per
Share."  SFAS 128 requires presentation of basic and diluted earnings
per share in conjunction with the disclosure of the methodology used in
computing such earnings per share.  Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average common shares outstanding during the
period.  Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock using the treasury
method.
  49
 RECENT
ACCOUNTING PRONOUNCEMENTS
  In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”).  SFAS 141R
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired.  SFAS 141R also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business
combination.  This statement is effective beginning January 1,
2009.  The Company does not expect the adoption of SFAS 141R to have a
material impact on its financial position and results of
operations.
  In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.”  This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require; the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income, changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently, when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners.  SFAS 160 affects those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary.  SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is
prohibited.  The adoption of this statement did not have a material
effect on the Company's financial statements.
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133.”  This statement is intended to improve transparency in
financial reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows.  SFAS 161 applies to
all derivative instruments within the scope of SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS 133) as well as related
hedged items, bifurcated derivatives, and nonderivative instruments that are
designated and qualify as hedging instruments.  Entities with
instruments subject to SFAS 161 must provide more robust qualitative disclosures
and expanded quantitative disclosures.  SFAS 161 is effective
prospectively for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
permitted.  The adoption of this statement did not have a material
effect on the Company's financial statements.
  In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that presented in conformity
with generally accepted accounting principles in the United States of
America.  SFA 162 will be effective 60 days following the SEC’s
approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.The
Company does not believe SFAS 162 will have a significant impact on the
Company’s financial statements.
  50
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.”  The
scope of this Statement is limited to financial guarantee insurance and
reinsurance contracts, as described in the Statement, issued by enterprises
included within the scope of Statement 60.  Accordingly, this
Statement does not apply to financial guarantee contracts issued by enterprises
excluded from the scope of Statement 60 or to some insurance contracts that seem
similar to financial guarantee insurance contracts issued by insurance
enterprises (such as mortgage guaranty insurance or credit insurance on trade
receivables).  This Statement also does not apply to financial
guarantee contracts that are derivative instruments included within the scope of
SFAS No. 133, “Accounting for Derivative instruments and Hedging
Activities.”  SFAS 163 is effective prospectively for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years; disclosure requirements in paragraphs
30(g) and 31 are effective for the first period (including interim periods)
beginning after May 23, 2008. The adoption of this statement did not have a
material effect on the Company's financial statements.
  In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”, to clarify
guidance on determining the fair value of a financial asset under SFAS 157 in a
market that is not active. FSP FAS 157-3 was effective upon issuance, including
prior periods for which financial statements had not been issued.  The
adoption of this statement effective September 30, 2008 did not have a material
impact on the Company’s financial statements.
  Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk
 
 The
Company is subject to certain market risks, including changes in interest rates
and currency exchange rates.  The Company does not undertake any
specific actions to limit those exposures.
 
 Item
8.  Financial Statements and Supplementary Data
 
 The
consolidated financial statements listed in Item 15(a) are incorporated herein
by reference and are filed as a part of this report and follow the signature
pages to this Annual Report on Form 10-K on page F-1.
  Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
 
 None.
 
 Item 9A(T).  Evaluation of Disclosure Controls and
Procedures
 
 Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report.  Based upon that evaluation,
the Company’s CEO and CFO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CFO, as appropriate, to allow timely decisions regarding required
disclosure.
 
 51
 Management
Report on Internal Control Over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2008. This report does not include an attestation
report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the SEC that permit the company to provide only management’s
report in this annual report.
  
 Changes
in Internal Control over Financial Reporting
  There have not been any
changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period
to which this report relates that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
  The
Company’s management, including the Company’s CEO and CFO, does not expect that
the Company’s internal control over financial reporting will prevent all errors
and all fraud. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree or compliance with the policies or procedures may
deteriorate.
   Item
9B.   Other Information.
  None.
  PART III
  
 Item
10.    Directors, Executive and Corporate
Governance
 
 DIRECTORS AND EXECUTIVE
OFFICERS
  
  Set
forth below is information regarding our current directors and current executive
officers. Except as set forth below, there are no family relationships between
any of our directors or executive officers. Executive officers are elected
annually by our Board of Directors. Each executive officer holds his office
until he resigns or is removed by the Board or his successor is elected and
qualified. Directors are elected each year by our stockholders at the annual
meeting. Each director holds his office until he resigns or is removed and his
successor is elected and qualified.
  52
  Name
              Age
              Position
              Term
      as a Officer or Director (1)Henry
      T. Cochran
              65
              Chief
      Executive Officer and
                Chairman
      of the Board
              May
      2008 to the PresentLei
      Xia
              40
              President
      and Director
              May
      2008 to the PresentDe
      Hai Li
              39
              Chief
      Financial Officer
              November
      2008 to the presentCharles
      T. Kimball
              63
              Director
              November
      2008 to the PresentWill
      Wang Graylin
              40
              Director
              January
      2009 to the PresentRichard
      L. King
              70
              Director
              February
      2009 to the PresentRobert
      S. Torino
              55
              Director
              February
      2009 to the PresentAfshin
      Yazdian
              35
              Director
              February
      2009 to the Present
 
  _______________(1)
                Reflects
      the date appointed to the Board of SinoHub, Inc.  For those
      persons who served as directors or officers of SinoHub International, Inc.
      prior to the reverse merger, their terms as directors or officers of
      SinoHub International, Inc. commenced on the following
      dates:  Henry T. Cochran – March 1999, Lei Xia – July 2000 and
      Li De Hai – March 2005.
 The
following is a brief description of the business experience and background of
the Company’s current directors and executive officers:
   Henry
T. Cochran – Chief Executive Officer and Chairman of the Board
  Mr.
Cochran is the Chief Executive Officer of SinoHub, Inc. (the business currently
known as SinoHub) and a founder of SinoHub International.  Mr. Cochran
is a co-owner with Mr. Xia in GenNext Technology, Ltd. Mr. Cochran has served as
Chairman of the Board of the predecessor company since inception in March 1999
and of SinoHub since the reverse merger in May 2008 with that predecessor and as
Chief Executive Officer of the predecessor since May 2005. From April 2001 until
becoming CEO of SinoHub International, Mr. Cochran was a business
consultant.  Mr. Cochran was President and CEO of Content Integrity,
Inc. until April 2001. Prior to the formation of Content Integrity, Mr. Cochran
was President and CEO of Advanced Visual Systems Inc., a leader in data
visualization software for developers. Before AVS, he was Vice President of the
Advanced Indexing Products department of Sybase, Inc. to which he sold his
former company, Expressway Technologies. Mr. Cochran was the founder and CEO of
Expressway Technologies, formerly known as Henco Software. Henco was founded in
1975. Mr. Cochran is regarded in the industry as one of the pioneering
entrepreneurs in fourth-generation languages for his design of INFO, the product
that launched Henco into the front lines of the software industry in the early
1980s. Mr. Cochran holds a M.S. degree in mathematics from the University of
Maryland and a B.S. in mathematics and economics from
Vanderbilt University.
  53
 Lei
Xia – President
  Mr.
Xia has been the President of SinoHub since the reverse merger in May 2008 and
was a founder of SinoHub International.   Mr. Xia is a co-owner with
Mr. Cochran in GenNext Technology, Ltd. Since May 2005 Mr. Xia has been
responsible for the strategic business development, sales and marketing of first
SinoHub International and, after the reverse merger, SinoHub. From July 2000
until May 2005, Mr. Xia was the Chief Executive Officer of SinoHub International
and oversaw all of SinoHub International’s operations. Prior to founding SinoHub
International, Mr. Xia founded RGL Beijing, a high-end software distributor and
solution provider. Prior to RGL Beijing, Mr. Xia helped to start NEFAB (China).
NEFAB is a Swedish manufacturer and packaging solution provider to major OEMs
such as Ericsson, Nokia, Motorola and Nortel. Mr. Xia held the position of China
country sales manager for NEFAB and built a nationwide sales and service team
from ground up. He started his career in the Chinese electronics industry in
1995 as general manager of Arrow Electronics Shanghai branch, where he
built the most successful sales team of Arrow China. To begin his career in
electronics, Mr. Xia worked in Arrow Electronics’ headquarters under Steve
Kaufman, Arrow’s CEO, in 1994 as a management trainee for one year. Mr. Xia
holds a B.S. in Electrical Engineering from the University of
Alabama.
  De Hai
Li – Chief Financial Officer
  Mr.
Li was re-appointed Chief Financial Officer of SinoHub on November 28,
2008. Mr. Li initially became Chief Financial Officer of SinoHub in May
2008 following the reverse merger and on September 11, 2008, he resigned his
position as Chief Financial Officer of SinoHub and became Vice President of
Finance.   Mr. Li joined SinoHub International as its Chief
Financial Officer on March 1, 2005. Prior to joining SinoHub, Mr. Li was the
Chief Financial Officer of Shenzhen Excellence Investment Development Co., Ltd.,
which provides international logistics management, bonded warehouse,
international shipment, international trading, real estate management and
construction services. Mr. Li became the Chief Financial Officer of Shenzhen
Excellence in May 2003. While at Shenzhen Excellence, Mr. Li raised capital of
RMB 120 million, managed the acquisition of a State-owned company and created an
effective financial management system for all seven
subsidiaries.  Prior to Excellence, Mr. Li was the Chief Financial
Officer of Hong Kong B&D Engine Co., Ltd. (Shenzhen) a large scale OEM for
Mercedes Benz.  Mr. Li began his career in The Fourth Survey and
Design Institute of China Railway where he progressed from bookkeeper,
accountant, accounting supervisor and financial controller to chief finance
officer. Mr. Li holds a Bachelor’s degree in Economics and Management from
Hubei University.
  Charles
T. Kimball – Director
  From
April 2006 until March 20, 2009, Mr. Kimball served as the chief research
consultant for Bosera Fund Management Co., Ltd., one of the first mutual fund
companies established in China, where he advised senior management on best
practices in asset management and investment research.  From April
2000 to March 2006 he was a partner at CTK Financial Services an independent
financial advisor, focused on extended financial markets research and asset
allocation. Until March 2000, Mr. Kimball held a near 28-year career with JP
Morgan and related entities, where among his roles, he served as head of
international investments for the Multi-Markets Funds Group at JP Morgan Asset
Management; head of investment research at Morgan Trust Bank in Tokyo; and
equity analyst at Morgan Guaranty Trust, covering the electrical equipment and
electronics industries, including electronic component distribution
companies.
  Mr.
Kimball received a bachelor’s degree with honors in economics from
Harvard University and an MBA from Stanford University Graduate School
of Business.  He recently received a certificate in environmental
economics, management and finance from the Center for Environment Research and
Conservation (CERC) at Columbia University.
  54
 
  Will Wang
Graylin – Director
  Will
Wang Graylin, has started five companies focused on mobile computing, security
and payments since his graduate thesis on “Addressing the Complexity of Mobile
Computing” at MIT nearly a decade ago. Mr. Graylin is currently the founder and
CEO of ROAM Data, a premier Mobile Application and Payment Services company,
helping enterprises extend valuable data and transactions to the cell phones of
their mobile professionals.  Before ROAM, from December 2001 to April 2007
he was founder and CEO of WAY Systems, a mobile Point of Sales (POS)
services company. He grew WAY from zero to the #2 Mobile POS provider in the
U.S. and was honored with the 2005 “Movers & Shakers Award” by Transaction
World magazine. Prior to WAY from March 2000 to November 2001 he was founder and
CEO of EntitleNet, a security software company, sold to BEA Systems for a profit
in 2001. Before that from March 1999 to March 2000 he was founding President of
Marbles, later Skyfire Technologies, the first mobile thin client software
company focused on enterprise applications for mobile workforces. He earned two
Masters degrees from MIT (MBA & MSEECS) through the Leaders for
Manufacturing program, after serving as a US Navy Nuclear Submarine Officer for
nearly 6 years, the first naturalized China born immigrant to serve in this
program.  Will is fluent in English, Mandarin and
Cantonese.
  Richard
L. King – Director
  Dr.
Richard L. King, Ph.D. has been a venture partner at Los Angeles-based GRP,
which manages more than $600 million in assets, since May 2001. Dr. King also
serves on the science advisory board at New York University. He began his career
in finance as an electronics analyst, applying his advanced sciences education
at leading Wall Street firms and initiating investment banking relationships
with such companies as National Semiconductor, Mostek and Unitrode. Dr. King
moved on to become an investment banker, and then a venture capitalist
concentrating exclusively in high technology ventures. Born in Shanghai, Dr.
King is a grandson of two of the original founders of the Bank of China. He is a
member and former director of the Committee of 100, an organization of prominent
Chinese Americans founded to encourage stronger relations between the U.S. and
Greater China, and a member of the World Affairs Council of San Francisco. He
has lectured in Taiwan on the venture capital industry at the invitation of the
Minister of Finance. Dr. King received his Doctorate in Physics from New York
University and attended Stern Graduate School of Business at New York
University.
  Robert
S. Torino – Director
  Robert
S. Torino is the chief operating officer of iPayment, Inc., a provider of credit
and debit card-based payment processing services to small merchants, where he
has been an officer since January 2001. Prior to that, Mr. Torino held the
positions of chief financial officer, executive vice president and chief
operating officer of iPayment Technologies, Inc., a predecessor of iPayment,
Inc. Mr. Torino was also CEO of M80 Technologies, Inc., a software development
company, and was president and CEO of software development company TRUE Software
Inc. Mr. Torino received a Bachelor of Arts degree in Accounting from Boston
College, Magna Cum Laude, and is a Certified Public Accountant.
  Afshin
Yazdian – Director
  Afshin
Yazdian has served as the executive vice president and general counsel for
iPayment, Inc. since 2001. He previously was general counsel and vice president
of mergers and acquisitions for eConception, a technology venture fund. Mr.
Yazdian also has previously practiced in the corporate and mergers and
acquisitions groups at Waller Lansden Dortch & Davis, PLLC, a Nashville,
Tennessee-based law firm.
  55
 Mr.
Yazdian received a Bachelor of Business Administration degree from Emory
University in Atlanta, and graduated with honors from the University of Miami
School of Law.
  There
are no family relationships, or other arrangements or understandings between or
among any of the directors, executive officers or other person pursuant to which
such person was selected to serve as a director or officer.
  Classification
of Directors
  We do
not have a classified or “staggered” Board.
  Committees
of the Board of Directors
  The
Company’s Board of Directors established an audit committee in March 2009
comprised of Robert Torino, Afshin Yazdian and Charles T. Kimball. Mr.
Torino serves as the chairman of the audit committee. The audit committee is
primarily responsible for reviewing the services performed by our independent
auditors, evaluating our accounting policies and our system of internal
controls.  Mr. Torino serves as our audit committee financial expert
as that term is defined by the applicable SEC rules. The Company believes that
while the members of the committee are collectively capable of analyzing and
evaluating financial statements and understanding internal control over
financial reporting and disclosure controls procedures, the Board of Directors
has determined that only Mr. Torino qualifies as an “audit committee financial
expert.”
  The
Company’s Board of Directors may establish nominating and compensation
committees when the board determines it to be advisable. The nominating
committee would be primarily responsible for nominating directors and setting
policies and procedures for the nomination of directors. The nominating
committee would also be responsible for overseeing the creation and
implementation of our corporate governance policies and procedures. The
compensation committee would be primarily responsible for reviewing and
approving salary and benefit policies (including stock options), including
compensation of the Company’s executive officers.
  56
  SECTION
16(a) BENEFICIAL OWNERSHIP
 REPORTING
COMPLIANCE
  Section
16(a) of the Exchange Act requires our directors, executive officers and holders
of more than 10% of our shares of Common Stock to file with the SEC initial
reports of ownership of shares of Common Stock and reports of changes in such
ownership. The SEC’s rules require such persons to furnish us with copies of all
Section 16(a) reports that they file. Based on a review of these reports, we
believe that the applicable Section 16(a) reporting requirements were complied
with for all transactions which occurred in the fiscal year ended December 31,
2008 except that our Chief Financial Officer De Hai Li failed to report the sale
of 212,482 shares of our common stock by his spouse in September 2008 on a Form
4.  Mr. Li reported this sale on a Form 5 filed on February 17,
2009.
  Corporate
Governance Matters
  As
further described in this Item 10 of Part III under the heading “Committees of
the Board of Directors”, the Company established an audit committee of its board
in March 2009. The Company may create a separate compensation committee of its
board when the board determines it to be advisable.
  Code
of Ethics. A code of business conduct and ethics is a written standard designed
to deter wrongdoing and to promote (a) honest and ethical conduct, (b) full,
fair, accurate, timely and understandable disclosure in regulatory filings and
public statements, (c) compliance with applicable laws, rules and regulations,
(d) the prompt reporting violation of the code and (e) accountability for
adherence to the code. We are not currently subject to any law, rule or
regulation requiring that we adopt a code of ethics; however, we have adopted
one.   The Company filed a copy of this Code of Ethics as
Exhibit 10.37 to this amended Annual Report on Form 10-K for the year ended
December 31, 2008.
  Audit
Committee. Our audit committee comprises  Robert Torino, Afshin Yazdian and
Charles T. Kimball. Mr. Torino serves as the chairman of the audit committee.
The audit committee is primarily responsible for reviewing the services
performed by our independent auditors, evaluating our accounting policies and
our system of internal controls.  Mr. Torino serves as our audit
committee financial expert as that term is defined by the applicable SEC
rules.
  Board
of Directors Independence. Our Board of Directors consists of seven members. We
are not currently subject to any law, rule or regulation requiring that all or
any portion of our Board of Directors include “independent” directors. The
following five members of the Board of Directors are “independent” as defined in
Section 4200(a)(15) of NASDAQ Stock Market Rules:  Robert Torino,
Afshin Yazdian, Charles T. Kimball, Will Wang Graylin  and Robert L.
King.
  Audit
Committee Financial Expert. The Board of Directors has determined that Robert
Torino is an “audit committee financial expert” who is “independent” as defined
in Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934, as
amended.
  Nominating
Committee. We have not yet established a nominating committee. Our Board of
Directors, sitting as a board, performs the role of a nominating committee. We
are not currently subject to any law, rule or regulation requiring that we
establish a nominating committee.
  57
 Compensation
Committee. We have not yet established a compensation committee. Our Board of
Directors, sitting as a board, performs the role of a compensation committee. We
are not currently subject to any law, rule or regulation requiring that we
establish a compensation committee. We intend to establish a compensation
committee if the Board determines it to be advisable or we are otherwise
required to do so by applicable law, rule or regulation.
  Indemnification
Agreements
  We
have entered into indemnification agreements with our officers and
directors   Under the terms of the indemnification agreements, we
agreed to indemnify our officers and directors against expenses, judgments,
fines, penalties or other amounts actually and reasonably incurred by the
independent director in connection with any proceeding if the officer or
director acted in good faith and did not derive an improper personal benefit
from the transaction or occurrence that is the basis of the
proceeding.
  Item
11.    Executive Compensation
   DIRECTOR
AND EXECUTIVE COMPENSATION
   The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to (i) all individuals serving as the
Company’s principal executive officer or acting in a similar capacity during the
last two completed fiscal years, regardless of compensation level, and (ii) the
Company’s two most highly compensated executive officers other than the
principal executive officers serving at the end of the last two completed fiscal
years.
   Summary
Compensation Table
   
  Name
      and Principal Position
              Year
              Salary
              
              Bonus
              
              
              Stock
                Awards(1)
              
              Total
                CompensationHenry
      T. Cochran, Chief Executive Officer
              2008
              $
              100,985(2)
              
              $
              5,124
              
              
              $
              -
              
              $
              106,1092007
              $
              55,611
              
              $
              4,637
              
              
              $
              -
              
              $
              60,254Lei
      Xia, President
              2008
              $
              82,847
              
              $
              3,660
              
              
              $
              -
              
              $
              86,5072007
              $
              39,722
              
              $
              3,310
              
              
              $
              -
              
              $
              43,032De
      Hai Li, Chief Financial Officer
              2008
              $
              80,474
              
              $
              3,953
              
              
              $
              -
              
              $
              84,4272007
              $
              31,778
              
              $
              11,703
              
              
              $
              108,900
              
              $
              152,381Steven
      L. White, Chief
                Executive
      Officer(3)
              2008
              $
              0
              
              $
              
              
              
              $
              
              
              $2007
              $
              0
              
              $
              0
              
              
              $
              0
              
              $
              0
 
 58
  (1)
The amounts in this column represent the amount recognized for financial
statements reporting purposes under FAS 123R. The assumptions made when
calculating the amounts in this table are found in Note 11 to the SinoHub
consolidated financial statements for the year ended December 31, 2007 included
herein.
  (2)
Mr. Cochran’s base salary has increased to $230,000 per annum on October 1,
2008, which change was incorporated in the employment contracts described in
“Employment Contracts” below.  .
  (3)
Upon consummation of the reverse merger in May 2008, Mr. White resigned as Chief
Executive  Officer.  Mr. White was not paid any compensation for
service in such role in 2007 or 2008 because the company was not operating while
he served as Chief Executive Officer but he was reimbursed for expenses incurred
on behalf of SinoHub.
   Outstanding
Equity Awards at Fiscal Year End
   The
following table sets forth information with respect to the value of all unvested
stock options held by the Company’s Named Executive Officers at December 31,
2008.
  
  Name
              
              Number
      of
              
              Number
      of
              
              Option
      Exercise
              
              Option
      ExpirationSecurities
              Securities
              Price
              DateUnderlying
              Underlying
              ($)Unexercised
              UnexercisedOptions
      (#)
              Options
      (#)Exercisable
              Unexercisable(1)Henry
      T. Cochran
              
              -
              
              -Lei
      Xia
              
              
              
              -De
      Hai Li
              
              -
              
              2,500
              
              $0.10
              
              April
      1, 2015De
      Hai Li
              
              -
              
              2,500
              
              $0.10
              
              August
      5, 2015De
      Hai Li
              
              -
              
              5,160
              
              $0.10
              
              October
      20, 2015
 
 59
  (1)Each
option vests at a rate of 6.25% of the shares subject to the original grant each
quarter until fully vested on April 1, 2009, August 5, 2009 and October 20,
2009, respectively.
   Director
Compensation
   The
following table sets forth all compensation awarded to, earned by or paid to the
directors in 2008:
   Name
                  
                  Fees
      Earned
                    Or
      Paid in
                    Cash
      ($)
                  
                  
                  
                  
                  Stock
                    Awards
                    ($)
                  
                  
                  Option
                    Awards
                    
                    ($)
                  
                  
                  Non-Equity
                    Incentive
                    Plan
                    Compensation
                    ($)
                  
                  
                  Nonqualified
                    Deferred
                    Compensation
                    Earnings
                    ($)
                  
                  
                  All
                    Other
                    Compensation
                    ($)
                  
                  
                  Total
                    ($)Henry
      T. Cochran
                  
                  
                  0
                  
                  
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  $
                  )
                  
                  
                  $
                  0Lei
      Xia
                  
                  
                  0
                  
                  
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  $
                  )
                  
                  
                  $
                  0Zan
      Wang(1)
                  
                  
                  0
                  
                  
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  $
                  )
                  
                  
                  $
                  0Steven
      White(1)
                  
                  
                  0
                  
                  
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  $
                  )
                  
                  
                  $
                  0Charles
      T. Kimball(2)
                  
                  
                  $1,000
                  
                  
                  
                  
                  
                  0
                  
                  
                  
                  $3,420
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  $
                  )
                  
                  
                  $
                  4,4200
                  
                  
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
  60
  (1)  These
persons have resigned as directors of the Company.
  (2)
Non-qualified option to purchase 2,524 shares of SinoHub Common Stock at $2.48
(average of 5 prior trading days closing price) for a period of 3 years granted
on January 14, 2009 for service to the Company for the fourth quarter of 2008.
The Black-Scholes price of the option was calculated at $1.355. The company has
booked a related expense of $3,420 for the fourth quarter of
2008.
  All
compensation paid to our employee directors is set forth in the tables
summarizing executive officer compensation above.   Beginning July 1,
2008, non-employee directors were entitled to receive $1,000 for each meeting
attended in person and quarterly stock option grants of an amount of shares that
will produce a value of $5,000 under the Black-Scholes pricing
model.  As set forth in the table above, Mr. Kimball received $1,000
in 2008 for one meeting attended and in January 2009 received options with a
value equal to a pro rated portion of the $5,000 due to his partial quarter of
service in the fourth quarter of 2008.  Beginning March 2009, members
of the audit committee were entitled to receive $3,000 for each audit
committee meeting attended in person and annual stock option grants of an
amount of shares that will produce a value of $16,000 under the Black-Scholes
pricing model, and the chairman of the audit committee was entitled to receive
$3,500 for each audit committee meeting attended in person and annual stock
option grants of an amount of shares that will produce a value of $20,000 under
the Black-Scholes pricing model.
  61
  Employment
Contracts
   The
officers have entered into standard employment contracts with subsidiaries of
SinoHub, pursuant to which the officers are engaged to serve in their respective
positions.  The employment contracts set forth the officer’s annual
salary, hours of work, social insurance requirements and other
terms.  This is the standard form of employment contract entered into
with all of SinoHub’s employees.   The terms of the employment
contracts include the following:
   Name
              Term
              Monthly
      Wage
              Job
      TitleHenry
      T. Cochran
              January
      1, 2009 through
                December
      31, 2009
              $
              19,167(1)
              Chief
      Executive OfficerLei
      Xia
              January
      1, 2009 through
                December
      31, 2009
              $
              16,667
              PresidentDe
      Hai Li
              January
      1, 2009 through
                December
      31, 2009
              $
              15,000
              Chief
      Financial Officer
   (1) A
portion of Mr. Cochran’s monthly salary is payable in RMB at a rate of 35,000
RMB per month.  The RMB-denominated portion of Mr. Cochran’s salary
has been converted into US dollars at a rate of 6.83 RMB per dollar, the
exchange rate as of April 9, 2009.
  Each
of Messrs. Cochran, Xia and Li are employed by both of the Company’s principal
subsidiaries, SinoHub Electronics Shenzhen, Ltd. and B2B Chips, Ltd., which are
located in the areas where they spend most of their time, Shenzhen and Hong
Kong, respectively, and a portion of their salaries is paid by each company.
Were they to be employed by SinoHub, Inc. in the USA, it would make it very
difficult for Mr. Cochran and Mr. Xia (both US citizens) to get Shenzhen
resident permits.  In Mr. Li’s case, since he is a Chinese citizen, if
he were to be employed by SinoHub, Inc. in the US it might raise potential
issues for him, including obtaining the requisite work permits and possible tax
liability.
   The
employment agreements between B2B Chips and each of the named executive
officers  provide for the payment of one month’s wages in the event
the agreements are terminated by the Company on less than one month’s notice and
for repatriation of the named executive officers to Hong Kong or, at the
officer's request, to his place of origin if such place is nearer to his place
of work, at the Company’s expense, in the event of the termination of the
agreements by the Company, as a result of the disability of the officer, or by
the officer upon one month’s notice or forfeiture of one month’s wages to the
Company or as a result of a breach of the applicable agreement by the
Company
 
 62
 Other
than as set forth above, there are no material terms of the contracts that
provide for payments in connection with the resignation, retirement or other
termination of a named executive officer or in connection with a change of
control and except as disclosed above, there are no other arrangements with any
Named Executive Officer with respect to termination of employment or change of
control transactions.
   Item
12.   Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
   SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  The
following tables set forth information as of March 31, 2009 regarding the
beneficial ownership of stock by (a) each stockholder who is known by the
Company to own beneficially in excess of 5% of the Company’s outstanding stock;
(b) each director; (c) the Company’s chief executive officer; and (d) the
executive officers and directors as a group. Except as otherwise indicated, all
persons listed below have (i) sole voting power and investment power with
respect to their shares of common stock (the only class of outstanding stock),
except to the extent that authority is shared by spouses under applicable law,
and (ii) record and beneficial ownership with respect to their shares of stock.
The percentage of beneficial ownership is based upon 24,580,798 shares of common
stock outstanding, as of March 31, 2009.  Except as otherwise
indicated in the footnotes to the table, the persons and entities named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws, where
applicable.
  
  Common
      StockName
      of Beneficial Owner
                
                
                #
                
                
                %
      (1)Officers
      and DirectorsHenry
      T. Cochran (2)
                
                
                3,835,290
                
                
                
                15.6Lei
      Xia (2)
                
                
                2,443,537
                
                
                
                9.9De
      Hai Li (2) (3)
                
                
                853,641
                
                
                
                3.5Charles
      T. Kimball (4)(5)
                
                
                2,524
                
                
                
                -Will
      Wang Graylin (6)
                
                
                -
                
                
                
                -Richard
      L. King (7)
                
                
                3,280
                
                
                
                -Robert
      S. Torino (8)
                
                
                25.000
                
                
                
                0.1Afshin
      Yazdian (9)
                
                
                -
                
                
                
                -Steven
      L. White (10)
                
                
                196,093
                
                
                
                0.8All
      Officers and Directors as a Group (8 persons)
                
                
                7,359,365
                (3)
                
                
                29.95%
      HoldersJan
      Rejbo
                
                
                4,400,925
                
                
                
                17.9Russell
      Cleveland
                
                
                3,529,406
                (11)
                
                
                14.4
 
 63
  (1)
                          The
      percentage of Common Stock is calculated based upon 24,580,798 shares
      issued and outstanding.(2)
                          The
      business address for these individuals is 6/F, Building 51, Road 5,
      Qiongyu Blvd., Technology Park, Nanshan District, Shenzhen 518053,
      People’s Republic of China.(3)
                          Includes
      3,715 shares issuable pursuant to an outstanding stock option within 60
      days after March 31, 2009.(4)
                          The
      home address for this individual is P. O. Box 232, Katonah, New York
      10536(5)
                          Includes
      2,524 shares issuable pursuant to an outstanding stock option within 60
      days after March 31, 2009.(6)
                          The
      home address for this individual is 15 Birch Pond Dr., Saugus,
      MA 01906(7)
                          The
      home address for this individual is 1000 Mason Street, San Francisco,
      CA 94108(8)
                          The
      business address for this individual is c/o iPayment, Inc., 26707 West
      Agoura Road, Suite 100, Calabasas, CA 91302(9)
                          The
      business address for this individual is c/o iPayment, Inc., 40 Burton
      Hills, Suite 415, Nashville, TN 37215(10)
                          The
      home address for this individual is 386 North 210 East, Mapleton UT
      84664.  Upon consummation of the reverse merger in May 2008, Mr.
      White resigned as Chief Executive Officer.  Includes 196,093
      shares held by Lorikeet, Inc. over which Steven L. White exercises voting
      and investment control.(11)
                          Includes:
      (i) 1,764,704 held by Renaissance US Growth Investment Trust Plc, which
      includes 588,234 shares which may be purchased pursuant to currently
      exercisable warrants, (ii) 882,351 held by Global Special Opportunities
      Trust Plc, which includes 294,116 shares which may be purchased pursuant
      to currently exercisable warrants and (iii) 882,351 held by Premier RENN
      US Emerging Growth Fund Ltd., which includes 294,116 shares which may
      be purchased pursuant to currently exercisable
    warrants.
   Item
13.   Certain Relationships and Related Transactions, and Director
Independence
   During
the last two fiscal years, we have not entered into any material transactions or
series of transactions that would be considered material in which any officer,
director or beneficial owner of 5% or more of any class of our capital stock, or
any immediate family member of any of the preceding persons, had a direct or
indirect material interest. There are no transactions presently proposed, except
as follows:
  
  1.
              On
      January 17, 2007, Henry T. Cochran, CEO and Chairman of SinoHub’s Board of
      Directors, purchased a one year 7.69% Note from SinoHub, Inc. in the
      amount of RMB 1,658,000 (approximately $213,000) which was repayable on
      demand. This Note was repaid by SinoHub on March 20,
      2007.  Interest expense paid on this Note for the year ended
      December 31, 2007 was $3,500.
 
 64
  2.
              On
      March 20, 2007, SinoHub issued 371,842 shares of its common stock to Linda
      Marie Hetue, the spouse of Henry T. Cochran, the Company’s CEO and
      Chairman for agreeing to let SinoHub use the condominium in which she
      holds 50% ownership (and Henry T. Cochran owns the remaining 50%) as
      collateral for a revolving cash bank loan from Shenzhen Development Bank
      in the principal amount of $650,000 initially made on March 15,
      2007. This bank loan agreement was terminated on its due date of
      March 15, 2008.  Ms. Hetue and Mr. Cochran have provided
      the condominium as collateral with respect to subsequent loan
      agreements, the most recent one being dated September 25, 2008 for $4.4
      million with Commercial Industrial Bank of Fujian (CIB) and repayable on
      September 25, 2009, with no further consideration payable for the
      provision of such collateral. The loans from CIB generally have 1 year
      terms with repayment in full required at the end of the term and a new
      loan agreement put in place at that time. The shares issued to were valued
      at $43,000.  The value of the payment was determined
      by the CFO of the Company, taking into account, among other factors, the
      value of the asset provided as collateral.  The Company’s
      subsidiary, SinoHub Electronics Shenzhen, Ltd. and the Company’s
      President, Lei Xia, and his spouse, Hantao Cui, both shareholders of the
      Company, have also provided guarantees for the CIB loan with no
      consideration paid to them.
 
  3.
              On
      January 17, 2008, SinoHub’s subsidiary SinoHub Electronics Shenzhen, Ltd.
      acquired direct ownership of SinoHub SCM Shanghai, Ltd.  from
      Sai Lin Xu.    Prior to that date, SinoHub Electronics
      Shenzhen was the sole beneficial owner of SinoHub SCM Shanghai and record
      ownership of SinoHub SCM Shanghai was held in the name of Ms. Xu, the
      mother-in-law of Lei Xia, the Company’s President, who acted as trustee
      pursuant to a Declaration of Trust that vested all beneficial rights in
      the stock to SinoHub Electronics Shenzhen and compelled the trustee to act
      at the direction of SinoHub Electronics Shenzhen.  The trust
      arrangement was originally established at a time when Chinese regulations
      only allowed import/export licenses to be issued to companies that were
      100% owned by Chinese citizens. SinoHub Electronics Shenzhen was willing
      to terminate the trust arrangement with respect to the shares of SinoHub
      SCM Shanghai after this ownership requirement was
      removed.  SinoHub Electronics Shenzhen paid nominal
      consideration for the transfer of the shares. In accordance with the
      terms of the Declaration of Trust, no material monetary payment was
      associated with this acquisition because through the Declaration of Trust,
      SinoHub Electronics Shenzhen had borne all costs relating to the formation
      of SinoHub SCM Shanghai.
  65
  4.
              The
      Company distributed electronic components to and resold electronic
      products purchased from GenNext Technology, Ltd., a company owned jointly
      by Henry T. Cochran, the Company’s CEO and Chairman and Lei Xia, the
      Company’s President and member of the Board of Directors of the Company.
      The goods were electronic components.  Since China’s currency is
      not freely convertible there are a number of customers who require their
      financial transactions to be domiciled in Hong Kong using a “hard”
      currency (usually USD or HKD). The related company was used for
      transactions that the customer required to be domiciled in Hong Kong.
      GenNext was used to operate outside the PRC and to take advantage of its
      existing banking relationships.  GenNext assisted the Company by
      facilitating certain foreign exchange transactions, settled obligations to
      certain suppliers on behalf of the Company, and collected certain customer
      remittances on behalf of the Company. Commencing in the fourth quarter of
      2008, the Company discontinued these related company activities as the
      Company’s Hong Kong operation achieved the required assignment of
      customer contracts and bank accounts to support foreign exchange
      transactions. In addition, the related company provided certain
      warehousing and logistics services to the Company during the development
      of its Hong Kong operation. In each case the amount of consideration
      was based on the cost of goods plus labor costs. The labor costs were
      based on the actual square footage of GenNext’s warehouse that the Company
      used.
                
                Payment
      amounts to GenNext were determined by cost pass-through without
      mark-up.
                
                During
      the years of 2008, 2007 and 2006, the Company sold goods totaling
      approximately $1.5 million, $1.2 million and $860,000, respectively, to
      GenNext and purchased goods totaling approximately $3,000,000, $504,000
      and $450,000, respectively, from GenNext.
                
                The
      Company paid no service fees to GenNext in 2008 and paid service fees
      totaling $197,000 and $112,000, respectively, in 2007 and 2006, which
      amount was determined by cost pass-through without mark-up based on
      actual square feet of GenNext’s warehouse that the Company
      used.
                
                During
      2008, the Company received rental income of $154,000 for the lease of
      warehouse space to GenNext, which amount was determined by cost
      pass-through without mark-up based on actual square feet of the Company’s
      warehouse that GenNext used.
                
                At
      December 31, 2006, the Company owed GenNext $1,637,000 which was interest
      free and repayable on demand.  The Company repaid GenNext
      approximately $1,300,000 in 2007 in connection with advances made by
      GenNext in 2006 to assist the Company in establishing operations for
      certain subsidiaries in the PRC. These advances were non-interest bearing
      loans. In addition, the Company repaid GenNext $1,000,000 in 2007 in
      connection with prepayments made by GenNext to assist the Company in
      facilitating certain foreign exchange transactions and collecting certain
      customer remittances. At December 31, 2007, GenNext owed the Company
      $1,493,000, which was interest free and repayable on demand. This amount
      included $700,000 advanced by the Company to GenNext for anticipated
      payments to be made by GenNext in 2008 to assist the Company in
      facilitating certain foreign exchange transactions and collecting certain
      customer remittances. During 2008, GenNext repaid the Company a total of
      $1,600,000 and at December 31, 2008, there was no amount outstanding
      between the Company and GenNext.5.
              At
      December 31, 2006, the Company owed the Chairman and CEO $203,000 for
      loans made to the Company, which amount was payable on demand. Interest
      expense was charged at 6.5% per annum on the amount due. Interest expense
      related to this obligation was $4,000 and $15,000 in 2007 and 2006. The
      amount was repaid in 2007.6.
              On
      April 10, 2008, B2B Chips acquired SinoHub Technology (Hong Kong) from its
      owners, Henry T. Cochran, the Company’s CEO and Chairman, and Lei Xia, the
      Company’s President and member of the Board of Directors, for HKD 10,000
      ($1,290), which represented the initial capital contributions of Messrs.
      Cochran and Xia in the company.  SinoHub Technology never
      conducted any business and its sole asset at all times was a Hong Kong
      bank account holding the balance of the capital
      contributions.  The acquisition of SinoHub Technology by B2B
      Chips was a purchase for convenience and the purchase price was fixed by
      the SinoHub’s CFO at HKD 10,000 ($1,290), the value of SinoHub
      Technology’s sole asset, i.e., the cash balance of its bank account, and
      the cash spent on organizing SinoHub
  Technology.
  66
 7.
              In
      May 2008, Liberty Alliance, Inc., SinoHub Acquisition Corp., known as the
      Merger Sub, SinoHub, Inc., known as the Acquired Sub, and Steven L. White,
      the principal stockholder of Liberty Alliance, Inc., entered into an
      Agreement and Plan of Merger pursuant to which the Merger Sub agreed to
      merge with and into the Acquired Sub, with the Acquired Sub being the
      surviving corporation. In connection with the merger, Liberty Alliance,
      Inc. issued to the stockholders of the Acquired Sub 18,290,000 shares of
      the Company’s common stock in exchange for all the outstanding shares
      of the Acquired Sub’s preferred and common stock and the Company assumed
      options exercisable for additional shares of common stock. Under the
      Agreement and Plan of Merger, Steve White, the controlling shareholder of
      the company while it was a dormant shell and its sole director,
      surrendered 5,203,907 shares of common stock of Liberty Alliance, Inc. and
      was granted piggyback registration rights with respect to the remaining
      196,093 shares he owned.  Mr. White also executed a lock-up
      agreement with the Company that expires on May 14, 2009, which agreement
      does not restrict his ability to sell his shares pursuant to this
      prospectus.
   Director
Independence
  The
following five members of the Company’s board of directors are “independent” as
defined under the rules of the NASDAQ Stock Market:  Robert Torino,
Afshin Yazdian, Charles T. Kimball, Will Wang Graylin  and Robert L.
King.
   Item
14.    Principal Accountant Fees and Services
  Jimmy
C.H. Cheung & Co., Certified Public Accountants is our Principal Independent
Registered Public Accountants engaged to examine our financial statements for
the fiscal years ended December 31, 2008 and 2007. The following table shows the
fees that we paid or accrued for the audit and other services provided by Jimmy
C.H. Cheung & Co., for the fiscal years ended December 31, 2008 and
2007.
   Audit
Fees
  This
category includes the audit of our annual financial statements, review of
financial statements included in our annual and quarterly reports and services
that are normally provided by the independent registered public accounting firms
in connection with engagements for those fiscal years. This category also
includes advice on audit and accounting matters that arose during, or as a
result of, the audit or the review of interim financial
statements.
   Audit-Related
Fees
  This
category consists of assurance and related services by the independent
registered public accounting firms that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under “Audit Fees”. The services for the fees disclosed under
this category include services relating to our registration statement and
consultation regarding our correspondence with the SEC.
  67
 Tax
Fees
  This
category consists of professional services rendered for tax compliance and tax
advice.
  All
Other Fees
  This
category consists of fees for other miscellaneous items
  Fee
      Category
                
                2008
                
                
                2007Audit
      Fees
                
                $
                147,800
                
                
                $
                162,500Audit-Related
      Fees
                
                $
                --
                
                
                $
                --Tax
      Fees
                
                $
                --
                
                
                $
                --All
      Other
      Fees
                
                $
                --
                
                
                $
                --
  
  PART IV
  
 Item
15.    Exhibits and Financial Statement Schedules
  (1)   Financial
Statements
  See Index
to Consolidated Financial Statements commencing on Page 55.
  
 (2)   Financial
Statement Schedules
  All
supplemental schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the required information is included in the consolidated financial statements or
notes thereto.
  
 (3)   Exhibits
  The
following exhibits are filed as part of this report:
  
 EXHIBITS
    Exhibit
      No.
              Description2.1
              Agreement
      and Plan of Merger by and among Liberty Alliance, Inc., a Delaware
      corporation, SinoHub Acquisition Corp., a Delaware corporation and a
      wholly owned subsidiary of the Company, SinoHub, Inc., a Delaware
      corporation and Steven L. White, the principal stockholder of Liberty
      Alliance, Inc., dated May 12, 2008 (includes registration rights for the
      holders of shares subject to a lock-up).  (1)3.1
              Amendment
      and Amended and Restated Certificate of Incorporation of SinoHub, Inc.
      ** *3.3.1
              Amended
      and Restated Bylaws of SinoHub, Inc., as amended by Amendment No.
      1. *4.1
              Form
      of Series A and B Common Stock Warrant.   (2)10.1
              Lease
      dated June 10, 2008 between San On Investments No. 1 Limited and B2B
      Chips, Limited*** *
  68
 10.2
              Lease
      Agreement by and between Zhou Dan and SinoHub SCM Shanghai, Ltd. dated
      March 23, 2006. (3)10.3
              Shanghai
      Wai Gao Qiao Bonded Zone Tenancy Agreement by and between Shanghai Xin
      Yong Logistics Ltd. and SinoHub Electronics Shanghai, Ltd., dated June 1,
      2008.  (3)10.4
              Lease
      Contract dated August 10, 2008 between China Great Wall Computer Shenzhen
      Co., Ltd. and SinoHub SCM Shenzhen, Ltd.*** *10.5
              Securities
      Purchase Agreement dated September 10, 2008, among SinoHub, Inc. and the
      investors listed on the Schedule of Buyers on Annex A. (2)10.6
              Registration
      Rights Agreement dated September 10, 2008, among SinoHub, Inc. and the
      investors signatory thereto.   (2)10.6.1
              Waiver
      and General Release Agreement dated December 30, 2008 among SinoHub, Inc.
      and the investors signatory thereto. * *10.6.2
              Second
      Waiver and General Release Agreement dated February 19, 2009 among
      SinoHub, Inc. and the investors signatory
      thereto. * *10.6.3
              Third
      Waiver Agreement dated March 6, 2009 among SinoHub, Inc. and the
      investors signatory thereto.* *10.7
              Declaration
      of Trust dated January 30, 2008 between SinoHub Electronics Shenzhen,
      Ltd., (as “Beneficial Owner”), and Hantao Cui (as the
      “Trustee”).*** *10.8
              Form
      of Contract of Employment.   (3)10.9
              Form
      of Non-Solicitation, Invention Assignment and Non-Disclosure
      Agreement.  (4)10.10
              Trade
      Financing Loan between Shenzhen Branch, China Construction Bank and
      SinoHub SCM Shenzhen, Ltd. commencing on August 22, 2008
      * *10.11
              Short
      Term Loan Contract between CIB Shenzhen Branch and SinoHub SCM
      Shenzhen, Ltd. for six months commencing on September 25, 2008.
      * *10.12
              Credit
      Line Contract between CIB Shenzhen Branch and SinoHub SCM Shenzhen, Ltd.
      for one year commencing September 25, 2008. * *10.13
              Promissory
      Note Issued by SinoHub, Inc. to Henry T. Cochran, dated January 17,
      2007.   (3)10.14
              Promissory
      Note Issued by SinoHub, Inc. to Peter Schech, dated January 27,
      2007*** *10.15
              Promissory
      Note Issued by SinoHub, Inc. to Peter Schech, dated January 27,
      2008*** *10.16
              Promissory
      Note Issued by SinoHub, Inc. to Jan Rejbo, dated June 20,
      2007*** *10.17
              Promissory
      Note Issued by SinoHub, Inc. to Tracey C. Hutchinson, dated January 26,
      2007****10.18
              Contract
      of Employment dated January 1, 2009 between SinoHub Electronics Shenzhen,
      Ltd and Henry T. Cochran**** *10.19
              Employment
      Contract dated January 1, 2009 between B2B Chips, Ltd. and Henry T.
      Cochran**** *10.20
              Contract
      of Employment dated January 1, 2009 between SinoHub Electronics Shenzhen,
      Ltd and Lei Xia**** *10.21
              Employment
      Contract dated January 1, 2009 between B2B Chips, Ltd. and Lei
      Xia* *10.22
              Contract
      of Employment dated January 1, 2009 between SinoHub Electronics Shenzhen,
      Ltd and Li De Hai*10.23
              Employment
      Contract dated January 1, 2009 between B2B Chips, Ltd. and Li De
      Hai*10.24
              Guaranty
      Agreement dated June 26, 2007 between SinoHub SCM Shenzhen, Ltd. and
      Shenzhen Hongfeng Paper Products Co. Limited * *10.25
              Form
      of Lock-Up Agreement between SinoHub, Inc, and certain shareholders of
      SinoHub, Inc.* *10.26
              SinoHub,
      Inc. 2008 Stock Plan.**10.26.1
              SinoHub,
      Inc. 2000 Stock Plan.*10.27
              Contract
      of Mortgage of Maximum Amount dated August 21, 2008 between CIB Shenzhen
      Nanxin and Linda Marie
Hetue* *
  69
  10.28
              Contract
      of Guarantee of Maximum Amount dated August 21, 2008 between CIB Shenzhen
      Nanxin and Lei Xia.* *10.29
              Contract
      of Guarantee of Maximum Amount dated August 21, 2008 between CIB Shenzhen
      Nanxin and Hantao Cui* *10.30
              Equity
      Transferring Agreement dated January 17, 2008 between SinoHub Electronics
      Shenzhen Ltd. and SinoHub SCM Shanghai
  Ltd.* *10.31
              Equity
      Transferring Agreement dated April 10, 2008 between B2B Chips Limited and
      SinoHub Technology (Hong Kong) Limited* *10.32
              Loan
      for Export Rebates Custody Account between Shenzhen Branch, China
      Construction Bank and SinoHub SCM Shenzhen, Ltd. commencing on May 12,
      2008 *10.33
              Loan
      for Import Duties Custody Account between Shenzhen Branch, China
      Construction Bank and SinoHub SCM Shenzhen, Ltd. commencing on February 4,
      2009 *10.34
              Contract
      of Guarantee of Maximum Amount dated September 21, 2008 between CIB
      Shenzhen Nanxin and SinoHub Electronics Shenzhen,
  Ltd.*10.35
              Contract
      of Guarantee of Maximum Amount dated September 21, 2008 between CIB
      Shenzhen Nanxin and Shenzhen Yin Zhao Co., Ltd.*10.36
              Form
      of Indemnification Agreement for Officers and
    Directors.*10.37
              Code
      of Ethics.
 
  (1)
Incorporated by reference from the Company’s Form 8-K filed with the Securities
and Exchange Commission on May 15, 2008.
  (2)
Incorporated by reference from the Company’s Form 8-K filed with the Securities
and Exchange Commission on September 16, 2008.
  (3)
Incorporated by reference from the Company’s Form 8-K filed with the Securities
and Exchange Commission on May 20, 2008.
  (4)
Incorporated by reference from the Company’s Form 8-K filed with the Securities
and Exchange Commission on September 22, 2008.
  *Previously
filed with Amendment No. 4 to the Registration Statement on Form S-1 on April
14, 2009.
  **Previously
filed with Amendment No. 3 to the Registration Statement on Form S-1 on March
17, 2009.
  ** *
Previously filed with the Registration Statement on Form S-1 on October 24,
2008.
  *** *
Previously filed with Amendment No. 1 to the Registration Statement on Form S-1
on December 17, 2008.
  **** *
Previously filed with Amendment No. 2 to the Registration Statement on Form S-1
on January 20, 2009.
   
 Exhibit No.
              
              Title
      of Document31.1
              
              Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended31.2
              
              Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended32.1
              
              Certification
      pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Executive
      Officer)32.2
              
              Certification
      pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Financial
      Officer)
  70
 SIGNATURES
  In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
 
 SINOHUB,
      INC.Date:   April
      30, 2009
              By:
              /s/ Henry T.
      CochranHenry
      T. CochranChief
      Executive Officer
    Date:   April
      30, 2009
              By:
              /s/ De
      Hai  LiDe
      Hai LiChief
      Financial Officer
                (Principal
      Financial and Accounting
                Officer)
 
 Pursuant
to the requirements of the Securities Act of 1933, this report has been signed
by the following persons in the capacities and on the dates stated.
  
  Signature
              
              Title
              
              Date/s/
      Henry T. Cochran
              
              Director
      and Chief Executive Officer
              
              April
      30, 2009Henry
      T. Cochran
              
              (Principal
      Executive Officer)/s/
      De Hai Li
              
              Chief
      Financial Officer
              
              April
      30, 2009De
      Hai Li
              
              (Principal
      Financial and AccountingOfficer)/s/
      Lei Xia
              
              Director
              
              April
      30, 2009Lei
      Xia/s/
      Charles T. Kimball
              
              Director
              
              April
      30, 2009Charles
      T. Kimball/s/
      Will Wang GraylinWill
      Wang Graylin
              
              Director
              
              April
      30, 2009/s/Richard
      L. King
              
              Director
              
              April
      30, 2009Richard
      L. King/s/Robert
      S. Torino
              
              Director
              
              April
      30, 2009Robert
      S. Torino/s/
      Afshin Yazdian
              
              Director
              
              April
      30, 2009Afshin
      Yazdian
 
 71




SINOHUB,
INC. AND SUBSIDIARIES
  INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
  
  
  Report
      of Independent Registered Public Accounting Firm
                73Consolidated
      Financial Statements for the Years Ended December 31, 2008 and
      2007Consolidated
      Balance Sheets
                74Consolidated
      Statements of Operations and Comprehensive Income
                75Consolidated
      Statements of Stockholders’ Equity
                76Consolidated
      Statements of Cash Flows
                77Notes
      to Consolidated Financial Statements
                78 to
      98
    72
  Jimmy
      C.H. Cheung & Co
                
                Certified
      Public Accountants
                (A
      member of Kreston International)
              Registered
      with the Public Company
                Accounting
      Oversight Board
 
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors of:
 
 SinoHub,
Inc.
 
 We have
audited the accompanying consolidated balance sheets of SinoHub, Inc. and
subsidiaries as of December 31, 2008 and 2007 and the related consolidated
statements of operations and comprehensive income, stockholders’ equity and cash
flows for the years ended December 31, 2008 and 2007. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting.  Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s  internal control over
financial reporting.  Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits of the financial statements provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of SinoHub, Inc. and subsidiaries as
of December 31, 2008 and 2007, and the results of its operations and its cash
flows for the years ended December 31, 2008 and 2007, in conformity with
accounting principles generally accepted in the United States of
America.
 
 
 /s/ Jimmy
C.H. Cheung & Co.
 JIMMY
C.H. CHEUNG & CO
 
 Certified
Public Accountants
 
 Hong
Kong
 Date:  February
25, 2009
   73
  SINOHUB,
INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 
 ASSETS
                
                December
      31,
                  2008
                
                
                December
      31,
                  2007CURRENT
      ASSETSCash
      and cash equivalents
                
                $
                5,860,000
                
                
                $
                4,282,000Restricted
      cash
                
                
                374,000
                
                
                
                5,509,000Accounts
      receivable, net of allowance
                
                
                22,282,000
                
                
                
                9,748,000Inventories,
      net
                
                
                435,000
                
                
                
                853,000Prepaid
      expenses and other
                
                
                370,000
                
                
                
                426,000Due
      from related company
                
                
                -
                
                
                
                1,493,000Total
      current assets
                
                
                29,321,000
                
                
                
                22,311,000PROPERTY
      AND EQUIPMENT, NET
                
                
                703,000
                
                
                
                846,000TOTAL
      ASSETS
                
                $
                30,024,000
                
                
                $
                23,157,000LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                
                $
                764,000
                
                
                $
                6,777,000Accrued
      expenses and other
                
                
                234,000
                
                
                
                307,000Bank
      borrowings
                
                
                2,123,000
                
                
                
                6,904,000Notes
      payable to third parties
                
                
                -
                
                
                
                251,000Income
      and other taxes payable
                
                
                3,391,000
                
                
                
                1,457,000Total
      current liabilities
                
                
                6,512,000
                
                
                
                15,696,000STOCKHOLDERS’
      EQUITYPreferred
      stock, $0.001 par value, 5,000,000 shares authorized;
                  no
      shares issued
                
                
                -
                
                
                
                -Common stock, $0.001 par value,
      100,000,000 shares authorized;
                  24,501,989 shares
      and 18,290,000 shares issued and outstanding
                  as
      of December 31, 2008 and December 31, 2007, respectively
                
                
                25,000
                
                
                
                18,000Additional
      paid-in capital
                
                
                11,529,000
                
                
                
                4,509,000Retained
earningsUnappropriated
                
                
                10,424,000
                
                
                
                2,309,000Appropriated
                
                
                724,000
                
                
                
                356,000Accumulated
      other comprehensive income
                
                
                810,000
                
                
                
                269,000Total
      stockholders’ equity
                
                
                23,512,000
                
                
                
                7,461,000TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                30,024,000
                
                
                $
                23,157,000
  The
accompanying notes are an integral part of these consolidated financial
statements
  74
  SINOHUB,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  Years
      ended December 31,2008
                    
                    
                    2007NET
      SALESSupply
      chain management services
                    
                    $
                    4,973,000
                    
                    
                    $
                    2,096,000Electronic
      components
                    
                    
                    74,511,000
                    
                    
                    
                    26,698,000Total
      net sales
                    
                    
                    79,484,000
                    
                    
                    
                    28,794,000COST
      OF SALESSupply
      chain management services
                    
                    
                    1,444,000
                    
                    
                    
                    995,000Electronic
      components
                    
                    
                    61,830,000
                    
                    
                    
                    21,130,000Total
      cost of sales
                    
                    
                    63,274,000
                    
                    
                    
                    22,125,000GROSS
      PROFIT
                    
                    
                    16,210,000
                    
                    
                    
                    6,669,000OPERATING
      EXPENSESSelling,
      general and administrative
                    
                    
                    3,276,000
                    
                    
                    
                    2,297,000Depreciation
                    
                    
                    389,000
                    
                    
                    
                    383,000Merger
      related expenses
                    
                    
                    511,000
                    
                    
                    
                    -Allowance
      for doubtful debts
                    
                    
                    1,237,000
                    
                    
                    
                    -Loss
      on disposal of property and equipment
                    
                    
                    5,000
                    
                    
                    
                    -Total
      operating expenses
                    
                    
                    5,418,000
                    
                    
                    
                    2,680,000INCOME
      FROM OPERATIONS
                    
                    
                    10,792,000
                    
                    
                    
                    3,989,000OTHER
      INCOME (EXPENSE)Interest
      expense
                    
                    
                    (251,000
                    )
                    
                    
                    (146,000
                    )Interest
      income
                    
                    
                    66,000
                    
                    
                    
                    124,000Other,
      net
                    
                    
                    27,000
                    
                    
                    
                    43,000Total
      other income (expense)
                    
                    
                    (158,000
                    )
                    
                    
                    21,000INCOME
      BEFORE INCOME TAXES
                    
                    
                    10,634,000
                    
                    
                    
                    4,010,000Income
      tax expense
                    
                    
                    2,151,000
                    
                    
                    
                    509,000NET
      INCOME
                    
                    
                    8,483,000
                    
                    
                    
                    3,501,000OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
                    
                    
                    541,000
                    
                    
                    
                    285,000COMPREHENSIVE
      INCOME
                    
                    $
                    9,024,000
                    
                    
                    $
                    3,786,000SHARE
      AND PER SHARE DATANet
      income per share-basic
                    
                    $
                    0.41
                    
                    
                    $
                    0.22Weighted
      average number of shares-basic
                    
                    
                    20,925,000
                    
                    
                    
                    15,797,000Net
      income per share-diluted
                    
                    $
                    0.40
                    
                    
                    $
                    0.22Weighted
      average number of shares-diluted
                    
                    
                    21,460,000
                    
                    
                    
                    15,929,000
  The
accompanying notes are an integral part of these consolidated financial
statements
  75
  SINOHUB,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 For
the years ended December 31, 2008 and 2007
   Retained
      earnings
                      
                      
                      Appropriated
                      
                      
                      AccumulatedCommon
      stock
                      
                      
                      
                      
                      
                      Additional
                      
                      
                      (Accumulated
                      
                      
                      retained
                      
                      
                      other
      comprehensiveShares
                      
                      
                      Amount
                      
                      
                      paid-in
      capital
                      
                      
                      deficit)
                      
                      
                      earnings
                      
                      
                      income
      (loss)
                      
                      
                      TotalBalances
      at December 31, 2006
                      
                      
                      14,707,257
                      
                      
                      $
                      15,000
                      
                      
                      $
                      2,941,000
                      
                      
                      $
                      (849,000
                      )
                      
                      $
                      13,000
                      
                      
                      $
                      (16,000
                      )
                      
                      $
                      2,104,000Stock
      issued on exercise of warrants
                      
                      
                      385,229
                      
                      
                      
                      -
                      
                      
                      
                      49,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      49,000Stock
      issued for cash
                      
                      
                      1,699,852
                      
                      
                      
                      2,000
                      
                      
                      
                      1,278,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,280,000Warrants
      issued for cash
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      50,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      50,000Exercise
      of stock options
                      
                      
                      100,597
                      
                      
                      
                      -
                      
                      
                      
                      57,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      57,000Stock
      compensation - shares issued
                      
                      
                      956,166
                      
                      
                      
                      1,000
                      
                      
                      
                      108,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      109,000Stock
      compensation - options issued
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,000Stock
      issued for services
                      
                      
                      440,899
                      
                      
                      
                      -
                      
                      
                      
                      51,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      51,000Warrants
      issued for services
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,000Distribution
      to stockholders
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (40,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (40,000
                      )Net
      income for the year
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,501,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,501,000Foreign
      currency translation gain
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      285,000
                      
                      
                      
                      285,000Comprehensive
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,786,000Transfer
      to appropriated retained earnings
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (343,000
                      )
                      
                      
                      343,000
                      
                      
                      
                      -
                      
                      
                      
                      -Balances
      at December 31, 2007
                      
                      
                      18,290,000
                      
                      
                      $
                      18,000
                      
                      
                      $
                      4,509,000
                      
                      
                      $
                      2,309,000
                      
                      
                      $
                      356,000
                      
                      
                      $
                      269,000
                      
                      
                      $
                      7,461,000Reverse
      merger recapitalization
                      
                      
                      1,200,000
                      
                      
                      
                      1,000
                      
                      
                      
                      (1,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Stock
      issued for services
                      
                      
                      510,000
                      
                      
                      
                      1,000
                      
                      
                      
                      433,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      434,000Stock
      issued for cash
                      
                      
                      4,406,533
                      
                      
                      
                      5,000
                      
                      
                      
                      6,477,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,482,000Stock
      compensation - options issued
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      53,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      53,000Exercise
      of stock options
                      
                      
                      71,166
                      
                      
                      
                      -
                      
                      
                      
                      8,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      8,000Stock
      compensation - shares issued
                      
                      
                      22,200
                      
                      
                      
                      -
                      
                      
                      
                      50,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      50,000Rounding
      shares issued due to the reverse share split
                      
                      
                      190
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Shares
      issued to odd lot holders
                      
                      
                      1,900
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      income for the year
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      8,483,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      8,483,000Foreign
      currency translation gain
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      541,000
                      
                      
                      
                      541,000Comprehensive
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,024,000Transfer
      to appropriated retained earnings
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (368,000
                      )
                      
                      
                      368,000
                      
                      
                      
                      -
                      
                      
                      
                      -Balances
      at December 31, 2008
                      
                      
                      24,501,989
                      
                      
                      $
                      25,000
                      
                      
                      $
                      11,529,000
                      
                      
                      $
                      10,424,000
                      
                      
                      $
                      724,000
                      
                      
                      $
                      810,000
                      
                      
                      $
                      23,512,000
  The
accompanying notes are an integral part of these consolidated financial
statements
  76
  SINOHUB,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  Years ended December
      31,2008
                              
                              
                              2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                              
                              $
                              8,483,000
                              
                              
                              $
                              3,501,000Adjustments
      to reconcile net income to cash provided by (used in)
      operation:Depreciation
                              
                              
                              389,000
                              
                              
                              
                              383,000Allowance
      for doubtful accounts
                              
                              
                              1,237,000
                              
                              
                              
                              -Loss
      on disposal of property and equipment
                              
                              
                              5,000
                              
                              
                              
                              -Stock
      compensation expense
                              
                              
                              53,000
                              
                              
                              
                              109,000Stock
      option compensation amortization
                              
                              
                              50,000
                              
                              
                              
                              6,000Stock
      issued for services
                              
                              
                              434,000
                              
                              
                              
                              50,000Warrants
      issued for services
                              
                              
                              -
                              
                              
                              
                              9,000Changes
      in operating assets and liabilities:Accounts
      receivable
                              
                              
                              (12,934,000
                              )
                              
                              
                              (3,701,000
                              )Inventories
                              
                              
                              468,000
                              
                              
                              
                              679,000Prepaid
      expenses and other
                              
                              
                              84,000
                              
                              
                              
                              2,676,000Accounts
      payable
                              
                              
                              (6,367,000
                              )
                              
                              
                              1,494,000Accrued
      expenses and other
                              
                              
                              (93,000
                              )
                              
                              
                              (3,895,000
                              )Income
      and other taxes payable
                              
                              
                              1,808,000
                              
                              
                              
                              815,000Net
      cash (used in) provided by operating activities
                              
                              
                              (6,383,000
                              )
                              
                              
                              2,126,000CASH
      FLOWS FROM INVESTING ACTIVITIESRelease
      of restricted cash
                              
                              
                              5,135,000
                              
                              
                              
                              (5,509,000
                              )Proceeds
      from disposal of property and equipment
                              
                              
                              10,000
                              
                              
                              
                              -Purchase
      of property and equipment
                              
                              
                              (172,000
                              )
                              
                              
                              (103,000
                              )Net
      cash provided by (used in) investment activities
                              
                              
                              4,973,000
                              
                              
                              
                              (5,612,000
                              )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock, net of costs
                              
                              
                              6,482,000
                              
                              
                              
                              -Proceeds
      from exercise of warrants issued for service
                              
                              
                              8,000
                              
                              
                              
                              -Advances
      from investors
                              
                              
                              -
                              
                              
                              
                              1,396,000Due
      to director repaid
                              
                              
                              -
                              
                              
                              
                              (203,000
                              )Bank
      borrowing proceeds
                              
                              
                              2,123,000
                              
                              
                              
                              6,629,000Bank
      borrowing repayments
                              
                              
                              (7,286,000
                              )
                              
                              
                              -Notes
      payable repayments
                              
                              
                              (251,000
                              )
                              
                              
                              (313,000
                              )Related
      company proceeds (repayments)
                              
                              
                              1,568,000
                              
                              
                              
                              (3,113,000
                              )Net
      cash provided by financing activities
                              
                              
                              2,644,000
                              
                              
                              
                              4,396,000EFFECT
      OF EXCHANGE RATES ON CASH
                              
                              
                              344,000
                              
                              
                              
                              372,000NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                              
                              
                              1,578,000
                              
                              
                              
                              1,282,000CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                              
                              
                              4,282,000
                              
                              
                              
                              3,000,000CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                              
                              $
                              5,860,000
                              
                              
                              $
                              4,282,000SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest expense
                              
                              $
                              251,000
                              
                              
                              $
                              146,000Cash
      paid for income tax
                              
                              $
                              409,000
                              
                              
                              $
                              6,000
  The
accompanying notes are an integral part of these consolidated financial
statements
 
 77
  SINOHUB,
INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
   1.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
   Overview
  SinoHub,
Inc. (the “Company”) provides products and services to suppliers and purchasers
of electronic components in connection with the manufacture and assembly of
electronic products in the People’s Republic of China (the “PRC” or
“China”).  Approximately 94% of the Company’s revenues are derived
from the sale of electronic components and assemblies to contract manufacturers
and design houses which are engaged in the manufacture of mobile phones, network
equipment and other electronics products in the PRC.  These sales
occur either as procurement-fulfillment project or as one-off electronic
component sale.
  In
connection with the supply of such components and products, the Company also
provides supply chain management services from which we derive approximately 6%
of our revenues.
  History
and Basis of Reporting
  SinoHub,
Inc. (formerly known as Liberty Alliance, Inc.) is a Delaware corporation,
originally organized in Utah in 1986, and subsequently merged and reorganized as
Liberty Alliance, Inc. in Delaware in 1991.  Liberty Alliance, Inc.
filed for bankruptcy in 1994 and the filing was closed in
1995.  Liberty Alliance, Inc. remained dormant until 2006 when it
began preparing to become a public shell company and seek new business
opportunities.  In August 2006 the Company changed its name to
Vestige, Inc., and in September 2006 the Company changed its name back to
Liberty Alliance, Inc.
  In May
2008, Liberty Alliance, Inc., SinoHub Acquisition Corp., known as the Merger
Sub, SinoHub, Inc., known as the Acquired Sub, and Steven L. White, the
principal stockholder of Liberty Alliance, Inc., entered into an Agreement and
Plan of Merger pursuant to which the Merger Sub agreed to merge with and into
the Acquired Sub, with the Acquired Sub being the surviving
corporation.  In connection with the merger, Liberty Alliance, Inc.
issued to the stockholders of the Acquired Sub 18,290,000 shares (as adjusted
for reverse stock split) of the Company’s common stock in exchange for all the
outstanding shares of the Acquired Sub’s preferred and common stock and the
Company assumed options exercisable for additional shares of common
stock.  At the closing, Liberty Alliance, Inc. also issued 510,000
shares (as adjusted for reverse stock split) of the Company’s common stock to
certain consultants for services rendered in connection with the Merger.
Immediately following the merger, the Company had 20,000,000 shares of common
stock outstanding and options exercisable for an additional 489,451 shares (as
adjusted for reverse stock split) of common stock.  The conclusion of
these events was deemed to be a reverse takeover transaction, or RTO, after
which the original stockholders of the Company held approximately 6% of the
issued and outstanding shares of the Company’s common stock on a fully diluted
basis and the Acquired Sub’s stockholders, including the shares issued to
consultants, held approximately 94% of the Company’s issued and outstanding
shares of common stock.
  78
  In June
2008, the Company approved a reverse stock split of 1 share for every 3.5 common
stock outstanding whereupon outstanding common stock and stock options were
adjusted to account for the effects of the reverse stock split.
  In July
2008, the Company changed its name from Liberty Alliance, Inc. to SinoHub, Inc.
and the Acquired Sub changed its name from SinoHub, Inc. to SinoHub
International, Inc.
  For
financial reporting purposes, the RTO has been accounted for as a
recapitalization of the Company whereby the historical financial statements and
operations of the Acquired Sub become the historical financial statements of the
Company, with no adjustment to the carrying value of assets and
liabilities.  Share and per share amounts reflect the effects of the
recapitalization and reverse stock split for all periods
presented.  In addition, the presentation for all periods includes
equity transactions of the Acquired Sub as adjusted for the effects of the
recapitalization and reverse stock split.
  Organization
Structure
  The
current operations of the Company include the following
subsidiaries:
  SinoHub
International, Inc. was incorporated in March 1999 as a Delaware C corporation
in the United States of America.  This company is the holding company
for the Chinese and Hong Kong subsidiaries listed below. SinoHub International,
Inc. is wholly owned by SinoHub, Inc.
  SinoHub
Electronics Shenzhen, Ltd. was incorporated in September 2000 in the
People’s Republic of China to provide one-stop SCM services for electronic
manufacturers and distributors in southern China.  SinoHub Electronics
Shenzhen, Ltd. is wholly owned by SinoHub International, Inc.
  SinoHub
SCM Shenzhen, Ltd. was incorporated in December 2001 in the PRC to hold an
import and export license in the PRC. SinoHub SCM Shenzhen, Ltd. purchases and
sells electronic component parts and provides Customs clearance services to our
customers. 100% of the equity interest in SinoHub SCM Shenzhen, Ltd. is held on
behalf of SinoHub by SinoHub Electronics Shenzhen, Ltd. through a Declaration of
Trust with SinoHub Electronics Shenzhen, Ltd. dated January 30, 2008. Through
this trust agreement, SinoHub Electronics Shenzhen, Ltd. owns 100% of the
beneficial interest in SinoHub SCM Shenzhen, Ltd. and accordingly, SinoHub SCM
Shenzhen Ltd is treated as a wholly-owned subsidiary of the Company for
accounting purposes.
  SinoHub
SCM Shanghai, Ltd. was incorporated in March 2005 in the PRC to provide one-stop
SCM services for electronic manufacturers and distributors in northern China.
SinoHub SCM Shanghai, Ltd. is wholly owned by SinoHub Electronics Shenzhen,
Ltd.
  SinoHub
Electronics Shanghai, Ltd. was incorporated in July 2005 in the PRC to provide
one-stop SCM services for electronic manufacturers and distributors in the PRC.
SinoHub Electronics Shanghai, Ltd. is wholly owned by SinoHub International,
Inc.
  79
  B2B
Chips, Limited was incorporated in June 2006 in Hong Kong to purchase and sell
electronic components. B2B Chips is wholly owned by SinoHub Electronics
Shenzhen, Ltd.
  SinoHub
Technology (Hong Kong) Limited was incorporated in May 2007 in Hong Kong and has
not yet commenced business. SinoHub Technology (Hong Kong) Limited is wholly
owned by B2B Chips.
  Principles
of Consolidation
  The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries.  All significant
intercompany accounts and transactions have been eliminated in
consolidation.
  Use
of Estimates
  The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
  Concentrations
and Risks
  Substantially
all of Company's assets are located in the PRC and Hong Kong and substantially
all of the Company's revenues were derived from customers located in the
PRC.  In addition, financial instruments that potentially subject the
Company to significant concentrations of credit risk consist primarily of
accounts receivable.  The Company mitigates credit risk through
procedures that include determination of credit limits, credit approvals, and
related monitoring procedures to ensure delinquent receivables are
collected.
  Cash
and Cash Equivalents
  For
purpose of the statements of cash flows, cash and cash equivalents include cash
on hand and demand deposits with a bank with a maturity of less than three
months.  Cash amounts held as security for the Company’s bank loans is
reported as restricted cash and is not included with cash or cash equivalents on
the balance sheet until the lien against such funds has been
released.
  Accounts
Receivable
  The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts.  An allowance for doubtful
accounts is established and recorded based on managements’ assessment of
customer credit history, overall trends in collections and write-offs, and
expected exposures based on facts and prior experience.
  Inventories
  Inventories
are stated at cost, cost being determined on a first in first out
method.  No allowance is made for excess or obsolete inventories as
inventories are held for a short period of time and are substantially related to
specific customer order commitments.  Inventory consists of electronic
components purchased from suppliers.
  80
  Property
and Equipment
  Property
and equipment are stated at cost, less accumulated
depreciation.  Expenditures for additions, major renewals and
betterments are capitalized and expenditures for maintenance and repairs are
charged to expense as incurred.  Depreciation is provided on a
straight-line basis, less estimated residual values over the assets’ estimated
useful lives.  The estimated useful lives are as follows:
  Plant
      and
      machinery
                          5
      YearsMotor
      vehicles
                          5
      YearsFurniture,
      fixtures and
      equipment
                          2
      to 5 Years
 Long-lived
assets held and used by the Company are reviewed for impairment whenever changes
in circumstances or events indicate that the carrying amount of an asset may not
be recoverable.  For purposes of evaluating the recoverability of
long-lived assets, the Company considers various factors, including future cash
flows, to determine whether the carrying amount exceeds fair value, and in that
case, the asset is written down to fair value.  The Company believes
that no impairment of property and equipment exists at December 31,
2008.
  Financial
Instruments
  The
Company analyzes all financial instruments that may have features of both
liabilities and equity under SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock.”  At present, there are no such
instruments in the financial statements.  The Company also analyzes
registration rights agreements associated with any equity instruments issued to
determine if penalties triggered for late filing should be accrued under FSP
EITF 00-19-2, “Accounting for Registration Payment Arrangements.”
  Fair
Value of Financial Instruments
  SFAS No.
107, "Disclosure About Fair Value of Financial Instruments," requires certain
disclosures regarding the fair value of financial instruments.  Fair
value of financial instruments is made at a specific point in time, based on
relevant information about financial markets and specific financial
instruments.  As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
values.
   The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses, bank borrowings, notes payable and other liabilities
approximate their fair values because of the short-term nature of these
instruments.  Management believes the Company is not exposed to
significant interest or credit risks arising from these financial
instruments.
  81
  The
Company’s operations are primarily based in the PRC, which may give rise to
significant foreign currency risks and opportunities from fluctuations and the
degree of volatility of foreign exchange rates between the United States dollar
(“USD”) and the Chinese Renminbi (“RMB”).In July 2005, the PRC
allowed the RMB to fluctuate within a narrow range ending its decade-old
valuation peg to the USD.  Since this change in 2005, the RMB has
experienced positive trends in valuation against the USD; such trends are
reflected in part by the foreign currency translation gains reported in the
Company’s financial statements.
  Derivative
Instruments
  The
Company does not utilize derivative or hedge instruments in its financing
activities.
  Stock-Based
Compensation
  The
Company adopted SFAS No. 123R, “Share-Based Payments.”  This
Statement requires a public entity to measure the cost of services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award.  That cost will be recognized over the period during
which services are received.  Stock compensation for stock granted to
non-employees has been determined in accordance with SFAS 123R and the Emerging
Issues Task Force consensus Issue No. 96-18, "Accounting for Equity Instruments
that are issued to Other than Employees for Acquiring, or in Conjunction with
Selling Goods or Services" ("EITF 96-18"), as the fair value of the
consideration received or the fair value of equity instruments issued, whichever
is more reliably measured.
  Revenue
Recognition
  The
Company reports revenue from supply chain management, or SCM, services and
electronic components sales. Revenues for supply chain management services are
earned from both the SCM and procurement-fulfillment programs and are primarily
based on a percentage of inventory value handled for a customer.  The
Company recognizes revenue from SCM services when the services are
provided.  Revenues from electronic components sales are based on
quoted prices and are recognized at the time of shipment to customers. Revenues
are recognized on the gross amount billed to customers.  Sales are
recorded net of discounts and allowances.  In all cases, revenue is
recognized when there is persuasive evidence of an arrangement, delivery has
occurred or services rendered, the sales price is determinable, and
collectability is reasonably assured.
  Income Taxes
  The
Company accounts for income taxes under the SFAS No. 109, “Accounting for Income
Taxes.”  Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.  Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment date.
  82
  Foreign
Currency Translation
  SinoHub,
Inc., SinoHub International, Inc., B2B Chips, Ltd., and SinoHub Technology Hong
Kong, Ltd. maintain accounting records using the functional currencies, USD and
Hong Kong Dollars (“HKD”) respectively.  SinoHub SCM Shenzhen, Ltd.,
SinoHub Electronics Shenzhen, Ltd., SinoHub SCM Shanghai, Ltd. and SinoHub
Electronics Shanghai, Ltd. maintain accounting records using RMB as the
functional currency.
  The
Company uses United State Dollar (“USD”) as its reporting
currency.  The Company accounts for foreign currency translation
pursuant to SFAS No. 52, “Foreign Currency Translation” (“SFAS No.
52”).  The subsidiaries of the Company’s functional currencies are the
Hong Kong Dollar (“HKD”) and Chinese Renminbi (“RMB”).  Under SFAS No.
52, all assets and liabilities are translated into United States dollars using
the current exchange rate at the balance sheet date.  The capital and
various reserves are translated at historical exchange rates prevailing at the
time of the transactions while income and expenses items are translated at the
average exchange rate for the period.  Translation adjustments are
included in other comprehensive income (loss) for the period.
  Foreign
currency transactions during the year are translated to their functional
currencies at the approximate rates of exchange on the dates of
transactions.  Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated to the reporting currency at
the approximate rates of exchange at that date.  Non-monetary assets
and liabilities are translated at the rates of exchange prevailing at the time
the asset or liability was acquired.  Exchange gains or losses are
recorded in the statement of operations.
  Comprehensive
Income
  The
foreign currency translation gain or loss resulting from the translation of the
financial statements expressed in HKD and RMB to USD is reported as other
comprehensive income in the statements of operations and stockholders’
equity.
  83
  Earnings
Per Share
  Earnings
per share in accordance with the provisions of SFAS No. 128, "Earnings Per
Share."  SFAS 128 requires presentation of basic and diluted earnings
per share in conjunction with the disclosure of the methodology used in
computing such earnings per share.  Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average common shares outstanding during the
period.  Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock using the treasury
method.
  Segments
  The
Company operates in one business segment.
  Recent
Accounting Pronouncements
  In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”).  SFAS 141R
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired.  SFAS 141R also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business
combination.  This statement is effective beginning January 1,
2009.  The Company does not expect the adoption of SFAS 141R to have a
material impact on its financial position and results of
operations.
  In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.”  This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require; the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income, changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently, when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners.  SFAS 160 affects those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary.  SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is
prohibited.  The adoption of this statement did not have a material
effect on the Company's financial statements.
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133.”  This statement is intended to improve transparency in
financial reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows.  SFAS 161 applies to
all derivative instruments within the scope of SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS 133) as well as related
hedged items, bifurcated derivatives, and nonderivative instruments that are
designated and qualify as hedging instruments.  Entities with
instruments subject to SFAS 161 must provide more robust qualitative disclosures
and expanded quantitative disclosures.  SFAS 161 is effective
prospectively for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
permitted.  The adoption of this statement did not have a material
effect on the Company’s financial statements.
  84
  In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that presented in conformity
with generally accepted accounting principles in the United States of
America.  SFA 162 will be effective 60 days following the SEC’s
approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.The
Company does not believe SFAS 162 will have a significant impact on the
Company’s financial statements.
  In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.”  The
scope of this Statement is limited to financial guarantee insurance and
reinsurance contracts, as described in the Statement, issued by enterprises
included within the scope of Statement 60.  Accordingly, this
Statement does not apply to financial guarantee contracts issued by enterprises
excluded from the scope of Statement 60 or to some insurance contracts that seem
similar to financial guarantee insurance contracts issued by insurance
enterprises (such as mortgage guaranty insurance or credit insurance on trade
receivables).  This Statement also does not apply to financial
guarantee contracts that are derivative instruments included within the scope of
SFAS No. 133, “Accounting for Derivative instruments and Hedging
Activities.”  SFAS 163 is effective prospectively for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years; disclosure requirements in paragraphs
30(g) and 31 are effective for the first period (including interim periods)
beginning after May 23, 2008. The adoption of this statement is not expected to
have a material effect on the Company’s financial statements.
  In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”, to clarify
guidance on determining the fair value of a financial asset under SFAS 157 in a
market that is not active.  FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements had not been
issued.  The adoption of this statement effective September 30, 2008
did not have a material impact on the Company’s financial
statements.
  2.    ACCOUNTS
RECEIVABLE
 
 Accounts
receivable at December 31, 2008 and 2007 consisted of the
following:
 
 2008
                                        
                                        
                                        2007Accounts
      receivable
                                        
                                        $
                                        23,519,000
                                        
                                        
                                        $
                                        9,748,000Less:
      allowance for doubtful accounts
                                        
                                        
                                        1,237,000
                                        
                                        
                                        
                                        -Accounts
      receivable, net of allowance
                                        
                                        $
                                        22,282,000
                                        
                                        
                                        $
                                        9,748,000
  
 85
  As of
December 31, 2008 and 2007, the Company recorded an allowance for doubtful
accounts of $1,237,000 and $Nil respectively.
  3.            PREPAID
EXPENSES AND OTHER
  Prepaid
expenses and other current assets at December 31, 2008 and 2007 consisted of the
following:
   2008
                                        
                                        
                                        2007Prepaid
      expenses
                                        
                                        $
                                        277,000
                                        
                                        
                                        $
                                        200,000Other
      receivables
                                        
                                        
                                        93,000
                                        
                                        
                                        
                                        226,000$
                                        370,000
                                        
                                        
                                        $
                                        426,000
 
  4.           PROPERTY
AND EQUIPMENT
  The
following is a summary of property and equipment at December 31, 2008 and
2007:
  2008
                                            
                                            
                                            2007Furniture,
      fixtures and equipment
                                            
                                            $
                                            1,333,000
                                            
                                            
                                            $
                                            1,084,000Plant
      and machinery
                                            
                                            
                                            767,000
                                            
                                            
                                            
                                            719,000Motor
      vehicles
                                            
                                            
                                            288,000
                                            
                                            
                                            
                                            251,0002,388,000
                                            
                                            
                                            
                                            2,054,000Less:  accumulated
      depreciation
                                            
                                            
                                            (1,685,000
                                            )
                                            
                                            
                                            (1,208,000
                                            )Property
      and equipment, net
                                            
                                            $
                                            703,000
                                            
                                            
                                            $
                                            846,000
 
  Depreciation
expenses for the years ended December 31, 2008 and 2007 were $389,000 and
$383,000, respectively.  During 2008 the Company recognized a loss on
disposal of property and equipment of $5,000.
  86
  5.           ACCRUED
EXPENSES AND OTHER
  Accrued
expenses and other liabilities at December 31, 2008 and 2007 and consisted of
the following:
  2008
                                
                                
                                2007Accrued
      expenses
                                
                                $
                                163,000
                                
                                
                                $
                                156,000Other
      liabilities
                                
                                
                                71,000
                                
                                
                                
                                151,000$
                                234,000
                                
                                
                                $
                                307,000
 
  6.           BANK
BORROWINGS AND FINANCING ARRANGEMENTS
  The
Company has secured financing facilities (RMB based) with certain PRC banks to
support its business operations. The facilities with each bank
include:
  -
              Letter
      of credit facility with one bank in the amount of $3,200,000 to support
      its component sales business.  Restricted cash balances are
      required as security for draws against the facility and an annual
      commitment fee of 0.1% is assessed.  In addition, the bank
      requires a third party guarantor. The third-party guarantor required the
      Company to pay it a fee of $80,000 for providing its guaranty. The
      facility renews each year and is available through August 2009. The
      Company also has a $1,460,000 Customs duty import facility and a
      $2,200,000 Customs export refund facility through this bank to support
      short term duty collections for its component sales
      business.  These facilities renew each year and are available
      through February 2010.
 
  -
              Letter
      of credit facility with another bank in the amount of $3,400,000 to
      support its component sales business. Restricted cash balances are
      required as security for draws against the facility and an annual
      commitment fee of 0.1% is assessed.  In addition, the bank
      requires a third party guarantor.    The third-party
      guarantor required the Company to pay it a fee of $70,000 for providing
      its guaranty. The facility was terminated in December
      2008.
 
  -
              Letter
      of credit facility with another bank in the amount of $4,400,000 to
      support its component sales business. Restricted cash balances are
      required as security for draws against the facility and the bank requires
      guarantors from a subsidiary and shareholders and lien on a PRC property
      owned by a director. In addition, the
      bank requires a third party guarantor.  The third-party
      guarantor required the Company to pay it a fee of $72,000 for providing
      its guaranty. The facility is available through September,
      2009.
 
 Borrowings
      against these facilities at December 31, 2008 and 2007 were as
      follows:
  87
  2008
                                                            
                                                            
                                                            2007Note
      payable to a bank, interes t rate of 7.128%per
      annum, due M arch 2008
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            273,444Note
      payable to a bank, interes t rate of 7.128%per
      annum, due February 2008
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            205,083Note
      payable to a bank, interes t rate of 7.128%per
      annum, due January 2008
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            205,083Note
      payable to a bank, interes t rate of 7%per
      annum, due September 2008
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            502,854Note
      payable to a bank, interes t rate of 7%per
      annum, due September 2008
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            513,771Note
      payable to a bank, interes t rate of 3.06%per
      annum, due June 2008
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            3,059,447Note
      payable to a bank, interes t rate of 3.33%per
      annum, due July 2008
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,144,748Note
      payable to a bank, interes t rate of 6.19%per
      annum, due February 2009
                                                            
                                                            
                                                            954,000
                                                            
                                                            
                                                            
                                                            -Note
      payable to a bank, interes t rate of 6.83%per
      annum, due M arch 2009
                                                            
                                                            
                                                            730,000
                                                            
                                                            
                                                            
                                                            -Note
      payable to a bank, interes t rate of 5.54%per
      annum, due M arch 2009
                                                            
                                                            
                                                            162,000
                                                            
                                                            
                                                            
                                                            -Note
      payable to a bank, interes t rate of 5.54%per
      annum, due January 2009
                                                            
                                                            
                                                            121,000Note
      payable to a bank, interes t rate of 5.54%per
      annum, due January 2009
                                                            
                                                            
                                                            156,000
                                                            
                                                            
                                                            
                                                            -2,123,000
                                                            
                                                            
                                                            
                                                            6,904,430Less
      : current maturities
                                                            
                                                            
                                                            2,123,000
                                                            
                                                            
                                                            
                                                            6,904,430Long
      -term portion
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
  Interest
expense paid for the years ended December 31, 2008 and 2007 was $251,000 and
$111,000 respectively.
  7.           NOTES
PAYABLE TO THIRD PARTIES
  Notes
payable to third parties are due on demand or normally within one
year.  During 2008, all notes payable were fully repaid and as of
December 31, 2008, no amounts were outstanding.
  8.           COMMITMENTS
AND CONTINGENCIES
  Employee
Benefits
  The full
time employees of subsidiaries based in the PRC are entitled to employee
benefits including medical care, welfare subsidies, unemployment insurance and
pension benefits through a Chinese government mandated multi-employer defined
contribution plan.  The Company is required to accrue for those
benefits based on certain percentages of the employees’ salaries and make
contributions to the plans out of the amounts accrued for medical and pension
benefits.  The total provision and contributions made for such
employee benefits for the years ended December 31, 2008 and 2007 were $90,000
and $75,000 respectively.  The Chinese government is responsible for
the medical benefits and the pension liability to be paid to these
employees.
  88
  Commitments
  The
Company leases warehouse and office spaces from third parties under operating
leases which expire at various dates from May 2010 through July
2013.  Rent expense for the years ended December 31, 2008 and 2007 was
$373,000 and $151,000 respectively.  At December 31, 2008, the Company
has outstanding commitments with respect to operating leases, which are due as
follows:
  2009
                                      
                                      $
                                      405,0002010
                                      
                                      
                                      400,0002011
                                      
                                      
                                      266,0002012
                                      
                                      
                                      153,0002013
                                      
                                      
                                      89,000$
                                      1,313,000
 
  Contingencies
  The
Company accounts for loss contingencies in accordance with SFAS 5,“Accounting for Loss
Contingencies” and other related guidelines. Set forth below is a
description of certain loss contingencies as of December 31, 2008 and
management’s opinion as to the likelihood of loss in respect of loss
contingency.
  Pursuant
to the Securities Purchase Agreement entered into between the Company and a
group of accredited investors (“Securities Purchase Agreement”) on September 10,
2008, the Company was obligated to make efforts to file a registration statement
with the SEC for the registration of 6,609, 789 shares of Common Stock offered
by selling stockholders to be declared effective by the Securities and Exchange
Commission on or before January 9, 2009. The Company has received an extension
of this date to February 20, 2009 from the accredited investors.  If
the Company does not timely file the registration statement or cause it to be
declared effective by the required dates, then each selling shareholder will be
entitled to liquidated damages, payable in cash or Common Stock, at the
Company’s option, equal to 1% of the aggregate purchase price paid by such
selling shareholder for the securities, amounting to approximately $75,000 in
the aggregate, and an additional 1% for each month that the Company does not
file the registration statement or cause it to be declared effective. As
provided by such extension, if the Company does not cause the registration
statement to be declared effective by May 12, 2009, the liquidated damages will
be calculated as if the deadline for effectiveness were January 9, 2009, the
original deadline under the Registration Rights Agreement. Notwithstanding the
foregoing, in no event shall liquidated damages exceed 10% of the aggregate
gross proceeds of the offering to the selling shareholders, or total liquidated
damages of about $750,000.
  89
  On
February 19, 2009, the Company entered into a Second Waiver and General Release
Agreement (the “Waiver”) with respect to the Registration Rights Agreement (the
“Registration Rights Agreement”), dated September 10, 2008, among the Company
and the investors identified therein.   The Second Waiver
extended until May 12, 2009 the deadline to get the registration statement
accepted by the SEC, provided that if the Company does not cause the
registration statement to be declared effective by May 12, 2009, the liquidated
damages will be calculated as if the deadline for effectiveness were January 9,
2009, the original deadline under the Registration Rights Agreement.
Accordingly, no provision has been made by the Company to the above liquidated
damages as of December 31, 2008.
  9.           EARNINGS
PER SHARE
  The
elements for calculation of earnings per share for the years ended December 31,
2008 and 2007 were as follows:
  Years
      ended December 31,2008
                                                  
                                                  
                                                  2007Net
      income for basic and diluted earnings per share
                                                  
                                                  $
                                                  8,483,000
                                                  
                                                  
                                                  $
                                                  3,501,000Weighted
      average shares used in basic computation
                                                  
                                                  
                                                  20,925,000
                                                  
                                                  
                                                  
                                                  15,797,000Effect
      of dilutive stock options and warrants
                                                  
                                                  
                                                  535,000
                                                  
                                                  
                                                  
                                                  132,000Weighted
      average shares used in diluted computation
                                                  
                                                  
                                                  21,460,000
                                                  
                                                  
                                                  
                                                  15,929,000Earnings
      per share:Basic
                                                  
                                                  $
                                                  0.41
                                                  
                                                  
                                                  $
                                                  0.22Diluted
                                                  
                                                  $
                                                  0.40
                                                  
                                                  
                                                  $
                                                  0.22
 
 90
  10.           STOCKHOLDERS’
EQUITY
  Merger and Reverse Stock
Split
  The
company’s reverse merger transaction has been accounted for as a
recapitalization of the Company whereby the historical financial statements and
operations of the Acquired Sub become the historical financial statements of the
Company, with no adjustment of the carrying value of the assets and
liabilities. In connection with the reverse merger, the
principal stockholder of Liberty Alliance, Inc. contributed 5,203,907 shares of
common stock (adjusted for reverse stock split) held by him back to the Company
for nil consideration. Following the reverse merger,Liberty Alliance,
Inc. issued to the stockholders of the Acquired Sub 18,290,000 shares (as
adjusted for one for 3.5 reverse stock split) of the Company’s common stock in
exchange for all the outstanding shares of the Acquired Sub’s common stock
comprising 10,282,288 shares of common stock and 6,933,334 shares of Acquired
Sub’s preferred stock, of which 3,000,000 were designated Series A Convertible
Preferred Stock (convertible into 3,000,000 shares of Acquired Sub’s common
stock), 2,333,334 shares were designated Series B Convertible Preferred Stock
(convertible into 2,333,334 shares of Acquired Sub’s common stock), and
1,600,000 shares were designated Series C Convertible Preferred Stock
(convertible into 1,600,000 shares of Acquired Sub’s common
stock).  The Company also assumed options outstanding exercisable for
additional 489,451 shares (as adjusted for reverse stock split) shares of common
stock.  At the closing, Liberty Alliance, Inc. also issued 510,000
shares (as adjusted for reverse stock split) of the Company’s common stock to
certain consultants for services rendered in connection with the Merger.
Immediately following the merger, the Company had 20,000,000 shares of common
stock outstanding and options exercisable for an additional 489,451 shares
(as adjusted for reverse stock split) of common stock.
  The
financial statements have been prepared as if the reverse merger transaction had
occurred retroactively at the beginning of the periods presented. Share and per
share amounts reflect the effects of the recapitalization and reverse stock
split for all periods presented. Accordingly, all of the outstanding shares
of the Acquired Sub’s common stock and preferred stock at the completion date of
the reverse merger transaction have been exchanged and converted to 18,290,000
shares (as adjusted for reverse stock split) of the Company’s common stock for
all periods presented. In addition, the presentation for all periods
includes equity share transactions of the Acquired Sub as adjusted for the
effects of the recapitalization and reverse stock split.  All costs
associated with the transaction were expensed as incurred.
  Equity
Share Transactions
  In May
2007, the Company issued 956,166 shares to an officer of the Company. The shares
were valued at the market price on the date of issuance, at fair value of
$109,000.
  In March
2007, the Company issued 371,842 shares to the spouse of the Company’s current
CEO at fair value of $43,000 for agreeing to let the Company use the condominium
in which she holds 50% ownership as collateral for a bank loan.
  In
November 2007, the Company issued 69,057 shares to third parties for consulting
services at fair value of $8,000.
  In a
series of related equity share transactions in November and December 2007, the
Company issued to investors 1,699,852 shares for total cash proceeds of
$1,330,000.
  In
December 2007, warrants granted in 2004 for the purchase of 106,241 shares were
exercised for total cash proceeds of $17,000.
  In
November 2006, warrants to purchase 148,537 shares of common stock were issued
for services. The warrants were determined to have a market value of $9,000
using the Black-Scholes option pricing model with a market value per share of
common stock of $0.0677, an exercise period of two years, and a volatility of
175%.  The warrants were exercised in December 2007 for cash proceeds
of $17,000.
  In
January 2007, warrants to purchase 130,451 shares of common stock were issued
for services. The warrants were determined to have a market value of $9,000
using the Black-Scholes option pricing model with a market value per share of
common stock of $0.0765, an exercise period of two years and a volatility of
175%.  The warrants were exercised in December 2007 for cash proceeds
of $15,000.
  91
  In
September 2008, the Company entered into and closed a Securities Purchase
Agreement with certain accredited investors in a private offering for shares of
common stock and warrants to purchase common stock.  The Company issued
4,406,533 shares of common stock, three-year warrants to purchase 1,101,633
shares of common stock at an exercise price of $2.15 per share, and five-year
warrants to purchase 1,101,633 shares of common stock at $3.00 per share in
return for gross proceeds of approximately $7.5 million in
cash.  During the third quarter of 2008, net offering proceeds of
approximately $6.5 million were recorded as an addition to stockholders’ equity,
after deducting offering and related closing costs of the transaction.  The
Company also issued warrants to the placement agent in connection with services
for the private offering.  These included three-year warrants to
purchase 154,228 shares of common stock at an exercise price of $2.15 per share,
and five-year warrants to purchase 154,229 shares of common stock at $3.00 per
share.
  In
October 2008, the Company issued 22,200 shares for services to employees at fair
value of $50,000.
  Appropriated
Retained Earnings
  The
Company’s PRC subsidiaries are required to make appropriations to reserve funds,
comprising the statutory surplus reserve, statutory public welfare fund and
discretionary surplus reserve, based on the after-tax net income determined in
accordance with the laws and regulations of the PRC.  Prior to January
1, 2006 the appropriation to the statutory surplus reserve should be at least
10% of the after tax net income determined in accordance with the laws and
regulations of the PRC until the reserve is equal to 50% of the entities’
registered capital.  Appropriations to the statutory public welfare
fund are at 5% to 10% of the after tax net income determined by the Board of
Directors.  Effective January 1, 2006, the Company is only required to
contribute to one statutory reserve fund at 10% of net income after tax per
annum, such contributions not to exceed 50% of the respective companies’
registered capital.
  The
statutory reserve funds are restricted for use to set off against prior period
losses, expansion of production and operation or for the increase in the
registered capital of the Company.  The statutory public welfare fund
is restricted for use in capital expenditures for the collective welfare of
employees.  These reserves are not transferable to the Company in the
form of cash dividends, loans or advances.  These reserves are
therefore not available for distribution except in liquidation. During 2008 and
2007, the Company appropriated $368,000 and $343,000 to the reserves funds based
on its net income in accordance with the laws and regulations of the
PRC.
  11.          STOCK
OPTIONS
  The
Company granted qualified stock options under the Company’s 2000 Incentive Stock
Option Plan (the “2000 ISOP”) and 2008 Incentive Stock Option Plan (the “2008
ISOP”). At December 31, 2008, stock options to purchase 660,175 shares of common
stock at an exercise price ranging from $0.09 to $2.48 per share were
outstanding. The exercise prices were determined by the Board at the time of
grant.  In each case the exercise price was not less than the fair
market value of the common stock as determined by the Board in good faith taking
into account such factors as recent issuances of preferred stock with an
appropriate discount factored in relative to the common shares.  The
exercise prices  for options issued under the 2000 ISOP following the
sale of preferred stock by the Company during November and December of 2007
represent a discount to the issuance price of $0.78 for such preferred stock
taking into account the added value of the conditions in the preferred stock
(for example, it was redeemable with 10% appreciation). The exercise prices for
options issued under the 2008 ISOP represent the closing price of the Company’s
common stock on the business day preceding the grant date.  The stock
options granted become exercisable (“vested”) as to 25% of the original number
of shares on the first anniversary of the grant date and as to an additional
6.25% of the original number of shares at the end of each successive three-month
period following the first anniversary of the grant date until the fourth
anniversary of the grant date. Unless earlier terminated, these stock options
granted shall expire ten years after the grant date.  Following the
reverse merger, all preferred stock which were convertible on the basis of one
share of preferred stock for one share of common stock issued were exchanged for
common stock of Liberty Alliance, Inc. retroactively adjusted for all periods
presented.
  92
  The fair
value of stock options granted was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
  Expected
                                Expected
                                Dividend
                                Risk
      Free
                                Grant
      DateLife
                                Volatility
                                Yield
                                Interest
      Rate
                                Fair
      ValueThe
      2000 ISOP5
      years
                                175%
                                0%
                                2.5%
                                $0.09
      - $0.19The
      2008 ISOP1
      year
                                121%
                                0%
                                2.5%
                                $0.47
 
  Expected
Volatility: Expected volatility is computed based on the standard deviation
of the continuously compounded rate of return of days when the stock price
changed over the past five years.
  Dividend
Yield: The expected dividend yield is zero.  The Company has not paid
a dividend and does not anticipate paying dividends in the foreseeable
future.
  Risk Free
Rate: Risk-free interest rate of 2.5% was used.  The risk-free
interest rate was based on U.S. Treasury yields with a remaining term that
corresponded to the expected term of the option calculated on the granted
date.
  Expected
Life:  Because the Company has no historical share option exercise
experience to estimate future exercise patterns, the expected life was
determined using the simplified method as these awards meet the definition of
"plain-vanilla" options under the rules prescribed by Staff Accounting Bulletin
No. 107.
  Stock
compensation expense was recognized based on awards expected to
vest.  There was no estimated forfeiture as the Company has a short
history of issuing options. SFAS No. 123R requires forfeiture to be estimated at
the time of grant and revised in subsequent periods, if necessary, if actual
forfeitures differ from those estimates.
  93
  The
Company granted 252,524 and 424,431 stock options during 2008 and 2007 with a
total fair value of approximately $299,000. The Company recognized $50,000 and
$6,000 in stock compensation expense for the years ended December 31, 2008 and
2007, respectively. At December 31, 2008, unamortized compensation cost related
to stock options was $238,000.
  The
following is a summary of the stock options activity:
  
  Number
      of
                  Options
                  Outstanding
                
                
                Weighted-
                  Average
                  Exercise
                  PriceBalance
      at December 31, 2006
                
                
                150,436
                
                
                $
                0.09Granted
                
                
                424,431
                
                
                $
                0.19Forfeited
                
                
                (61,711
                )
                
                
                -Exercised
                
                
                (10,957
                )
                
                $
                0.09Balance
      at December 31, 2007
                
                
                502,199
                
                
                $
                0.17Granted
                
                
                252,524
                
                
                $
                1.03Forfeited
                
                
                (23,382
                )
                
                
                -Exercised
                
                
                (71,166
                )
                
                $
                0.11Balance
      at December 31, 2008
                
                
                660,175
                
                
                $
                0.50
 
  The
following is a summary of the status of options outstanding at December 31,
2008:
  Outstanding
      Options
              
              Exercisable
      OptionsExercise
      Price
              
              Number
              
              Average
                Remaining
                Contractual
                Life
              
              Average
                Exercise
                Price
              
              Number
              
              Weighted
                Average
                Exercise
      Price$0.09
              
              45,950
              
              6.7 years
              
              $0.09
              
              37,334
              
              $0.09$0.12
              
              94,086
              
              8.3 years
              
              $0.12
              
              41,163
              
              $0.12$0.19
              
              267,615
              
              9.0 years
              
              $0.19
              
              66,904
              
              $0.19$1.02
              
              250,000
              
              9.8 years
              
              $1.02
              
              0
              
              $1.02$2.48
              
              2,524
              
              10.0
      years
              
              $2.48
              
              0
              
              $2.48Total
              
              660,175
              
              
              
              
              
              145,401
              
              $0.14
 
 94
  In 2001,
the Company granted a director 53,120 non-qualified stock options with an
exercise price of $0.05 per share. These options were exercised in 2007. In
addition, in 2005 the Company granted a former director 53,120 non-qualified
stock options with an exercise price of $0.10 per share. In 2007, the former
director exercised 36,520 options.  Previously recognized and accrued
stock option expense was credited to additional paid in capital upon exercise of
these options.
  12.           RELATED
PARTY TRANSACTIONS
  On
January 17, 2007, a director purchased a one year 7.69% Note from SinoHub, Inc.
in the amount of RMB 1,658,000 (approximately $213,000) which was repayable on
demand. This Note was repaid by SinoHub on March 20, 2007. Interest expense paid
on this Note for the year ended December 31, 2007 was $3,500.
  On March
20, 2007, SinoHub issued 371,842 shares of its common stock to the spouse of a
director for agreeing to let SinoHub use the condominium in which she holds 50%
ownership (the director owns the remaining 50%) as collateral for a bank loan.
  The shares were valued at $43,000.
  On
January 17, 2008, SinoHub’s subsidiary SinoHub Electronics Shenzhen, Ltd.
acquired beneficial ownership of SinoHub SCM Shanghai, Ltd.  from Sai
Lin Xu with the shares of SinoHub SCM Shanghai, Ltd. being held for the benefit
of SinoHub Electronics Shenzhen, Ltd. by a trustee pursuant to a Declaration of
Trust   In accordance with the terms of the Declaration of
Trust, no material monetary payment was associated with this acquisition because
through the Declaration of Trust, SinoHub Electronics Shenzhen had borne all
costs.  The trustee was the mother-in-law of a director of the
Company.
  On April
10, 2008, B2B Chips acquired SinoHub Technology (Hong Kong) from two directors
of the Company for HKD 10,000 ($1,290), which represented the initial capital
contributions in the company.   SinoHub Technology never
conducted any business and its sole asset at all times was a Hong Kong bank
account holding the balance of the capital contributions.
  In May
2008, Liberty Alliance, Inc., SinoHub Acquisition Corp., known as the Merger
Sub, SinoHub, Inc., known as the Acquired Sub, and Steven L. White, the
principal stockholder of Liberty Alliance, Inc., entered into an Agreement and
Plan of Merger pursuant to which the Merger Sub agreed to merge with and into
the Acquired Sub, with the Acquired Sub being the surviving corporation. In
connection with the merger, Liberty Alliance, Inc. issued to the stockholders of
the Acquired Sub 18,290,000 shares (as adjusted for reverse stock split) of the
Company’s common stock in exchange for all the outstanding shares of the
Acquired Sub’s preferred and common stock and the Company assumed options
exercisable for an additional 489,451 shares (as adjusted for reverse stock
split) of common stock. In connection with the Company’s reverse merger, Steve
White, the controlling shareholder of the company while it was a dormant shell
and its sole director, surrendered 5,203,907 shares of common stock of Liberty
Alliance, Inc.  (as adjusted for reverse stock split) and was granted
piggyback registration rights with respect to the remaining 196,093 shares he
owned. Mr. White also executed a lock-up agreement with the Company that expires
on May 14, 2009.
  95
  The
Company distributed electronic components to and resold electronic products
purchased from a company owned jointly by the Chairman and the President of the
Company.  In addition, the related company provided certain
warehousing and logistics services to the Company during the development of its
Hong Kong operation.  During the year of 2008 and 2007, the Company
sold goods totaling approximately $1.5 million and $1.2 million to the related
company and purchased goods totaling approximately $3,000,000 and $504,000 from
the related company.  The Company paid no service fees to the related
company in 2008 and paid service fees totaling $197,000 in
2007.  During 2008, the Company received rental income of $154,000 for
the lease of warehouse space to the related company. At December 31, 2007, the
related company owed the Company $1,493,000, which was interest free and
repayable on demand.  At December 31, 2008, there was no amount
outstanding between the Company and the related company.
  A PRC
property owned by a director and his spouse is pledged to a bank to secure
banking facilities for the Company.
  A
director and his spouse provided guarantees to a bank for banking facilities
extended to the Company.
  During
2007, the Company repaid $203,000 due to a director.
  13.           INCOME
TAXES
  The
Company and its subsidiaries are subject to income taxes on an “entity” basis
that is, on income arising in or derived from the tax jurisdiction in which each
entity is domiciled.  It is management's intention to reinvest all the
income earned by the Company’s subsidiaries outside of the
US.  Accordingly, no US federal income taxes have been provided on
earnings of foreign based subsidiaries.
  The
Company and its wholly owned subsidiary, SinoHub International, Inc. are
incorporated in the United States and have incurred operating losses since
inception.  The Company has operating loss carry forwards (NOLs) for
income taxes purposes of approximately $881,000 at December 31, 2008 which may
be available to reduce future years’ taxable income.  These NOLs will
expire, if not utilized, commencing in 2028.  Management believes the
realization of tax benefits from these NOLs is uncertain due to the Company’s
current operating history and continuing losses in the US for tax
purposes.  Accordingly, a full deferred tax asset valuation allowance
has been provided and no deferred tax benefit has been recorded.
  The
Company’s subsidiaries in Hong Kong are subject to Hong Kong profits tax at a
statutory rate of 17.5%.  No provision for Hong Kong profits tax was
required as these entities incurred losses during 2008 and
2007.  There are no tax loss carry forward provisions in Hong
Kong.
  96
  The
Company’s subsidiaries in China were subject to China income tax at a statutory
rate of 25% in 2008 and 33% in 2007.  However, these subsidiaries are
located in special economic regions and/or qualify as “new or high-technology
enterprises” that are allowed special tax reductions until 2012. The Company’s
subsidiaries in China was subject to special tax rate was 18% and 15% in 2008
and 2007 respectively.
  Income
tax expense for 2008 and 2007 is summarized as follows:
  
  2008
                            
                            
                            2007Current
                            
                            $
                            2,151,000
                            
                            
                            $
                            509,000Deferred
                            
                            
                            -
                            
                            
                            
                            -$
                            2,151,000
                            
                            
                            $
                            509,000
   The
reconciliation of income taxes computed at the statutory income tax rates to
total income taxes for the years ended December 31, 2008 and 2007 is as
follows:
  
  2008
                        
                        
                        
                        
                        
                        2007Income
      before income taxes
                        
                        $
                        10,634,000
                        
                        
                        
                        100.0
                        %
                        
                        $
                        4,010,000
                        
                        
                        
                        100.0
                        %China
      income taxes at statutory rate
                        
                        $
                        2,658,500
                        
                        
                        
                        25.0
                        %
                        
                        $
                        1,323,000
                        
                        
                        
                        33.0
                        %China
      qualified income tax exemptions
                        
                        
                        (507,500
                        )
                        
                        
                        (5
                        %)
                        
                        
                        (815,000
                        )
                        
                        
                        (20.3
                        %)Income
      tax expense
                        
                        $
                        2,151,000
                        
                        
                        
                        20.0
                        %
                        
                        $
                        509,000
                        
                        
                        
                        12.7
                        %
 
 97
  14.           CONCENTRATIONS
AND RISKS
 
  During
2008 and 2007, 99% of the Company’s assets were located in China.
 
 During
2008, 13% of revenues were derived from oversea sales.
 
  Major
customer and sales to this customer as a percentage of total sales were as
follows:
  
  Customer
      A
                                  
                                  
                                  Customer
      BFor
      the year endedDecember
      31, 2008
                                  
                                  
                                  12
                                  %
                                  
                                  
                                  10
                                  %December
      31, 2007
                                  
                                  
                                  10
                                  %
                                  
                                  
                                  -
 
  At of
December 31, 2008 and 2007, accounts receivable to this customer was $5,508,000
and Nil respectively.
 
  Major
suppliers and purchases from those suppliers as a percentage of total purchases
were as follows:
  
  Vendor
      A
                      
                      
                      Vendor
      B
                      
                      
                      Vendor
      CFor
      the year endedDecember
      31, 2008
                      
                      
                      6%
                      
                      
                      
                      5%
                      
                      
                      
                      3%December
      31, 2007
                      
                      
                      13%
                      
                      
                      
                      11%
                      
                      
                      
                      13%
 
  At of
December 31, 2008 and 2007, accounts payable from those vendors were
Nil.
 
  15.           SUBSEQUENT
EVENT
 
  On
February 19, 2009, the Company entered into a Second Waiver and General Release
Agreement (the “Waiver”) with respect to the Registration Rights Agreement (the
“Registration Rights Agreement”), dated September 10, 2008, among the Company
and the investors identified therein.   The Waiver extended until
May 12, 2009 the deadline by which the registration statement that was filed by
the Company pursuant to the Registration Rights Agreement must become effective
before the Company is required to pay to the investors liquidated damages,
payable in cash or Common Stock, at the Company’s option, equal to 1% of the
aggregate purchase price paid by the investors for the securities purchased in
the private placement in connection with which the Registration Rights Agreement
was executed, and an additional 1% for each month that the Company does not
cause it to be declared effective, with maximum liquidated damages of 10% of the
aggregate gross proceeds of the Offering.  If the Company does not
cause the registration statement to be declared effective by May 12, 2009, the
liquidated damages will be calculated as if the deadline for effectiveness were
January 9, 2009, the original deadline under the Registration Rights
Agreement.  A prior Waiver and General Release dated December 30, 2008
had extended the January 9, 2009 deadline to February 20, 2009.
  98