UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q/A


(Amendment No. 1)








x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2010ORo
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from ________________ to ________________





Commission file number:  001- 34430


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)





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





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


Yes  o           No  o (the Registrant is not yet required to submit Interactive Data)





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(Do not check if a smaller reporting company)


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





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 July 31, 2010Common Stock, $0.001 par value per share

28,557,632 shares








1




SINOHUB, INC.


FORM 10-Q/A





TABLE OF CONTENTS







PART I - FINANCIAL INFORMATION
5Item 1. Financial Statements
5Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
28Item 3. Quantitative and Qualitative Disclosures About Market Risk
31Item 4T. Controls and Procedures
31PART II - OTHER INFORMATION
32Item 1. Legal Proceedings
32Item 1A. Risk Factors
32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
33Item 3. Defaults Upon Senior Securities
33Item 4. (Removed and Reserved)
33Item 5. Other Information
33Item 6. Exhibits
34SIGNATURES
35





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.




2




EXPLANATORY NOTE




We are filing this Amended Quarterly Report on Form 10-Q/A (the “Amended Filing” or “Form 10-Q/A Amendment No. 1”) to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010 (the “Original Filing”) to amend and restate our financial statements and related disclosures for the fiscal quarter ended June 30, 2010 as discussed in Note 2 to the accompanying restated financial statements.




1.           Background of the Restatement




On May 12, 2011, the Company concluded, based on the recommendation of management, that the previously issued financial statements for the year ended December 31, 2010 included in the Company’s originally filed Form 10-K, and each of the quarterly periods from March 31, 2010 through September 30, 2010 included in the Company’s quarterly reports on Forms 10-Q (collectively, the “Affected Periods”) are no longer reliable because they failed to incorporate non-cash charges resulting from required adjustments to certain outstanding warrants (the “Warrants”).




An explanation of the errors and their impact on the Company’s financial statements is contained in Note 2 to the financial statements of this report.  The following is a brief summary of the accounting errors:




(a)
The Company adopted the FASB Emerging Issues Task Force’s Issue No 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s own Stock” (“EITF 07-5”), now codified in ASC 815-40, as of January 1, 2009. EITF 07-5 provides guidance as to assessing equity versus liability treatment and classification for equity-linked financial instruments, including stock purchase warrants.  Upon the adoption of EITF 07-5, the Company did not properly assess the impact of certain anti-dilution provisions that existed in certain then-outstanding stock purchase warrants issued in a private placement in 2008 requiring an adjustment to the exercise price of the warrants in the event the Company issues common stock, or securities convertible into or exercisable for common stock, at a price per share lower than such exercise price, resulting in equity (versus liability) treatment and classification of such warrants.  Because the reset provision contained in these warrants, expired on September 10, 2009, no change in the Company’s historical financial statements is required with respect to these warrants, and the Company has not restated its historical financial statements to reclassify these warrants as liabilities.(b)
In 2010, the Company did not properly assess the impacts of certain non-standard anti-dilution provisions that existed in stock purchase warrants issued in a March 2010 offering requiring an adjustment to the exercise price of the warrants in the event the Company issues common stock, or securities convertible into or exercisable for common stock, at a price per share lower than such exercise price, resulting in equity (versus liability) treatment and classification for the warrants.




2.           Restatement of Other Financial Statements




In addition to the filing of this Form 10-Q/A Amendment No. 1, we are filing amendments to our Quarterly Reports on Form 10-Q/A for the quarterly periods ended March 31 and September 30, 2010 to restate our unaudited financial statements and related financial information for the periods contained in those reports.  On May 24, 2011 we filed an amendment to our Annual Report on Form 10-K to restate our financial statements for the fiscal year ended December 31, 2010.




3




3.           Internal Control Considerations




Management determined that there was a control deficiency in its internal control that constitutes a significant deficiency, as discussed in Part I — Item 4T of the Amended Filing.  A material weakness in internal control over financial reporting is defined in Section 210.1-02(4) of Regulation S-X as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company's financial reporting.  For a discussion of management’s consideration of the Company’s disclosure controls and procedures and the significant deficiency identified, see Part I — Item 4T included in this Amended Filing.




For the convenience of the reader, this Amended Filing sets forth the Original Filing as modified and superseded where necessary to reflect the restatement. The following items have been amended principally as a result of, and to reflect, the restatement:




•
Part I — Item 1.  Financial Statements;•
Part I — Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations; and•
Part I — Item 4T.  Controls and Procedures.




In accordance with applicable SEC rules, this Amended Filing includes certifications from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.




Except for the items noted above, no other information included in the Original Filings is being amended by this Amended Filing.  The Amended Filing continues to speak as of the date of the Original Filing and we have not updated the filing to reflect events occurring subsequently to the Original Filing date other than those associated with the restatement of the Company’s financial statements.  Accordingly, this Amended Filing should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing.




4




PART I - FINANCIAL INFORMATION








Item 1.  Financial Statements








SINOHUB, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS





June 30, 2010


December 31, 2009(Unaudited)


(Audited)( As Restated)ASSETSCURRENT ASSETSCash and cash equivalents

$
9,463,000


$
8,347,000Restricted cash


12,446,000



7,595,000Accounts receivable, net


40,901,000



28,828,000Inventories, net


8,234,000



11,647,000Prepaid expenses and other current assets


757,000



650,000Deposit with suppliers


1,949,000



-Total current assets


73,750,000



57,067,000PROPERTY AND EQUIPMENT, NET


4,467,000



2,271,000TOTAL ASSETS

$
78,217,000


$
59,338,000LIABILITIES AND STOCKHOLDERS’ EQUITYCURRENT LIABILITIESAccounts payable

$
2,437,000


$
1,209,000Customer deposits


1,297,000



1,348,000Accrued expenses and other current liabilities


617,000



731,000Bank borrowings


18,120,000



11,793,000Income and other taxes payable


2,742,000



2,605,000Total current liabilities


25,213,000



17,686,000LONG-TERM LIABILITIESWarrant Derivatives


1,832,000



-TOTAL LIABILITIES


27,045,000



17,686,000STOCKHOLDERS’ EQUITYPreferred stock, $0.001 par value, 5,000,000 shares authorized;


-



-no shares issuedCommon stock, $0.001 par value, 100,000,000 shares authorized;


29,000



27,00028,557,632 shares and 26,669,605 shares issued and outstandingas of June 30, 2010 and December 31, 2009, respectivelyAdditional paid-in capital


19,906,000



17,239,000Deferred stock compensation


(111,000
)


-Retained earningsUnappropriated


29,578,000



22,725,000Appropriated


788,000



787,000Accumulated other comprehensive income


982,000



874,000Total stockholders’ equity


51,172,000



41,652,000TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
78,217,000


$
59,338,000




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





5





SINOHUB, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF


OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)





Three months ended June 30,


Six months ended June 30,2010


2009


2010


2009( As Restated)





( As Restated)NET SALESSupply chain management services

$
1,797,000


$
2,255,000


$
3,349,000


$
4,033,000Electronic components


28,769,000



29,105,000



59,436,000



45,419,000VCM business


13,314,000



-



19,699,000



-Total net sales


43,880,000



31,360,000



82,484,000



49,452,000COST OF SALESSupply chain management services


28,000



128,000



87,000



210,000Electronic components


25,257,000



25,531,000



51,637,000



39,706,000VCM business


11,018,000



-



16,088,000



-Total cost of sales


36,303,000



25,659,000



67,812,000



39,916,000GROSS PROFIT


7,577,000



5,701,000



14,672,000



9,536,000OPERATING EXPENSESSelling, general and administrative


2,243,000



1,105,000



4,138,000



2,026,000Professional services


256,000



132,000



501,000



361,000Depreciation


349,000



133,000



571,000



237,000Stock compensation expense


95,000



-



151,000



-Stock option compensation amortization


125,000



14,000



218,000



26,000Provision for bad debts


158,000



184,000



191,000



186,000Total operating expenses


3,226,000



1,568,000



5,770,000



2,836,000INCOME FROM OPERATIONS


4,351,000



4,133,000



8,902,000



6,700,000OTHER INCOME (EXPENSE)Interest expense


(212,000
)


(38,000
)


(243,000
)


(63,000
)Interest income


98,000



4,000



105,000



11,000Changes in fair values of warrant derivatives


516,000



-



472,000



-Other, net


2,000



2,000



7,000



5,000Total other income (expense), net


403,000



(32,000
)


341,000



(47,000
)INCOME BEFORE INCOME TAXES


4,754,000



4,101,000



9,243,000



6,653,000Income tax expense


1,352,000



920,000



2,390,000



1,482,000NET INCOME


3,402,000



3,181,000



6,853,000



5,171,000OTHER COMPREHENSIVE INCOMEForeign currency translation gain


81,000



2,000



109,000



33,000COMPREHENSIVE INCOME

$
3,483,000


$
3,183,000


$
6,961,000


$
5,204,000SHARE AND PER SHARE DATANet income per share-basic

$
0.12


$
0.13


$
0.25


$
0.21Weighted average number of shares-basic


28,536,000



24,581,000



27,909,000



24,581,000Net income per share-diluted

$
0.12


$
0.13


$
0.24


$
0.21Weighted average number of shares-diluted


28,780,000



25,187,000



28,277,000



25,186,000




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




6


SINOHUB, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF


CASH FLOWS (UNAUDITED)





Six months ended June 30,2010


2009( As Restated)CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
6,853,000


$
5,171,000Adjustments to reconcile net income to cash used in operations:Depreciation


571,000



237,000Stock compensation expense


151,000



-Stock option compensation amortization


218,000



26,000Provision for bad debts


191,000



186,000Changes in fair values of warrant derivatives


(472,000
)


-Changes in operating assets and liabilities:Accounts receivable


(12,097,000
)


(8,381,000
)Inventories


3,448,000



(3,886,000
)Prepaid expenses and other current assets


(103,000
)


77,000Deposit with suppliers


(1,941,000
)


-Accounts payable


1,219,000



4,759,000Customer deposits


(57,000
)


-Accrued expenses and other current liabilities


(116,000
)


991,000Income and other taxes payable


126,000



(1,088,000
)Net cash used in operating activities


(2,009,000
)


(1,908,000
)CASH FLOWS FROM INVESTING ACTIVITIESIncrease of restricted cash


(4,851,000
)


(2,301,000
)Purchase of property and equipment


(2,749,000
)


(1,545,000
)Net cash used in investing activities


(7,600,000
)


(3,846,000
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock, net of cost


4,470,000



-Proceeds from exercise of options, net of costs


22,000



13,000Bank borrowing proceeds


20,999,000



6,964,000Bank borrowing repayments


(14,746,000
)


(2,123,000
)Net cash provided by financing activities


10,745,000



4,854,000EFFECT OF EXCHANGE RATE CHANGES


(20,000
)


29,000NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


1,116,000



(871,000
)CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


8,347,000



5,860,000CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
9,463,000


$
4,989,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest

$
243,000


$
63,000Cash paid for income tax

$
2,438,000


$
2,189,000




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




7




SINOHUB, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)


AS OF JUNE 30, 2010








1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION




Overview




SinoHub, Inc. (the “Company”) is an electronics company focused on mobile devices that has prospered by leveraging the information and relationships derived from its original electronic component supply chain management business. The Company built a Web-based platform to make the entire supply chain transparent for its customer participants and attached a database to store information on all imported electronic components (currently, 50,000+). Today, the majority of SinoHub’s revenue comes from leveraging this data to sell electronic components, but the Company’s new virtual contract manufacturing division, which produces and sells mobile phones in developing countries, is growing very rapidly.  SinoHub’s three divisions work together with tight information integration to facilitate the Company’s overall mobile device business.




SinoHub 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”) and we are engaged in the production and sale of mobile devices (currently mobile phones) overseas. In Q2 2010 approximately 66% of the Company’s revenues were 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 one-off electronic component sales (roughly 80%) or as procurement-fulfillment projects (about 20%). The Company began offering mobile phones for sale in developing countries in Southeast Asia through its newly formed virtual contract manufacturing division in late 2009, but did not have material revenue from this source in 2009.  Roughly 30% of SinoHub’s revenue in Q2 2010 was derived from selling mobile phones overseas and from PCBA production through its virtual contract manufacturing division. In connection with the supply of such components and products, the Company also provides supply chain management services from which we derived approximately 4% of our revenues in Q2 2010.




The accompanying condensed consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission for interim financial information and reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented. The consolidated financial results of operations for the interim periods are not necessarily indicative of results for the full year.




These consolidated financial statements do not include all the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the years ended December 31, 2009 and 2008, previously filed with the Securities and Exchange Commission on March 31. 2010.




8





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.




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.




9




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 also provides customs clearance services to our customers. 100% of the equity interest in SinoHub SCM Shenzhen, Ltd. was held on behalf of SinoHub by SinoHub Electronics Shenzhen, Ltd. through a Declaration of Trust with SinoHub Electronics Shenzhen, Ltd. dated January 30, 2008.  On August 21, 2009 our wholly-owned subsidiary SinoHub Electronics Shenzhen, Ltd. exercised its rights under a declaration of trust with Ms. Hantao Cui, a citizen of the PRC, a shareholder of the Company and the spouse of our President Lei Xia, as trustee (the "Trustee") to cause the shares of SinoHub SCM Shenzhen, Ltd. previously registered in the name of the Trustee to be registered in the name of SinoHub Electronics Shenzhen, Ltd.  SinoHub SCM Shenzhen, Ltd. is now directly and solely owned by SinoHub Electronics Shenzhen, Ltd.




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.




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, Limited.




Topology Communication Technology (Shenzhen), Ltd. was incorporated in April 2010 in Shenzhen to manufacture mobile phones and other electronic devices.  Topology Communication Technology (Shenzhen), Ltd. is wholly owned by B2B Chips, Limited.




Principles of Consolidation




The accompanying consolidated financial statements include the accounts of the Company and its 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.




10




Concentrations and Risks




Substantially all of Company's assets are located in the PRC and Hong Kong and the majority 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 purposes 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 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.




Property and Equipment




Property and equipment are stated at cost, less accumulated depreciation and impairment.  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 YearsLeasehold improvements
Over the unexpired lease terms







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 June 30, 2010.




11




Financial Instruments




The Company analyzes all financial instruments that may have features of both liabilities and equity under ASC Topic 480-10 and ASC Topic 815.  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 ASC Topic 825.  At present, there are no registration rights as to which late filing penalties may apply.




Fair Value of Financial Instruments




ASC Topic 825 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.




ASC Topic 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.





ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:




Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.




Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.




Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.




The following table sets forth our estimate of fair value of our financial instruments that are liabilities as of June 30, 2010:




Quoted Prices

Significant

Significantin Active

Other

UnobservableMarkets for

Observable

InputsIdentical Assets

Inputs(Level 1)

(Level 2)

(Level 3)

Total2010 Warrants

$
—

$
—

$
1,832,000

$
1,832,000





12




The following table sets forth a summary of changes in fair value of our derivative liability for the three and six months ended June 30, 2010:




Three months ended June 30,


Six months ended June 30,2010


2010Beginning Balance

$
2,348,000


$
-Fair value of 2010 warrants at issue date


-



2,304,000Net gain included in earnings


(516,000
)


(472,000
)Balance at June 30

$
1,832,000


$
1,832,000








The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, bank borrowings, 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





For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in fair value of these warrants are recognized in earnings each reporting period. For warrants derivative instruments, the Company uses the Black-Scholes model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as a liability or as equity, is re-assessed at the end of each reporting period, in accordance with FASB ASC Topic 815, Derivatives and Hedging. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not the net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.




Stock-Based Compensation




The Company adopted ASC Topic 718.   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 ASC Topic 718 and ASC Topic 505-50, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.




13




Revenue and Cost Recognition




The Company reports revenue from supply chain management, or SCM, services and electronic components sales, and VCM businesses.  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 and VCM businesses 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.




Cost of goods sold in VCM business includes the direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production equipment, rent and local transportation charges consistent with the revenue earned.




Income Taxes




The Company accounts for income taxes under ASC Topic 740. Under ASC Topic 740, 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.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income taxes 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., SinoHub Electronics Shanghai, Ltd. and Topology Communication Technology (Shenzhen), Ltd. maintain accounting records using RMB as the functional currency.




The Company uses USD as its reporting currency.  The Company accounts for foreign currency translation pursuant to ASC Topic 830.  The functional currencies of the Company’s subsidiaries are HKD and RMB.  Under ASC Topic 830, 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.




14




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 ASC Topic 260 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 March 2010, FASB issued ASU 2010-11 Scope Exception Related to Embedded Credit Derivatives (“ASU 2010-11”). ASU 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only one form of embedded credit derivative qualifies for the exemption—one that is related only to the subordination of one financial instrument to another.  As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The Company does not expect the adoption of ASU 2010-11 to have a material impact on its consolidated results of operations or financial position.




In April 2010, FASB issued ASU 2010-13 Compensation-Stock Compensation (Topic 718) Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.  ASU 2010-13 addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this Update should be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  The guidance should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings for all outstanding awards as of the beginning of the fiscal year in which the amendments are initially applied.  Management is currently evaluating the potential impact of ASU 2010-13 on our financial statements.




15




2.              RESTATEMENT





On May 16, 2011, the Company filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K, to report management’s determination that the Company’s financial statements for the year ended December 31, 2010, included in its Annual Report on Form 10-K filed with the SEC on March 14, 2011 (the “2010 Form 10-K”) ,  should no longer be relied upon due to an error in such financial statements with respect to the accounting for 816,670 common stock purchase warrants in connection with its March 2, 2010 private placement (the “2010 Warrants”).  The Company determined that the historical financial statements for the year ended December 31, 2010 included in the Company’s 2010 Form 10-K require restatement to properly record the 2010 Warrants as a derivative liability.




The Current Report on Form 8-K which the Company filed with the SEC on May 16, 2011 also reported management’s determination that the Company’s financial statements:




(i)   for the fiscal quarter ended March 31, 2010, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010, filed with the SEC on May 17, 2010 (the “March 2010 Form 10-Q”);




(ii)    for the fiscal quarter ended June 30, 2010, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010, filed with the SEC on August 12, 2010 (the “June 2010 Form 10-Q”); and




(iii)    for the fiscal quarter ended September 30, 2010, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010 filed with the SEC on November 12, 2010 (the “September 2010 Form 10-Q” and, collectively with the March 2010 Form 10-Q and June 2010 Form 10-Q, the “Form 10-Qs”),




should no longer be relied upon due to an error in such financial statements with respect to the accounting for the 2010 Warrants.




The Company has performed a complete assessment of its outstanding 2010 Warrants and has concluded that its outstanding 2010 Warrants are within the scope of Accounting Standards Codification 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”), formerly Emerging Issues Task Force Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-05”), due to the inclusion in the Warrants of a provision requiring an adjustment to the exercise price of the 2010 Warrants in the event the Company issues common stock, or securities convertible into or exercisable for common stock, at a price per share lower than such exercise price.  Accordingly, ASC 815-40, formerly EITF 07-05, which was effective as of January 1, 2009, should have been applied resulting in a reclassification of the warrants as a liability, measured at fair value, with changes in fair value recognized as part of other income or expense for each reporting period thereafter. Because the reset provision contained in the Company’s warrants issued in 2008 (the “2008 Warrants”) expired on September 10, 2009, no change in the Company’s historical financial statements is required with respect to the 2008 Warrants.




On May 24, 2011, the Company filed an amended Annual Report on Form 10-K/A reflecting the restatement of the financial statements for the year ended December 31, 2010.




This amended Quarterly Report on Form 10-Q/A for the fiscal quarter ended June 30, 2010 incorporates corrections made in response to the accounting errors described above by restating the Company’s financial statements presented herein for the fiscal quarter ended June 30, 2010.  The corrections to the quarterly information in this amended Form 10-Q/A had no impact on the Company’s previously reported operations or cash flows for the periods being restated.




16




The following tables show the effects of the restatement on the Company's condensed consolidated balance sheet as of June 30, 2010, consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2010 and consolidated statements of cash flows for the six months ended June 30, 2010:




SinoHub, Inc. and Subsidiaries


Condensed Consolidated Balance Sheet





As of June 30, 2010As Previously Recorded


As RestatedTOTAL ASSETS

$
78,217,000


$
78,217,000Total current liabilities

$
25,213,000


$
25,213,000LONG-TERM LIABILITIESWarrant Derivatives


-



1,832,000TOTAL LIABILITIES

$
25,213,000


$
27,045,000STOCKHOLDERS’ EQUITYAdditional paid-in capital

$
22,210,000


$
19,906,000Retained earningsUnappropriated

$
29,106,000


$
29,578,000Total stockholders’ equity

$
53,004,000


$
51,172,000TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
78,217,000


$
78,217,000








SinoHub, Inc. and Subsidiaries


Condensed Consolidated Statements of Operations and Comprehensive Income





Three months ended June 30, 2010As Previously Recorded

As RestatedChanges in fair values of warrant derivatives

$
-


$
516,000Total other (expense) income, net

$
(112,000
)

$
403,000INCOME BEFORE INCOME TAXES

$
4,239,000


$
4,754,000NET INCOME

$
2,887,000


$
3,402,000COMPREHENSIVE INCOME

$
2,968,000


$
3,483,000Net income per share-basic

$
0.10


$
0.12Net income per share-diluted

$
0.10


$
0.12
  17
  Six months ended June 30, 2010As Previously Recorded

As RestatedChanges in fair values of warrant derivatives

$
-


$
472,000Total other (expense) income, net

$
(131,000
)

$
341,000INCOME BEFORE INCOME TAXES

$
8,771,000


$
9,243,000NET INCOME

$
6,381,000


$
6,853,000COMPREHENSIVE INCOME

$
6,490,000


$
6,961,000Net income per share-basic

$
0.23


$
0.25Net income per share-diluted

$
0.23


$
0.24








The gain resulting from the change in fair value of derivative warrant liability for the three and six months ended June 30, 2010, was incurred at the corporate level (a Delaware corporation).  The Company did not recognize any income tax benefits (expense) associated with the change in fair value in the three and six months ended June 30, 2010.  Therefore, the restatement did not have an effect on the Company’s taxable income for the three and six months ended June 30, 2010.







SinoHub, Inc. and Subsidiaries


Condensed Consolidated Statements of Cash Flows





Six months ended June 30, 2010As Previously Recorded


As RestatedNET INCOME

$
6,381,000


$
6,853,000Changes in fair values of warrant derivatives


-



(472,000
)$
6,381,000


$
6,381,000Net cash used in operating activities

$
(2,009,000
)

$
(2,009,000
)





18




3.           BANK BORROWINGS AND FINANCING ARRANGEMENTS





The Company has secured financing facilities (RMB based) with certain PRC banks to support its business operations. The bank facilities include:




·
Letter of credit facility with one bank in the amount of $4,700,000 to support the Company’s component sales business.  Restricted cash balances are required as security for draws against the facility.  The Company also has a $1,500,000 customs duty import facility and a $3,200,000 customs export refund facility through this bank to support short term duty collections for its component sales business.  These facilities are renewable each year and are available through December 2010.




·
Letter of credit facility with another bank in the amount of $4,400,000 to support the Company’s component sales business. Restricted cash balances are required as security for draws against the facility and the bank requires guarantors from a subsidiary and a director and lien on a PRC property owned by a director and his spouse.  The facility is renewable each year and is available through September 2010.




·
Banking facilities with another bank in the amount of $7,100,000 to support the Company’s VCM business and expand trade relationships with component suppliers.  Restricted cash balances are required as security for draws against the facility and the bank requires unlimited personal guaranty from an executive officer and a subsidiary.  The facility is renewable each year and is available through May 2011.




·
Banking facilities with another bank in the amount of $2,000,000 to support the Company’s VCM business and expand trade relationships with component suppliers.  Restricted cash balances are required as security for draws against the facility and the bank requires unlimited personal guaranty from an executive officer.  The facility is renewable each year and is available through May 2011.




·
Banking facilities with another bank in the amount of $5,000,000 to support the Company’s VCM business and expand trade relationships with component suppliers.  Restricted cash balances are required as security for draws against the facility and the bank requires unlimited personal guaranty from an executive officer.  The facility is renewable each year and is available through April 2011.




19





Borrowings against these facilities at June 30, 2010 and December 31, 2009 were as follows:







June 30,


December 31,2010


2009Note payable to a bank, annual interest rate 3.12%, due January 2010

$
-


$
1,792,000Note payable to a bank, annual interest rate 3.12%, due February 2010


-



804,000Note payable to a bank, annual interest rate 5.35%, due March 2010


-



731,000Note payable to a bank, annual interest rate 1.22%, due April 2010


-



299,000Note payable to a bank, annual interest rate 5.84%, due May 2010


-



1,463,000Note payable to a bank, annual interest rate 1.22%, due May 2010


-



457,000Note payable to a bank, annual interest rate 1.22%, due May 2010


-



445,000Note payable to a bank, annual interest rate 1.18%, due May 2010


-



644,000Note payable to a bank, annual interest rate 1.22%, due May 2010


-



1,380,000Note payable to a bank, annual interest rate 1.22%, due May 2010


-



230,000Note payable to a bank, annual interest rate 1.18%, due May 2010


-



1,332,000Note payable to a bank, annual interest rate 1.18%, due May 2010


-



995,000Note payable to a bank, annual interest rate 1.39%, due June 2010


-



503,000Note payable to a bank, annual interest rate 1.38%, due June 2010


-



224,000Note payable to a bank, annual interest rate 1.44%, due June 2010


-



494,000Note payable to a bank, annual interest rate 1.20%, due July 2010


342,000



-Note payable to a bank, annual interest rate 2.50%, due July 2010


1,792,000



-Note payable to a bank, annual interest rate 5.35%, due September 2010


734,000



-Note payable to a bank, annual interest rate 1.69%, due September 2010


1,532,000



-Note payable to a bank, annual interest rate 1.60%, due September 2010


1,461,000



-Note payable to a bank, annual interest rate 2.01%, due October 2010


1,978,000



-Note payable to a bank, annual interest rate 3.81%, due November 2010


1,469,000Note payable to a bank, annual interest rate 3.76%, due November 2010


4,406,000Note payable to a bank, annual interest rate 3.80%, due November 2010


4,406,000



-$
18,120,000


$
11,793,000Less : current portion


18,120,000



11,793,000Long -term portion

$
-


$
-








Interest expense for the three months ended June 30, 2010 and 2009 was $212,000 and $38,000, respectively.  Interest expense for the six months ended June 30, 2010 and 2009 was $243,000 and $63,000, respectively.







4.           WARRANT DERIVATIVES





The Warrants issued in connection with the private placement the Company consummated on September 10, 2008 (the “2008 Warrants) and on March 2, 2010 (the “2010 Warrants”) include a reset provision triggered if the Company issues common shares below the exercise price as defined in the respective warrants.  Effective January 1, 2009, the reset provision of these warrants preclude equity accounting treatment under ASC 815 (formerly EITF 07-05).  Accordingly, effective January 1, 2009, the Company was required to reclassify the Warrants at their fair value to liabilities each reporting period under ASC 815-40.  The reset provision in the 2008 Warrants expired on September 10, 2009.




20




At June 30, 2010, the fair value of the Company’s derivative warrants liability was $1,832,000.  The Company used the Black-Scholes valuation model to estimate the fair value of the Warrants.  Significant assumptions used at June 30, 2010 were as follows:




June 30, 2010Estimated market value of stock on reporting date (1)

$
2.61Risk-free interest rate (2)


1.79
%Dividend yield (3)


0.00
%Volatility factor


138.23
%Expected life (4)

4.7 years








(1)
The estimated market value of the stock on the date of grant/reporting was based on a calculation by management after consideration of price per share received in the private offerings and reported public market prices.(2)
The risk-free interest rate was determined by management using the U.S. Treasury zero-coupon yield over the contractual term of the option on date of grant.(3)
Management determined the dividend yield to be 0% based upon its expectation that there will not be earnings available to pay dividends in the near term.(4)
Expected life is remaining contractual life of the warrants.




Changes in the fair value of these warrants are recognized in earnings each reporting period.







5.           COMMITMENTS AND CONTINGENCIES





Commitments




(1)
Rental Lease Commitment




The Company leases factory, warehouse and office spaces from third parties under operating leases which expire at various dates from October 2010 through March 2015.  Rent expense for the three months ended June 30, 2010 and 2009 was $399,000 and $98,000, respectively.  Rent expense for the six months ended June 30, 2010 and 2009 was $610,000 and $210,000, respectively.  At June 30, 2010, the Company has outstanding commitments with respect to operating leases, which are due as follows:




Fiscal year ending December 31,2010

$
454,0002011

$
908,0002012

$
908,0002013

$
309,0002014

$
67,0002015

$
12,000$
2,658,000







(2)
Capital Commitment




As of June 30, 2010, the Company had commitments for capital expenditures in connection with manufacturing machinery of approximately $2,330,000.




Contingencies




The Company accounts for loss contingencies in accordance with ASC Topic 450.  As of June 30, 2010, there was no loss contingency.




21




6.           EARNINGS PER SHARE





The elements for calculation of earnings per share for the three and six months ended June 30, 2010 and 2009 were as follows:




Three months ended June 30,2010


2009(As Restated)Net income for basic and diluted earnings per share

$
3,402,000


$
3,181,000Weighted average shares used in basic computation


28,536,000



24,581,000Effect of dilutive stock options and warrants


244,000



606,000Weighted average shares used in diluted computation


28,780,000



25,187,000Earnings per share:Basic

$
0.12


$
0.13Diluted

$
0.12


$
0.13





Six months ended June 30,2010


2009(As Restated)Net income for basic and diluted earnings per share

$
6,853,000


$
5,171,000Weighted average shares used in basic computation


27,909,000



24,581,000Effect of dilutive stock options and warrants


368,000



605,000Weighted average shares used in diluted computation


28,277,000



25,186,000Earnings per share:Basic

$
0.25


$
0.21Diluted

$
0.24


$
0.21









7.           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 foradditional 489,451 shares (as adjusted for reverse stock split) 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.




22




The financial statements have been prepared as if the reverse merger transaction had occurred retroactivelyat 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





On January 19, 2010, pursuant to the terms of the 2008 Stock Plan, the Company authorized the grant to three executive officers of an aggregate of 58,625 shares of Common Stock vesting with respect to 100% of the aggregate number of shares granted on December 31, 2010.




In March 2010, certain employees exercised their stock options to purchase an aggregate of 31,452 shares of common stock.




In March 2010, 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 1,633,334 shares of common stock (the “Shares”) and five and one-half-year warrants to purchase 816,670 shares of common stock (the “Warrant Shares”) at an exercise price of $3.25 per share, in return for gross proceeds of approximately $4.9 million in cash.  During the first quarter of 2010, net offering proceeds of approximately $4.5 million were recorded as an addition to stockholders’ equity, after deducting offering and related closing costs of the transaction.




On June 4, 2010, pursuant to the terms of the Company’s 2008 Stock Plan, the Company authorized the grant to an executive officer of an aggregate of 14,706 shares of Common Stock at a fair value of $40,028 with the shares vesting in full immediately upon grant.




On June 7, 2010, the Company issued warrants to purchase an aggregate of 75,000 shares of common stock at an exercise price of $3.25 per share to 3 consultants for investor relations consulting services rendered at fair value of $149,025. The fair market value of the warrant was estimated on the grant date using the Black-Scholes option pricing model as required by ASC Topic 718 with the following assumptions and estimates: expected dividend 0%, volatility 84.46%, a risk-free rate of 2.5% and a contractual life of 5 years.




23




During the second quarter of 2010, certain employees exercised their stock options to purchase an aggregate of 149,910shares of common stock for an aggregate price of $21,668.




Warrants





Following is a summary of the status of warrants outstanding and exercisable at June 30, 2010 and December 31, 2009:









June 30, 2010

December 31, 2009Exercise Price

Number of

Average

Average

Number of

AverageShares
Remaining
Exercise Price
Shares
RemainingContractual Life


Contractual Life$3.00

1,211,740

3.25 years

$3.00

1,211,740

3.75 years$3.25

891,670

4.65 yearsTotal

2,103,410



Total

1,211,740







8.           STOCK OPTIONS





The Company has 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 June 30, 2010, stock options to purchase 1,273,636 shares of common stock at an exercise price ranging from $0.10 to $4.36 per share were outstanding.  Prior to becoming publicly traded, the exercise prices were determined by the Board at the time of grant.  In each such 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 shares of 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.




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%
2.50%
$0.09 - $0.19The 2008 ISOP1-5 years
83% - 121%
0%
2.50%
$0.47 - $2.79





24




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 historical period of the expected life of the options.




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 interest rates at the time of the grant whose term is consistent with expected life of the stock options.




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 ASC Topic 718.




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. ASC Topic 718 requires forfeiture to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.




The Company granted 335,000 shares stock options in the second quarter of 2010 at an exercise price ranging from $2.84 to $3.00 per share.




The following is a summary of the stock options activity:





Number of

Weighted-Options

AverageOutstanding

ExercisePriceBalance at December 31, 2008


626,889


$
0.49Granted


973,972



2.85Forfeited


(258,074
)


-Exercised


(78,809
)


0.15Balance at December 31, 2009


1,263,978


$
2.01Granted


-



-Forfeited


(113,426
)


-Exercised


(31,452
)


-Balance at March 31, 2010


1,119,100


$
2.08Granted


335,000



2.95Forfeited


(30,554
)


-Exercised


(149,910
)


0.17Balance at June 30, 2010


1,273,636


$
2.52Options exercisable on June 30, 2010


207,139


$
1.80Weighted average fair value of options granted during 2010





$
1.88





25





The following is a summary of the status of options outstanding at June 30, 2010 and December 31, 2009:




Outstanding Options at June 30, 2010

Exercisable OptionsRange of

Number

Weighted

Weighted

Number

WeightedExercise Price

Average
Average
AverageRemaining
Exercise
ExerciseContractual
Price
PriceLife$0.10 - $1.02

217,264

7.8 years

$0.56

66,763

$0.53$2.35 - $2.48

484,072

3.9 years

$2.40

140,376

$2.40$2.84 - $3.00

335,000

9.8 years

$2.95

-

$2.95$3.77 - $4.36

237,300

9.3 years

$3.96

-

$3.96Total

1,273,636





207,139

$1.80








Outstanding Options at December 31, 2009

Exercisable OptionsRange of

Number

Weighted

Weighted

Number

WeightedExercise Price

Average
Average
AverageRemaining
Exercise
ExerciseContractual
Price
PriceLife$0.09 - $1.02

504,106

8.1 years

$0.60

209,495

$0.42$2.35 - $2.50

497,572

4.5 years

$2.40

-

$2.40$3.77 - $4.36

262,300

9.8 years

$3.96

-

$3.96Total

1,263,978





209,495

$0.42








9.           RELATED PARTY TRANSACTIONS





In 2010 and 2009, a PRC property owned by a director and his spouse is pledged to a bank to secure banking facilities for the Company.




In 2010 and 2009, a director and his spouse have provided guarantees to a bank for banking facilities in the amount of $4,400,000 extended to the Company.




In 2010 and 2009, an executive officer has provided unlimited personal guaranty to two banks for banking facilities for the Company.







10.           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.




26




The Company and its wholly owned subsidiary, SinoHub International, Inc. are incorporated in the United States and have incurred operating losses since inception.  Management believes the realization of tax benefits from these operating loss carry forwards 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 16.5%.  No provision for Hong Kong profits tax was required as these entities incurred losses during the three months and six months ended June 30, 2010 and 2009.  There are no tax loss carry forward provisions in Hong Kong.




The Company’s subsidiaries in China were subject to China income tax at a statutory rate of 25% in 2010 and 2009.  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 2010. The Company’s subsidiaries in China were subject to a special tax rate of 22% in 2010 and 20% in 2009.




Income tax expense for the three months ended June 30, 2010 and 2009 is summarized as follows:




2010


2009Current

$
1,352,000


$
920,000Deferred


-



-$
1,352,000


$
920,000







Income tax expense for the six months ended June 30, 2010 and 2009 is summarized as follows:




2010


2009Current

$
2,390,000


$
1,482,000Deferred


-



-$
2,390,000


$
1,482,000







11.CONCENTRATIONS AND RISKS





More than 90% of the Company’s assets are located in China.




During the three months ended June 30, 2010 and 2009, 30% and 13%, respectively, of revenues were derived from oversea sales, i.e. sales outside of China.




27




Item 2.  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 the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q/Aand the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in the Company’s  Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the Securities and Exchange Commission on March 31, 2010.  This Quarterly Report on Form 10-Q/A contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q/A represent our views as of the date of this Quarterly Report on Form 10-Q/A. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report on Form 10-Q/A.All amounts are expressed in United States dollars.





RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED


JUNE 30, 2010 COMPARED TO JUNE 30, 2009





Overall Results





The Company reported net income for the three months ended June 30, 2010 of $3.4 million compared to $3.2 million in the year-earlier period, an increase of 6%.  For the six months ended June 30, 2010, the company reported net income of $6.9 million, a 33% increase over the $5.2 million reported in the same period in 2009.




Net Sales





Net sales for the three months and six months ended June 30, 2010 were $43.9 million and $82.5 million respectively, up 40% and 67% from $31.4 million and $49.5 million recorded respectively in the year-earlier periods.  The Company reports net sales on the basis of three business categories, supply chain management services (SCM), electronic component purchasing (ECP), and virtual contract manufacturing (VCM).  In the three and six months ended June 30, 2010, net sales of supply chain management services decreased 22% and 18% to $1.8 million and $3.3 million from $2.3 million and $4.0 million respectively in the year-earlier periods reflecting a shift to higher volume design house and manufacturer customers where service charges are a lower percentage of processing volume. In three months ended June 30, 2010, net sales of electronic components decreased 1% to $28.8 million from $29.1 million in the year-earlier period as a result of some overstocking in the first quarter of 2010.  In the six months ended June 30, 2010, net sales of electronic components increased 31% to $59.4 million from $45.4 million in the year-earlier periods.  In the three and six months ended June 30, 2010, net sales of VCM business were $13.3 million and $19.7 million, respectively.  In the year-earlier periods, the Company did not conduct VCM business.




28




Gross Profit





The Company recorded gross profit of $7.6 million and $14.7 million in the three and six months ended June 30, 2010, compared with $5.7 million and $9.5 million respectively in the year-earlier periods.  The gross profit margin for the three and six months ended June 30, 2010 decreased to 17.3% and 17.8% from 18.2% and 19.3% respectively in the year-earlier period.  The reason for the decline in overall gross margin was the substantially lower percentage of high margin net sales from the SCM business in 2010 versus 2009 as a percentage of our total net sales.




Selling, General and Administrative Expenses





Selling, general and administrative expenses increased 100% and 105% to $2.2 million and $4.1 million in the three and six months ended June 30, 2010 from $1.1 million and $2.0 million in the year-earlier periods.  The increase is mainly due to the expenditures associated with our new factory.




Income from Operations





The Company recorded income from operations of $4.4 million and $8.9 million in the three and six months ended June 30, 2010, as compared with income from operations of $4.1 million and $6.7 million in the year-earlier periods, an increase of 7% and 33%, respectively.




Income Taxes





The Company recorded income tax expense of $1.4 million and $2.4 million in the three and six months ended June 30, 2010, compared with $0.9 million and $1.5 million in the year-earlier period, respectively.  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 recorded foreign currency translation gains of $81,000 and $109,000 in the three and six months ended June 30, 2010, as compared with $2,000 and $$33,000 in the year-earlier period, respectively.  Comprehensive net income (net income plus foreign currency translation gains) was $3.5 million and $7.0 million in the three and six months ended June 30, 2010, compared with $3.2 million and $5.2 million in the year-earlier period.







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), growth in our electronic component and mobile device sales businesses, including growth of our VCM business, investment in inventory for both procurement-fulfillment and VCM orders, and investment in the manufacturing facility for our VCM business.  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.  Our cost of capital with China Construction Bank, Industrial Bank, Jiangsu Bank and Ningbo Bank was approximately 3.13% at June 30, 2010.  Chinese banks to date have not been affected by the global credit crisis nearly as much as the US and European banks although the credit available through banks in China could be affected by Chinese monetary policies.




29




We believe SinoHub’s new virtual contract manufacturing business can grow rapidly with the addition of our moderately sized manufacturing facility and with additional inventory.  Additional working capital would enable us to purchase more electronic components from our suppliers, which should lower our costs, and thus enhance our profitability.  We believe increased volume would also likely enable the Company to receive payment terms from suppliers (we are currently mainly buying from suppliers on a C.O.D. basis) which would lessen our need for additional financing from third parties.  Accordingly, if SinoHub is unsuccessful in raising additional working capital, the Company’s growth may be adversely affected.




We intend to raise additional funds in 2010 through the sale of debt, long-term debt financings, and operating cash flows.  Due to the risk factors referred to elsewhere in this report and described in detail in our Annual Report on Form 10-K for the year ended December 31, 2009, 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 funding that we may obtain in the future may be unfavorable to us and to our stockholders.




At June 30, 2010 and December 31, 2009, the Company had cash and cash equivalents of $9.5 million and $8.3 million, respectively.  During the six months ended June 30, 2010, the net amount of cash used in the Company’s operating activities was $2.1 million, the net amount of cash used in investing activities was $7.6 million, and the net amount of cash provided by financing activities was $10.7 million.




The Company must generally pay the purchase price of electronic components for electronic component procurement (ECP) customers and then recoup the purchase price from the customer after delivery.  We only purchase standard components which are readily saleable.  To date we have not had any collection problems with any ECP project funded.  The Company’s borrowings vary based on the timing of ECP projects, which is made up of spot component sales and procurement-fulfillment, use of our VAT import line and use of our export reimbursement line.




Cash Flows from Operating Activities





The net amount of cash used in the Company’s operating activities during the six months ended June 30, 2010 was $2.0 million, which primarily included earnings from operations and decrease in inventory that were more than offset by increase in accounts receivable and deposit with suppliers.  For the six months ended June 30, 2009, the net amount of cash used in the Company’s operating activities was $1.9 million, which primarily included earnings from operations and increase in accounts payable that were more than offset by increase in accounts receivable and inventories to support the Company’s business growth.




30





Cash Flows from Investing Activities





The net amount of cash used in investing activities during the six months ended June 30, 2010 was $7.6 million, compared with $3.8 million in the year-earlier period.  Both were the results of restricted cash buildup and investments in property and equipment.




Cash Flows from Financing Activities





The net amount of cash provided by financing activities during the six months ended June 30, 2010 was $10.7 million which was mainly the result of the bank borrowings and a private placement stock offering.  For the six months ended June 30, 2009, the net amount of cash generated by financing activities was $4.9 million, which was the result of the bank borrowings.










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





See Note 1, Summary of Significant Accounting Policies and Organization, of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 herein for a discussion of critical accounting policies.






Item 3.  Quantitative and Qualitative Disclosures About Market Risk





As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by this item, as provided by Regulation S-K Item 305(e).







Item 4T.  Controls and Procedures





Disclosure Controls and Procedures





We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.




On May 11, 2011, we became aware that we had failed to recognize warrant derivative liability with respect to our outstanding warrants issued in private placements in September 2008 and March 2010 and the subsequent re-measurement of fair value of the warrants derivative, as required by Accounting Standards Codification 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”), formerly Emerging Issues Task Force Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-05”).  The error had a significant effect on our previously issued consolidated financial statements for the year ended December 31, 2010 and for each of the quarters for the year ended December 31, 2010 requiring us to restate the financial statements for such periods.  Because ASC 815-40 only applies to fiscal years beginning after December 15, 2008 and the provision of the warrants issued in the 2008 private placement requiring the recognition of warrant derivative liability terminated on September 10, 2009 we have determined that we are not required to restate our financial statements for the year ended December 31, 2009 or any of the quarters for the year ended December 31, 2009.




31




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, and taking the matters described above into account, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2010 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.




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.  In light of the matters described above with respect to recognizing warrant liability, the Company intends to re-evaluate its internal control over financial reporting and to implement such changes as it may deem appropriate in light of such re-evaluation.




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.










PART II - OTHER INFORMATION





Item 1.  Legal Proceedings





None.








Item 1A.  Risk Factors





There have not been any material changes from the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.




32




Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds





In June 2010 we issued warrants to purchase an aggregate of 75,000 shares of our common stock to Hayden Communications International, Inc. and two of its consultants for services rendered to the Company.  Each of the warrants become exercisable on January 31, 2011 at a price of $3.25 per share, provided that Hayden , and expire on January 31, 2013.  If Hayden Communications is engaged by the Company as a consultant on January 31, 2011, the warrants will be fully exercisable.  Otherwise, each of the warrants be exercisable with respect to 1/12 of the total shares issuable upon exercise of the warrant for each month or part of a month Hayden serves as a consultant for the Company with Hayden's term of engagement deemed to commence on February 1, 2010.  The Company has the right to compel the holders of the warrants to exercise the warrants within 10 trading days after sending written notice to the holders of the warrants.  Any warrants not exercised within the 10-trading day period would be cancelled.  The Company may only give such notice if (i) the volume weighted average trading price per share of the Company’s Common Stock for each of 15 consecutive trading days is greater than $5.43 (in each case subject to equitable adjustment), and (b) the shares issuable upon the exercise of the warrants are either (i) registered for resale pursuant to an effective registration statement or (ii) freely transferable without volume restrictions pursuant to Rule 144 promulgated under the Securities Act,




Each of the issuances was made in reliance upon 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 recipient’s 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.  As the warrants were issued for services we received no cash proceeds for the issuance of the shares.







Item 3.  Defaults Upon Senior Securities





None.








Item 4.  (Removed and Reserved)








Item 5.  Other Information





None.




33




Exhibit No.

Title of Document4.1

Form of Warrant issued to consultants on June 7, 2010*10.1

Lease Agreement dated July 2, 2010 between ORIX Asia Limited and B2B Chips, Limited*10.2

[Loan Agreement] dated May 18, 2010 between Shenzhen Branch of Jiangsu Bank and SinoHub SCM Shenzhen, Ltd*10.3

Loan Agreement] dated May 12, 2010 between Shenzhen Branch of Ningbo Bank and SinoHub SCM Shenzhen, Ltd*31.1

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 amended*31.2

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 amended*32.1

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)**








*Filed as an exhibit hereto.








**These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission.




34


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: June 3, 2011
By:
/s/ Henry T. CochranHenry T. CochranChief Executive Officer











Date: June 3, 2011
By:
/s/ Li De HaiLi De HaiChief Financial Officer

(Principal Financial and Accounting Officer)