UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended September 30,
      2009ORo
            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)





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 during the 12
months (or for such shorter period that the registrant was required to submit
and post such files).


Yes 
      o      
          No  o


Indicate
by check mark 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




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 October 30, 2009Common
      Stock, $0.001 par value per share
            
            25,100,788
      shares







1







SINOHUB,
INC.


FORM
10-Q





TABLE OF CONTENTS











PART I -
      FINANCIAL INFORMATION
            3Item 1. Financial Statements
            3Item 2. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            19Item 3. Quantitative and Qualitative Disclosures About
      Market Risk
            22Item 4T. Controls and Procedures
            23PART II - OTHER INFORMATION
            23Item 1. Legal Proceedings
            23Item 1A. Risk Factors
            23Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
            23Item 3. Defaults Upon Senior Securities
            24Item 4. Submission of Matters to a Vote of Security
      Holders
            24Item 5. Other Information
            24Item 6. Exhibits
            26SIGNATURES
            27





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
 Table of Contents




PART
I - FINANCIAL INFORMATION





Item
1.  Financial Statements





SINOHUB,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





ASSETS
            
            September
      30, 2009
            
            
            December
      31, 2008(Unaudited)
            
            
            (Audited)CURRENT
      ASSETSCash
      and cash equivalents
            
            $
            6,699,000
            
            
            $
            5,860,000Restricted
      cash
            
            
            2,962,000
            
            
            
            374,000Accounts
      receivable, net of allowance
            
            
            33,564,000
            
            
            
            22,282,000Inventories,
      net
            
            
            3,505,000
            
            
            
            435,000Prepaid
      expenses and other
            
            
            565,000
            
            
            
            370,000Total
      current assets
            
            
            47,295,000
            
            
            
            29,321,000PROPERTY
      AND EQUIPMENT, NET
            
            
            1,918,000
            
            
            
            703,000TOTAL
      ASSETS
            
            $
            49,213,000
            
            
            $
            30,024,000LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
            
            $
            3,577,000
            
            
            $
            764,000Accrued
      expenses and other liabilities
            
            
            671,000
            
            
            
            234,000Bank
      borrowings
            
            
            9,068,000
            
            
            
            2,123,000Income
      and other taxes payable
            
            
            1,852,000
            
            
            
            3,391,000Total
      current liabilities
            
            
            15,168,000
            
            
            
            6,512,000STOCKHOLDERS’
      EQUITYPreferred
      stock, $0.001 par value, 5,000,000 shares authorized;
            
            
            -
            
            
            
            -no
      shares issuedCommon
      stock, $0.001 par value, 100,000,000 shares authorized;
            
            
            25,000
            
            
            
            25,00025,056,671
      shares and 24,501,989 shares issued and outstandingas
      of September 30, 2009 and December 31, 2008,
  respectivelyAdditional
      paid-in capital
            
            
            13,287,000
            
            
            
            11,529,000Retained
      earningsUnappropriated
            
            
            19,135,000
            
            
            
            10,424,000Appropriated
            
            
            724,000
            
            
            
            724,000Accumulated
      other comprehensive income
            
            
            874,000
            
            
            
            810,000Total
      stockholders’ equity
            
            
            34,045,000
            
            
            
            23,512,000TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            49,213,000
            
            
            $
            30,024,000




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




3
 Table of Contents




SINOHUB,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND


COMPREHENSIVE
INCOME (UNAUDITED)











Three
      months ended September 30,
              
              
              Nine
      months ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008NET
      SALESSupply
      chain management services
              
              $
              1,910,000
              
              
              $
              1,270,000
              
              
              $
              5,943,000
              
              
              $
              2,361,000Electronic
      components
              
              
              34,270,000
              
              
              
              26,913,000
              
              
              
              79,689,000
              
              
              
              50,649,000Total
      net sales
              
              
              36,180,000
              
              
              
              28,183,000
              
              
              
              85,632,000
              
              
              
              53,010,000COST
      OF SALESSupply
      chain management services
              
              
              198,000
              
              
              
              671,000
              
              
              
              408,000
              
              
              
              953,000Electronic
      components
              
              
              29,544,000
              
              
              
              21,434,000
              
              
              
              69,250,000
              
              
              
              42,141,000Total
      cost of sales
              
              
              29,742,000
              
              
              
              22,105,000
              
              
              
              69,658,000
              
              
              
              43,094,000GROSS
      PROFIT
              
              
              6,438,000
              
              
              
              6,078,000
              
              
              
              15,974,000
              
              
              
              9,916,000OPERATING
      EXPENSESSelling,
      general and administrative
              
              
              1,074,000
              
              
              
              954,000
              
              
              
              3,287,000
              
              
              
              2,031,000Professional
      services
              
              
              253,000
              
              
              
              18,000
              
              
              
              614,000
              
              
              
              511,000Depreciation
              
              
              151,000
              
              
              
              90,000
              
              
              
              387,000
              
              
              
              288,000Stock
      compensation expense
              
              
              272,000
              
              
              
              -
              
              
              
              298,000
              
              
              
              6,000Total
      operating expenses
              
              
              1,750,000
              
              
              
              1,062,000
              
              
              
              4,586,000
              
              
              
              2,836,000INCOME
      FROM OPERATIONS
              
              
              4,688,000
              
              
              
              5,016,000
              
              
              
              11,388,000
              
              
              
              7,080,000OTHER
      INCOME (EXPENSE)Interest
      expense
              
              
              (20,000
              )
              
              
              (53,000
              )
              
              
              (83,000
              )
              
              
              (181,000
              )Interest
      income
              
              
              4,000
              
              
              
              21,000
              
              
              
              15,000
              
              
              
              40,000Other,
      net
              
              
              2,000
              
              
              
              3,000
              
              
              
              7,000
              
              
              
              19,000Total
      other expense, net
              
              
              (14,000
              )
              
              
              (29,000
              )
              
              
              (61,000
              )
              
              
              (122,000
              )INCOME
      BEFORE INCOME TAXES
              
              
              4,674,000
              
              
              
              4,987,000
              
              
              
              11,327,000
              
              
              
              6,958,000Income
      tax expense
              
              
              1,134,000
              
              
              
              1,068,000
              
              
              
              2,616,000
              
              
              
              1,410,000NET
      INCOME
              
              
              3,540,000
              
              
              
              3,919,000
              
              
              
              8,711,000
              
              
              
              5,548,000OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
              
              
              31,000
              
              
              
              216,000
              
              
              
              63,000
              
              
              
              680,000COMPREHENSIVE
      INCOME
              
              $
              3,571,000
              
              
              $
              4,135,000
              
              
              $
              8,774,000
              
              
              $
              6,228,000
  SHARE
      AND PER SHARE DATANet
      income per share-basic
              
              $
              0.14
              
              
              $
              0.19
              
              
              $
              0.35
              
              
              $
              0.28Weighted
      average number of shares-basic
              
              
              24,883,000
              
              
              
              21,021,000
              
              
              
              24,682,000
              
              
              
              19,503,000Net
      income per share-diluted
              
              $
              0.13
              
              
              $
              0.18
              
              
              $
              0.34
              
              
              $
              0.28Weighted
      average number of shares-diluted
              
              
              26,260,000
              
              
              
              21,389,000
              
              
              
              25,463,000
              
              
              
              19,871,000




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




4
 Table of Contents




SINOHUB,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)








Nine
      months ended September 30,2009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
              
              $
              8,711,000
              
              
              $
              5,548,000Adjustments
      to reconcile net income to cash provided by (used in)
      operations:Depreciation
              
              
              387,000
              
              
              
              288,000Stock
      compensation expense
              
              
              298,000
              
              
              
              5,000Stock
      issued for professional services
              
              
              30,000
              
              
              
              451,000Loss
      on disposal of property and equipment
              
              
              -
              
              
              
              5,000Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (11,219,000
              )
              
              
              (8,221,000
              )Inventories
              
              
              (3,067,000
              )
              
              
              (138,000
              )Prepaid
      expenses and other
              
              
              (73,000
              )
              
              
              (277,000
              )Accounts
      payable
              
              
              2,809,000
              
              
              
              (3,764,000
              )Accrued
      expenses and other liabilities
              
              
              436,000
              
              
              
              27,000Income
      and other taxes payable
              
              
              (1,546,000
              )
              
              
              516,000Net
      cash used in operating activities
              
              
              (3,234,000
              )
              
              
              (5,560,000
              )CASH
      FLOWS FROM INVESTING ACTIVITIES(Increase)
      Release of restricted cash
              
              
              (2,588,000
              )
              
              
              5,057,000Purchase
      of property and equipment
              
              
              (1,620,000
              )
              
              
              (1,000
              )Proceed
      from disposal of property and equipment
              
              
              -
              
              
              
              10,000Net
      cash provided by (used in) investment activities
              
              
              (4,208,000
              )
              
              
              5,066,000CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock, net of cost
              
              
              1,200,000
              
              
              
              6,484,000Proceeds
      from exercise of warrants and options, net of costs
              
              
              108,000Bank
      borrowing proceeds
              
              
              14,284,000
              
              
              
              2,594,000Bank
      borrowing repayments
              
              
              (7,338,000
              )
              
              
              (7,060,000
              )Notes
      payable payments
              
              
              -
              
              
              
              (251,000
              )Payments
      from a related company
              
              
              -
              
              
              
              2,210,000Net
      cash provided by financing activities
              
              
              8,254,000
              
              
              
              3,977,000EFFECT
      OF EXCHANGE RATES ON CASH
              
              
              27,000
              
              
              
              350,000NET
      INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              839,000
              
              
              
              3,833,000CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              5,860,000
              
              
              
              4,282,000CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              6,699,000
              
              
              $
              8,115,000
  SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest
              
              $
              83,000
              
              
              $
              181,000Cash
      paid for income tax
              
              $
              3,671,000
              
              
              $
              403,000




The accompanying notes are an
integral part of thesecondensedconsolidated financial
statements.




5
 Table of Contents




SINOHUB,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED 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”).  For the nine months ended September 30, 2009, approximately
93% 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 projects or as one-off electronic component
sales.




In
connection with the supply of such components and products, the Company also
provides supply chain management services from which we derive approximately 7%
of our revenues for the nine months ended September 30, 2009.




The
Company began another business activity in the third quarter of 2009 to source
and sell mobile phones to emerging markets (e.g. Vietnam, Malaysia, Indonesia
and India).   Revenue from this activity was insignificant in the
third quarter of 2009.





The
accompanying condensed consolidated financial statements of the Company were
prepared in accordance with accounting principles generally accepted in the
United States 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 Company’s audited consolidated financial statements and
accompanying notes for the years ended December 31, 2008 and 2007.




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, 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.  The vast majority of these shares were issued to a
consultant, 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, this investment
consultant also advised the Company directly in consummating a reverse merger
involving a NASD over-the-counter bulletin board shell
company.  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.




6
 Table of Contents




In June
2008, the Company approved a reverse stock split of 1 share for every 3.5 common
stock shares outstanding; outstanding common stock shares 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 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.  The
Company uses B2B Chips, Limited  to purchase and sell electronic
components, to manage mobile phone motherboard production and to engage in
mobile phone sales. 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.





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.




7
 Table of Contents




Critical
Accounting Policies




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.




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
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 security for 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.  On September
30, 2009, the Company reduced its bad debt provision from the prior quarter’s
rate of 4.5% to 2.7% of accounts receivable.  The reduction of
$492,000 was recorded in Selling, General and Administrative
Expense.  In the year-earlier period, 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.  No impairment of
long-lived assets was determined to exist as of September 30, 2009.




8
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Accrued Expense and Other
Liabilities





Accrued
expenses and other liabilities primarily consist of payroll and professional
services related accruals and customer deposits.





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” (ASC Topic
480-10) SFAS No 133, “Accounting for Derivative Instruments and Hedging
Activities” (ASC Topic 815) and EITF 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” (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 FSP EITF 00-19-2, “Accounting
for Registration Payment Arrangements.” (ASC Topic 825)





Fair Value of Financial
Instruments





SFAS No.
107, "Disclosure About 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.





SFAS
No. 157 “Fair Value
Measurements” (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.





SFAS
No. 157 (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. SFAS 157 (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
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.




9
 Table of Contents




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.” (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 SFAS 123R (ASC Topic 718)
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") (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.





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 services 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.  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.” (ASC Topic 740)  Under SFAS 109 (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.  Under SFAS 109 (ASC Topic 740), 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 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”) (ASC
Topic 830).  The subsidiaries of the Company’s functional currencies
are the Hong Kong Dollar (“HKD”) and Chinese Renminbi (“RMB”).  Under
SFAS No. 52 (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 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.





10
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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 is in accordance with the provisions of SFAS No. 128, "Earnings Per
Share." (ASC Topic 260)  SFAS 128 (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





Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC or Codification), “Generally
Accepted Accounting Principles - Overall” (ASC Topic 105-10). The Codification
established one source for all U.S. GAAP. The Codification supersedes, but does
not change, all then-existing non-SEC accounting and reporting standards.
Throughout this report, references provided to applicable portions of the
Codification also include reference to the original FASB standard (SFAS), staff
position (FSP) or consensus of the Emerging Issues Task Force
(EITF).





In
December 2008, the FASB issued Staff Position No. FAS 132(R)-1 “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”) (ASC
Topic 715-20-65). FSP FAS 132(R)-1 (ASC Topic 715-20-65) requires more detailed
disclosures about employers’ plan assets in a defined benefit pension or other
postretirement plan, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and inputs
and valuation techniques used to measure the fair value of plan assets. FSP FAS
132(R)-1 (ASC Topic 715-20-65) also requires, for fair value measurements using
significant unobservable inputs (Level 3), disclosure of the effect of the
measurements on changes in plan assets for the period. The disclosures about
plan assets required by FSP FAS 132(R)-1 (ASC Topic 715-20-65) must be provided
for fiscal years ending after December 15, 2009. As this pronouncement is only
disclosure-related, it will not have an impact on the financial position and
results of operations.





In June
2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140” (“SFAS 166”) (not part of the codification
yet).  SFAS 166 amends various provisions of SFAS No. 140
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities—a replacement of FASB Statement No. 125” by removing the
concept of a qualifying special-purpose entity and removes the exception from
applying FIN 46(R) to variable interest entities that are qualifying
special-purpose entities; limits the circumstances in which a transferor
derecognizes a portion or component of a financial asset; defines a
participating interest; requires a transferor to recognize and initially measure
at fair value all assets obtained and liabilities incurred as a result of a
transfer accounted for as a sale; and requires enhanced disclosure; among
others. SFAS 166 will be effective as of the beginning of each reporting
entity's first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. The Company does not expect the standard to
have any impact on the Company’s financial position.




11
 Table of Contents




In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation
No. 46(R)” (“SFAS 167”) (not part of the codification
yet). SFAS 167 amends FASB Interpretation No. 46 (Revised December
2003) “Consolidation of Variable Interest Entities—an interpretation of ARB
No. 51” (FIN 46(R)) to require an enterprise to perform an analysis to
determine whether the enterprise’s variable interest or interests give it a
controlling financial interest in a variable interest entity; to require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity; to eliminate the quantitative approach previously required for
determining the primary beneficiary of a variable interest entity; to add an
additional reconsideration event for determining whether an entity is a variable
interest entity when any changes in facts and circumstances occur such that
holders of the equity investment at risk, as a group, lose the power from voting
rights or similar rights of those investments to direct the activities of the
entity that most significantly impact the entity’s economic performance; and to
require enhanced disclosures that will provide users of financial statements
with more transparent information about an enterprise’s involvement in a
variable interest entity. SFAS 167 will be effective as of the beginning of each
reporting entity's first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The Company does not expect the
standard to have any impact on the Company’s financial position.





In August
2009, the FASB issued ASU No. 2009-05 “Measuring Liabilities at Fair
Value” (amendments to  ASC Topic 820, Fair Value Measurements and
Disclosures)” (“ASU 2009-05”)which amends Fair Value Measurements and
Disclosures – Overall (ASC Topic 820-10) to provide guidance on the fair value
measurement of liabilities. This update requires clarification for circumstances
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1) a valuation technique that uses either the
quoted price of the identical liability when traded as an asset or quoted prices
for similar liabilities or similar liabilities when traded as an asset; or 2)
another valuation technique that is consistent with the principles in ASC Topic
820 such as the income and market approach to valuation. The amendments in this
update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. This update further clarifies that if the fair value
of a liability is determined by reference to a quoted price in an active market
for an identical liability, that price would be considered a Level 1 measurement
in the fair value hierarchy. Similarly, if the identical liability has a quoted
price when traded as an asset in an active market, it is also a Level 1 fair
value measurement if no adjustments to the quoted price of the asset are
required. This update is effective for our fourth quarter 2009. The Company does
not expect this guidance to have a material impact on the Company's consolidated
financial statements.





In
October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue
Arrangements, (amendments to ASC Topic 605, Revenue Recognition)” (“ASU
2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement
using estimated selling prices of the delivered goods and services based on a
selling price hierarchy. The amendments eliminate the residual method of revenue
allocation and require revenue to be allocated using the relative selling price
method. ASU 2009-13 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with early adoption permitted.  Management
is currently evaluating the potential impact of ASU2009-13 on our financial
statements.





In
October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That Include
Software Elements, (amendments to ASC Topic 985, Software)” (“ASU
2009-14”). ASU 2009-14 removes tangible products from the scope of software
revenue guidance and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product are covered by
the scope of the software revenue guidance. ASU 2009-14 should be applied on a
prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. Management is currently evaluating the potential impact of ASU
2009-14 on our financial statements.





In
October, 2009, the FASB issued ASU 2009-15,“Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”(
amendments to ASC Topic 470, Debt)” (“ASU 2009-15”), and provides
guidance for accounting and reporting for own-share lending arrangements issued
in contemplation of a convertible debt issuance.  At the date of
issuance, a share-lending arrangement entered into on an entity’s own shares
should be measured at fair value in accordance with Topic 820 and recognized as
an issuance cost, with an offset to additional paid-in
capital.  Loaned shares are excluded from basic and diluted earnings
per share unless default of the share-lending arrangement occurs.  The
amendments also require several disclosures including a description and the
terms of the arrangement and the reason for entering into the
arrangement.  The effective dates of the amendments are dependent upon
the date the share-lending arrangement was entered into and include
retrospective application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15,
2009.   Management is currently evaluating the potential impact
of ASU 2009-15 on our financial statements.








2.           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.  This facility expired in 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 $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 and his spouse.  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 renewable each year and is available
      through September, 2010.





-
            Letter
      of credit facility with another bank in the amount of $6,400,000 to
      support its component sales business.  Restricted cash balances
      are required as security for draws against the facility and the bank
      requires guarantees from a customer, certain subsidiaries and certain of
      our shareholders, none of whom is receiving any consideration for such
      guarantees.  The facility is available through April,
      2010.




12
 Table of Contents


Borrowings
against these facilities at September 30, 2009 and December 31, 2008 were as
follows:
 
 September
      30,
              
              
              December
      31,2009
              
              
              2008Note
      payable to a bank, annual interest rate 5.54%, due January
      2009
              
              $
              -
              
              
              $
              121,000Note
      payable to a bank, annual interest rate 5.54%, due January
      2009
              
              
              -
              
              
              
              156,000Note
      payable to a bank, annual interest rate 6.19%, due February
      2009
              
              
              -
              
              
              
              954,000Note
      payable to a bank, annual interest rate 6.83%, due March
    2009
              
              
              -
              
              
              
              730,000Note
      payable to a bank, annual interest rate 5.54%, due March
    2009
              
              
              -
              
              
              
              162,000Note
      payable to a bank, annual interest rate 3.6%, due October
    2009
              
              
              299,000
              
              
              
              -Note
      payable to a bank, annual interest rate 3.6%, due October
    2009
              
              
              1,205,000
              
              
              
              -Note
      payable to a bank, annual interest rate 3.6%, due November
      2009
              
              
              445,000
              
              
              
              -Note
      payable to a bank, annual interest rate 3.6%, due November
      2009
              
              
              1,380,000
              
              
              
              -Note
      payable to a bank, annual interest rate 3.6%, due November
      2009
              
              
              230,000
              
              
              
              -Note
      payable to a bank, annual interest rate 5.54%, due December
      2009
              
              
              731,000
              
              
              
              -Note
      payable to a bank, annual interest rate 3.6%, due December
      2009
              
              
              1,204,000
              
              
              
              -Note
      payable to a bank, annual interest rate 3.6%, due December
      2009
              
              
              2,111,000
              
              
              
              -Note
      payable to a bank, annual interest rate 5.31%, due May
2010
              
              
              1,463,000
              
              
              
              -$
              9,068,000
              
              
              $
              2,213,000Less
      : current maturities
              
              
              -
              
              
              
              -Long
      -term portion
              
              $
              9,068,000
              
              
              $
              2,213,000


Interest
expense for the three months ended September 30, 2009 and 2008 was $20,000 and
$53,000, respectively. Interest expense for the nine months ended September 30,
2009 and 2008 was $83,000 and $181,000, respectively.








3.           COMMITMENTS
AND CONTINGENCIES




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 three months ended September 30, 2009 and 2008
was $108,000 and $84,000, respectively. Rent expense for the nine months ended
September 30, 2009 and 2008 was $318,000 and $174,000,
respectively.  At September 30, 2009, the Company had outstanding
commitments with respect to operating leases, which are due as
follows:





2009
            $87,0002010
            403,0002011
            251,0002012
            153,0002013
            89,000$983,000





Contingencies





The
Company accounts for loss contingencies in accordance with SFAS 5,“Accounting for Loss
Contingencies” and other related guidelines.  As of September 30,
2009, the Company did not have any loss contingencies.





4.           EARNINGS
PER SHARE





The
elements for calculation of earnings per share for three and nine months ended
September 30, 2009 and 2008 were as follows:





Three
      months ended September, 302009
            
            
            
            2008Net
      income for basic and diluted earnings per share
            
            $
            3,540,000
            
            
            $
            3,919,000Weighted
      average shares used in basic computation
            
            
            24,883,000
            
            
            
            21,021,000Effect
      of dilutive stock options and warrants
            
            
            1,377,000
            
            
            
            368,000Weighted
      average shares used in diluted computation
            
            
            26,260,000
            
            
            
            21,389,000Earnings
      per share:Basic
            
            $
            0.14
            
            
            $
            0.19Diluted
            
            $
            0.13
            
            
            $
            0.18




13
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Nine
      months ended September, 302009
              
              
              2008Net
      income for basic and diluted earnings per share
              
              $
              8,711,000
              
              
              $
              5,548,000Weighted
      average shares used in basic computation
              
              
              24,682,000
              
              
              
              19,503,000Effect
      of dilutive stock options and warrants
              
              
              781,000
              
              
              
              368,000Weighted
      average shares used in diluted computation
              
              
              25,463,000
              
              
              
              19,871,000Earnings
      per share:Basic
              
              $
              0.35
              
              
              $
              0.28Diluted
              
              $
              0.34
              
              
              $
              0.28





5.           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 are 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
January 2009 certain employees exercised their stock options to purchase an
aggregate of 78,809 shares of common stock for an aggregate price of
$13,000.





On August
6, 2009 we entered into and closed a Securities Purchase Agreement with
certain accredited investors in a private placement for an aggregate of 342,862
shares of common stock, which resulted in gross proceeds to the Company of
$1,200,000.





In July
2009, the Company granted 64,894 shares for services to employees at a fair
value of $184,299.




14
 Table of Contents




In August
2009, the Company issued 24,000 shares to third parties for consulting services
at a fair value of $60,000.





In August
2009, a stockholder exercised his warrant to purchase 44,117 shares of common
stock for $94,852.








6.
            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 September 30, 2009, stock options to purchase 1,321,678 shares
of common stock at an exercise price ranging from $0.10 to $4.36 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 in 2008 under the 2008 ISOP represent the closing price of the
Company’s common stock on the business day preceding the grant
date.  The exercise prices for options issued in 2009 under the 2008
ISOP represent the average of the closing price of the Company’s common stock
for the five business days 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 shares which were
convertible on the basis of one share of preferred stock for one share of common
stock issued were exchanged for common stocks 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%
            2.5%
            $0.09
      - $0.19The
      2008 ISOP1
      year
            83%
      - 121%
            0%
            2.5%
            $0.47
      - $2.64





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:  The expected life was determined based on the option’s
contractual term and employees’ expected early exercise and post-vesting
employment termination behavior.




15
 Table of Contents





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.





The
Company granted stock options to purchase an aggregate of 775,048 shares of
common stock during the third quarter of 2009.  The Company recognized
$272,000 in stock compensation expense for the three months ended September 30,
2009.   For the three months ended September 30, 2008, the stock
compensation expense was immaterial.  The Company recognized $298,000
and $6,000 in stock compensation expense for the nine months ended September 30,
2009 and 2008 respectively.  At September 30, 2009, unamortized
compensation cost related to stock options was $1,608,000.








The
following is a summary of the stock options activity:





Number
      of
              Options
              Outstanding
            
            
            Weighted-
              Average
              Exercise
              PriceBalance
      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
            
            
            $
            0.50Granted
            
            
            41,500
            
            
            $
            2.42Forfeited
            
            
            (76,082
            )
            
            
            -Exercised
            
            
            (78,809
            )
            
            $
            0.17Balance
      at June 30, 2009
            
            
            546,784
            
            
            $
            0.74Granted
            
            
            785,048
            
            
            $
            2.67Forfeited
            
            
            (10,154
            )
            
            
            -Exercised
            
            
            0
            
            
            
            -Balance
      at September 30, 2009
            
            
            1,321,678
            
            
            $
            1.87





The
following is a summary of the status of options outstanding at September 30,
2009:





Outstanding
      Options
            
            Exercisable
      OptionsExercise
      Price
            
            Number
            
            Average
              Remaining
              Contractual
              Life
            
            Average
              Exercise
              Price
            
            
            Number
            
            
            Weighted
              Average
              Exercise
      Price$0.09
            
            20,511
            
            5.8
      years
            
            $0.09
            
            
            19,888
            
            
            $0.09$0.12
            
            52,191
            
            7.5
      years
            
            $0.12
            
            
            33,066
            
            
            $0.12$0.19
            
            181,404
            
            8.2
      years
            
            $0.19
            
            
            82,626
            
            
            $0.19$1.02
            
            250,000
            
            9.0 years
            
            $1.02
            
            
            0
            
            
            $1.02$2.48
            
            2,524
            
            9.2
      years
            
            $2.48
            
            
            0
            
            
            $2.48$2.42
            
            40,000
            
            9.5
      years
            
            $2.42
            
            
            0
            
            
            $2.42$2.35
            
            107,914
            
            9.3
      years
            
            $2.35
            
            
            16,084
            
            
            $2.35$2.48
            
            59,347
            
            9.3
      years
            
            $2.48
            
            
            8,422
            
            
            $2.48$2.40
            
            281,787
            
            9.4
      years
            
            $2.40
            
            
            36,902
            
            
            $2.40$2.50
            
            206,000
            
            9.8
      years
            
            $2.50
            
            
            0
            
            
            $2.50$4.36
            
            14,000
            
            9.9
      years
            
            $4.36
            
            
            0
            
            
            $4.36$3.92
            
            106,000
            
            10
      years
            
            $3.92
            
            
            0
            
            
            $3.92Total
            
            1,321,678
            
            
            
            
            
            
            
            196,988
            
            
            $0.86







7.           RELATED
PARTY TRANSACTIONS





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.





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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 in 2008.  During the three months ended September
30, 2009 and 2008, the Company sold goods totaling approximately $Nil and $Nil
million respectively to the related company and purchased goods totaling
approximately $Nil and $1.2 million respectively from the related company. 
During the nine months ended September 30, 2009 and 2008, the Company sold goods
totaling approximately $Nil and $0.7 million respectively to the related company
and purchased goods totaling approximately $Nil and $3.0 million respectively
from the related company.  At September 30, 2009 and December 31,
2008, there was no amount outstanding between the Company and the related
company.





A PRC
property owned by the Company’s Chief Executive Officer and his spouse is
pledged to a bank to secure banking facilities for the Company.





The
Company’s President and his spouse provided guarantees to a bank for banking
facilities extended to the Company.





The
Company’s Chief Financial Officer provided a guarantee to a bank for banking
facilities extended to the Company.





On April
13, 2009, the Company entered into a registration rights agreement with 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 (the "Former Preferred Holders") providing
them with demand and piggyback registration rights with respect to such shares
on the condition that such rights will not be exercisable for a period of 180
days following the date on which the Company’s first S-1 became
effective.  The S-1 became effective on May 12, 2009. The Former
Preferred Holders include, among others, the Company's CEO, Henry T. Cochran,
and Jan Rejbo, who owns approximately 18% of the Company's outstanding stock.
 Prior to the reverse merger, the Former Preferred Holders were entitled to
piggy back and demand registration rights with respect to the shares of SinoHub
International common stock into which the shares of SinoHub International's
Series A, B and C Convertible Preferred Stock was convertible pursuant to the
terms of certain Stock Purchase Agreements entered into among SinoHub
International and such holders.





Prior to
the execution of such registration rights agreement, on March 6, 2009, the
Company entered a waiver agreement with the respect to the separate registration
rights agreement between the Company and the holders of common stock purchased
in the Company's September 2008 private placement pursuant to which such holders
consented to the inclusion in the S-1 that became effective on May 12, 2009 of
the shares held by the Former Preferred Holders, and by certain other
stockholders (the "Additional Stockholders"), including Lorikeet, Inc., a
company beneficially owned by our former CEO Steven White.  The Additional
Stockholders are entitled to piggyback registration rights under the terms of
the Merger Agreement entered into in connection with SinoHub's reverse merger,
and in accordance with such rights, the applicable shares owned by the
Additional Stockholders were registered for resale in the S-1.








8.           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 $1.3 million at September 30, 2009 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.





17
 Table of Contents




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 the three months ended
September 30, 2009 and 2008.  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 2009 and 2008.  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 were subject to special tax rates of 19% in 2009
and 18% in 2008.





Income
tax expense for the three months ended September 30, 2009 and 2008 is summarized
as follows:







2009
            
            2008Current
            
            $
            1,134,000
            
            
            $
            1,068,000Deferred
            
            
            -
            
            
            
            -$
            1,134,000
            
            
            $
            1,068,000




Income
tax expense for the nine months ended September 30, 2009 and 2008 is summarized
as follows:





2009
            
            2008Current
            
            $
            2,616,000
            
            
            $
            1,410,000Deferred
            
            
            -
            
            
            
            -$
            2,616,000
            
            
            $
            1,410,000








9.           CONCENTRATIONS
AND RISKS





99% of
the Company’s assets are located in China.





During
three months ended September 30, 2009 and 2008, 8% and 0% of revenues were
derived from sales made outside of China, respectively. During nine months ended
September 30, 2009 and 2008, 9% and 0% of revenues were derived from sales made
outside of China, respectively.





Major
customers and sales to those customers as a percentage of total sales were as
follows:





Customer
      A
            
            Customer
      BFor
      three months endedSeptember
      30, 2009
            
            8%
            
            5%September
      30, 2008
            
            12%
            
            10%For
      nine months ended
            
            Customer
      A
            
            Customer
      BSeptember
      30, 2009
            
            9%
            
            6%September
      30, 2008
            
            12%
            
            10%








As of
September 30, 2009, accounts receivable from those customers were approximately
$3.0 million.




18
 Table of Contents




Major
suppliers and purchases from those suppliers as a percentage of total purchases
were as follows:





Vendor
      A
            
            Vendor
      BFor
      three months endedSeptember
      30, 2009
            
            8%
            
            6%September
      30, 2008
            
            8%
            
            6%For
      nine months ended
            
            Vendor
      A
            
            Vendor
      BSeptember
      30, 2009
            
            8%
            
            7%September
      30, 2008
            
            9%
            
            7%








As of
September 30, 2009, accounts payable to those suppliers were approximately $0.5
million.








10.           SUBSEQUENT
EVENTS





In
October 2009, the Company closed a private placement of 407,828 common shares
with two individual investors and an individual retirement account of one of the
investors yielding aggregate gross proceeds to the Company of $1,427,398 ($3.50
per share).





In
October 2009, the Company filed a registration statement on Form S-3 to register
for resale the shares of common stock owned by the Former Preferred Holders, all
other parties to the registration rights agreement with the Former Preferred
Holders and certain other individuals with registration rights.  The
registration statement was declared effective by the Securities and Exchange
Commission on November 6, 2009.





On
November 11, 2009, the Company exercised its right to call the warrants to
purchase an aggregate of  927,963 shares of common stock at an
exercise price of $2.15 per share initially issued in a private placement on
September 10, 2009 and then outstanding.  If any warrant are not
exercised by 5:30 PM New York City time on November 25, 2009 it will
automatically be and become void and of no value with no consideration payable
to the holder from the Company for the voided warrant.











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-Qand 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
second amended Annual Report on Form 10-K for the year ended December 31,
2008, which was filed with the Securities and Exchange Commission on May 12,
2009.  This Quarterly Report on Form 10-Q 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. Factors that could cause or contribute to such differences include,
but are not limited to, those identified below, and those discussed in the
section titled “Risk Factors,” set forth in Exhibit 99.1 to our Form 8-K , which
was filed with the Securities and Exchange Commission on September 28,
2009..   The forward-looking statements in this Quarterly Report
on Form 10-Q represent our views as of the date of this Quarterly Report on Form
10-Q. 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.   All amounts are expressed in United
States dollars.





19
 Table of Contents




RESULTS
OF OPERATIONS FOR THREE AND NINE MONTHS ENDED


SEPTEMBER
30, 2009 COMPARED TO SEPTEMBER 30, 2008











Overall
Results





The
Company reported net income for the three months ended September 30, 2009 of
$3.5 million, a 10% decrease compared to $3.9 million in the year-earlier
period.  For the nine months ended September 30, 2009, the Company
reported net income of $8.7 million, a 58% increase over the $5.5 million
reported in the same period in 2008.








Net
Sales





Net sales
for three months and nine months ended September 30, 2009 were $36.2 million and
$85.6 million respectively, up 28% and 62% from $28.2 million and $53.0 million
recorded respectively in the year-earlier periods.  The Company
reports net sales on the basis of two business categories, supply chain
management services and electronic component sales(including sales of mobile
phones to emerging markets, an activity commenced in the third quarter of 2009
which did not generate significant revenues in the quarter ).  In
three and nine months ended September 30, 2009, net sales of supply chain
management services increased 46% and 146% to $1.9 million and $5.9 million from
$1.3 million and $2.4 million respectively in the year-earlier
periods.  These increases were primarily based on the addition of
several large mobile phone design house customers who were attracted to SinoHub
by our online software system, SinoHub SCM.  In three and nine months
ended September 30, 2009, net sales of electronic components increased 28% and
58% to $34.3 million and $79.7 million from $26.9 million and $50.6 million
respectively in the year-earlier periods.  We believe that the main
driving force behind these increases 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
bill of material management and bar code handling, that made it easier for
manufacturer customers to operate their supply chains.








Gross Profit





The
Company recorded gross profit of $6.4 million and $16.0 million in three and
nine months ended September 30, 2009, compared with $6.1 million and $9.9
million respectively in the year-earlier periods. The gross margin in the three
months ended September 30, 2008 was abnormally high because the Company recorded
some unusually profitable electronic component sales business in the
quarter.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses were $1.1 million and $3.3 million in three
and nine months ended September 30, 2009.  In the year-earlier
periods, they were $954,000 and $2.0 million respectively.  These
expenses were 3.0% and 3.8% of revenues in three and nine months ended September
30, 2009 compared to 3.4% and 3.8% in the year-earlier
periods.  Selling, general and administrative expenses in the three
months ended September 30, 2009 were reduced by $492,000 because of the
reduction in the bad debt reserve.





Income
from Operations





The
Company recorded income from operations of $4.7 million and $11.4 million in
three and nine months ended September 30, 2009, as compared with income from
operations of $5.0 million and $7.1 million respectively in the year-earlier
periods.








Income
Taxes





The
Company’s effective tax rate was estimated at 24% and 23% in three and nine
months ended September 30, 2009 compared to 21% and 20% respectively in the
year-earlier periods. The statutory tax rate in the PRC of 25% in 2009 and 2008
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 is 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.





20
 Table of Contents





Foreign
Currency Translation Gain and Comprehensive Net Income





The
Company reported foreign currency translation gains of $31,000 and $63,000 in
three and nine months ended September 30, 2009, compared with foreign currency
translation gains of $216,000 and $680,000 respectively in the year-earlier
periods.  The reason for the large difference between the gains in
2009 and those in 2008 was that the government of China chose to maintain a very
stable exchange rate between Renminbi and US Dollars in the first nine months of
2009, unlike the same period in 2008.  Comprehensive net income (net income
plus foreign currency translation gains) was $3.6 million and $8.8 million in
three and nine months ended September 30, 2009, compared with $4.1 million and
$6.2 million respectively in the year-earlier periods.







CONSOLIDATED
FINANCIAL CONDITION AND LIQUIDITY





Liquidity
and Capital Resources





The
Company’s strategic plans include continued expansion and support of our SCM
Platform, our electronic component purchasing (ECP) platform.  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 decreased with the private
financing we closed on August 6, 2009 for net proceeds of $1.2 million since
this transaction was done on a direct basis with no investment banking
costs.  Our cost of capital with China Construction Bank, Industrial
and Commercial Bank of China, and Hongzhou Bank was approximately 4% at
September 30, 2009.   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 to the
same extent as the US and European banks.





We
believe that SinoHub’s ECP business (procurement-fulfillment and electronic
component purchasing and sales) 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.  We may receive up to
approximately $2,000,000 from the exercise of outstanding warrants in the fourth
quarter of 2009 which must be exercised by November 25, 2009 or they will
expire.  Due to the risk factors discussed in this document or in our
other filings with the Securities and Exchange Commission referenced herein
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.





We do not
believe that our recently commenced business of sourcing and selling mobile
phones to emerging markets will require additional capital for
expansion.





The
Company advances money to procurement-fulfillment customers to purchase
electronic components.  We only purchase standard components which are
readily saleable.  When a manufacturer customer give us a
procurement-fulfillment project, the customer inputs a bill of materials with
their supplier and inputs 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 60-day payment terms.  The terms
begins 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, with our cost of borrowing of approximately 0.33% per month in nine
months ended September 30, 2009.  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.




21
 Table of Contents




Cash
Flows from Operating Activities





The net
amount of cash used in the Company’s operating activities during nine months
ended September 30, 2009 was $3.2 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.  For nine
months ended September 30, 2008, net cash used in operating activities was $5.6
million, which primarily included earnings from operations that were more than
offset by investments in accounts receivable and reducing the accounts
payable.





Cash
Flows from Investing Activities





The net
amount of cash used in investing activities during nine months ended September
30, 2009 was $4.2 million primarily the result of restricted cash
buildup.  For nine months ended September 30, 2008, investing
activities generated $5.1 million primarily the result of releasing restricted
cash.





Cash
Flows from Financing Activities





The net
amount of cash provided by financing activities during nine months ended
September 30, 2009 was $8.3 million primarily the result of bank
borrowings.  For nine months ended September 30, 2008, the net amount
of cash generated by financing activities was $4.0 million primarily the result
of a private placement stock offering that was offset by repayment 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).





22
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Item
4T.  Controls and Procedures





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.  The term “disclosure
controls and procedures” means controls and other procedures that are designed
to ensure that information required to be disclosed by the Company in the
reports that it 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.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its CEO and CFO, as appropriate, to allow timely decisions to be made
regarding required disclosure.  Although the Company's disclosure
controls and procedures were designed by management, with the participation of
our CEO and CFO, to provide reasonable assurance of achieving these objectives,
it should be noted that any system of controls and procedures, however well
designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the system are met and that management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.  Based upon the Company’s evaluation as of
the end of the period covered by this report, the Company’s CEO and CFO
concluded that the Company’s disclosure controls and procedures were
effective.





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.














PART
II - OTHER INFORMATION





Item
1.  Legal Proceedings





None.








Item
1A.  Risk Factors





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.











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





In July
2009 we issued 12,000 shares of our common stock to each of CEOCast, Inc. and
PondelWilkinson, Inc. for services rendered.  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 CEOCast’s and PondelWilkinson’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 shares were issued for services we received no
cash proceeds for the issuance of the shares.




23
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On August
6, 2009 we entered into and closed a Securities Purchase Agreement with
certain accredited investors named therein (the “Investors”) in a private
offering (the “Offering”) for an aggregate of (i) 342,862 shares of common
stock, which resulted in gross proceeds to the Company of
$1,200,000.  The common stock was offered and sold solely to
“accredited investors” in reliance on the exemption from registration afforded
by Rule 506 of Regulation D.  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..  We used the proceeds of the
sale for working capital and other general corporate purposes.





On August
28, 2009, a stockholder exercised his warrant to purchase 44,117 shares of
common stock for $94,852.  We initially issued the warrant to the
stockholder on September 10, 2008 as part of a private placement of common stock
and warrants made in reliance upon the exemption from registration afforded by
Rule 506 of Regulation D. The warrant was exercisable at $2.15 per share of the
Company’s common stock.  The exercise of the warrant was made in
reliance on the exemption from registration afforded by Section 4(2) of the
Securities Act for transactions not involving a public
offering.  Neither the Company nor anyone acting on its behalf offered
or sold these securities by any form of general solicitation or general
advertising and no commission was paid in connection with the issuance of the
shares.  We used the proceeds of the warrant exercise for working
capital and other general corporate purposes.







Item
3.  Defaults Upon Senior Securities





None.








Item
4.  Submission of Matters to a Vote of Security
Holders





None.








Item
5.  Other Information





On July
21, 2009, our board of directors authorized and approved:





(i)
            restricted
      stock award agreements between the Company and each of Henry T. Cochran,
      Lei Xia and Li De Hai pursuant to which Messrs. Cochran, Xia and De Hai
      where issued 24,468, 21,277 and 19,149 shares of restricted common
      stock.  The shares of restricted common stock were awarded under
      the Company’s Amended and Restated 2008 Stock Plan (the “Plan”) and shall
      vest on December 31, 2009.  A copy of the Plan, as filed as
      Appendix A to the Company’s definitive proxy statement on Schedule 14A
      relating to the Company’s annual meeting of stockholders on June 18, 2009
      and approved thereat, is filed as Exhibit 10.1 to this Quarterly Report on
      Form 10-Q.  A copy of a form of restricted stock award agreement
      between the Company and each of Messrs. Cochran, Xia and De Hai entered
      into on July 27, 2009 is filed as Exhibit 10.2 to this Quarterly Report on
      Form 10-Q.





(ii)
            amended
      forms of stock option agreements for awards under the Plan to U.S. and
      Chinese persons, including executive officers, copies of which are filed
      as Exhibits 10.3 and 10.4 to this Quarterly Report on Form
      10-Q





(iii)
            non-qualified
      stock option agreements between the Company and each of the non-employee
      members of the board of directors to purchase the number of shares of
      Common Stock set forth next to their respective names below at the
      exercise price set forth next to their respective names with each such
      option expiring on the fifth anniversary of the commencement date set
      forth below and vesting at a rate of 5% of the aggregate number of shares
      subject to such option at the end of every three month period from such
      commencement date.





24
 Table of Contents




Optionee
            Options
            Exercise
      Price
            Commencement
      DateCharles
      T. Kimball
            107,914
            $2.35
            January
      1, 2009Will
      Wang Graylin
            59,347
            $2.48
            January
      14, 2009Richard
      L. King
            58,651
            $2.40
            February
      3, 2009Robert
      S. Torino
            117,440
            $2.40
            February
      3, 2009Afshin
      Yazdian
            105,696
            $2.40
            February
      3, 2009








Disclosure
of the matters described in paragraphs (i) and (ii) above is being provided
herein in lieu of in a Current Report on Form 8-K under Item
5.02(e).  Disclosure of the matters described in paragraph (iii) above
is being provided herein in lieu of in a Current Report on Form 8-K under Item
8.01.








25
 Table of Contents




Item
6.  Exhibits





Exhibit No.
            
            Title
      of Document10.1
            
            SinoHub,
      Inc. 2008 Stock Plan, as Amended and Restated.10.2
            
            Form
      of Restricted Stock Award Agreement.10.3
            
            Form
      of Stock Option Award Agreement (U.S.).10.4
            
            Form
      of Stock Option Award Agreement (China).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
      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)








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










26
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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:  November
      16, 2009
            By:
            /s/
      Henry T. CochranHenry
      T. CochranChief
      Executive Officer











Date: 
      November 16, 2009
            By:
            /s/
      Li De HaiLi
      De HaiChief
      Financial Officer
              (Principal
      Financial and Accounting Officer)